by Piyaporn Hawiset
Economies in Southeast Asia could grow 0.8 percent in 1999 after a sharp decline in the previous year, but the outlook for 1999 still depends on the fate of reform initiatives and the mood of world capital market, said the Asian Development Bank (ADB) on April 20, 1999.
"After 4 percent growth in 1997, the region contracted by about 7 percent, underperforming even the most pessimistic expectations for the year (of 1998)," the bank said in its Asian Development Outlook for 1999 released in Manila. It said that more than 30 billion U.S. dollars fled Indonesia, Malaysia, the Philippines, and Thailand in 1997 and 1998. Indonesia continued to bear the brunt of the crisis as exports and investment collapsed, reducing output by 13.7 percent in 1998, the bank said. Thailand implemented a series of financial reforms, but its gross domestic product (GDP) still suffered an 8 percent contraction, it said. Malaysia, the bank said, at first "appeared to avoid the worst effects of the crisis, but capital outflows late in the year brought growth down to minus 6.2 percent. In the Philippines, tight monetary policy to defend the peso constrained investment demand, while poor agricultural performance caused by bad weather limited growth from the supply side, it said.
"However, the Philippines' relatively low level of financial leverage, about 60 percent of GDP, and continued strong export demand helped save it from some of the worst effects of the year," the bank said.
The bank said growth in Laos and Vietnam slowed from the previous year, as the former was hurt by the baht's depreciation and the drop-off in Thai investment, and the latter suffered from a fall in foreign direct investment from newly industrialized economies. Laos' real GDP growth fell to about 4 percent in 1998 from 6.9 percent in 1997, while Vietnam's from 8.2 percent in 1997 to 4 percent in 1998, it said.
According to the bank's prediction, this year's GDP growth will be zero percent in Indonesia and Thailand, 0.7 percent in Malaysia, and 2.4 percent in the Philippines. Vietnam's economy will increase 3.7 percent this year, but Laos' economic performance could be better than last year's if its government is able to reduce the inflation rate and stabilize the exchange rate, the bank said.
On inflation in the region, the Manila-based bank said inflation in 1998 increased fourfold from the previous year, driven by currency devaluations and in some cases, food price increases arising from the impact of the El Nino drought. But with the exception of Indonesia, Cambodia and Laos, Southeast Asian economies will experience single-digit inflation, it said.
As Southeast Asian economies have a high level of non-performing loans, the bank said, restructuring and recapitalization of banks and firms will be high on the priority list.
The bank also said that even though fresh capital from several donor countries and multilateral institutions will be disbursed in 1999, the sharp reduction in the availability of private capital will keep the overall supply of foreign exchange to the region well below pre-crisis levels. Reduced domestic demand will bring continued positive improvements to trade and current account balance in the region in 1999, it said.
"The (region's economic) outlook for 1999 depends on the fate of current reform initiatives and the mood of world capital markets," it said.