November 22, 2002

ADB: Heightened Risks Will Slow Asian Economic Recovery

Recovery of crisis-hit countries in East Asia will not be derailed, but will be significantly slower this year due to increased downside risks, the Asian Development Bank (ADB) said Monday.

Since the ADB issued a recovery report on the five countries hardest hit by the 1997-98 financial crisis -- Indonesia, Republic of Korea, Malaysia, the Philippines and Thailand, external risks have heightened due to the faster-than-expected slowdown in the U. S. and global economies accompanied by a rapidly deceased demand for electronics, the Manila-based ADB said in a report.

It forecast that the average gross domestic product (GDP) growth of the five countries for 2001 could decline to 4 percent from an estimated 7.1 percent in the previous year. The five countries recorded an average GDP growth of 6.9 percent in 1999.

The situation is expected to improve in 2002 when the affected countries will probably grow by about 5 percent, provided that the U.S. economy and electronics exports pick up, it said.

The ADB estimates that the slowdown in the global economy and the electronics industry in 2001, through the export channel, could reduce Malaysia's growth rate by 2.4-2.9 percent compared to 2000, Republic of Korea by 1.5-2.2 percent, the Philippines by 0.9- 1.6 percent, and Indonesia and Thailand by 0.6-1.6 percent respectively.

Exports, especially electronics exports, had driven the recovery in the affected countries. A sharp fall in electronics demand would hurt Malaysia and the Philippines most, whose electronics export account for more than 50 percent of their total exports.

"How will this deteriorating external environment affect recovery prospects in East Asia? Our estimates suggest that the recovery will be slower, but not derailed. More certainly, another crisis will not occur, and 2002 should be a better year,” Yoshihiro Iwasaki, head of the ADB Regional Economic Monitoring Unit, said at a press briefing.

He said the five countries are now much less vulnerable as there is reduced financial sector vulnerability, strengthened external payment positions, greater coherence in macroeconomic policy frameworks, and more competitive and flexible exchange rates.

However, the ADB report said that while progress has been made in bank and corporate restructuring in the region, much remains to be done. Nonperforming loan ratios continued to fall in most affected countries, but a substantial part of the bad loan reduction reflects its transfer to specialized asset management companies, where the problem loans await resolution through disposal or workouts, it said.

While political risks have receded in the Philippines and Thailand, investment confidence has yet to be fully restored, said the report.

(Xinhua 03/20/2001)

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