by Piyaporn Hawiset
The World Bank warned on April 26, 1999 that the Asian economic crisis was far from over. It said financial markets were too optimistic about the pace of recovery.
Despite the fact many Asian stock markets had soared in March and April and Hong Kong's Hang Seng index hitting a 17-month high much still depended on macro-economic developments over the next 12 months, the bank said. The comments contrasted with the International Monetary Fund's assessment the week before that Asia was poised to make a gradual recovery. This would suggest that the world's economists perhaps do not know everything they are talking about. Another example of this is that although everyone was tauting Asia's economic tigers no one was sounding warnings of the impending crash until it hit in July 1997. Those few who did, interestingly, were not economists, but their comments were dismissed as crackpot statements or just ignorant cit-chat of the unwashed who had little understanding of economics. Yet it did happen and the world is floundering in am economic situation that does not seem to bring itself to a more positive and optimistic conclusion.
World Bank vice-president for East Asia and the Pacific Jean-Michel Severino said several countries still faced huge challenges to return their economies to sustainable growth.
"It is fine to say there is financial stability in East Asia, and we see it through a lot of financial indicators, but the recovery is extremely fragile," he said. "Exports are growing very slowly, and domestic demand is very fragile ... largely because of the evolution of world demand."
IMF managing director Michel Camdessus agreed that the social impact of the crisis would have a prolonged effect. He said it was almost impossible to quantify, "particularly in Asia, where the concept of social safety nets is - let's put this gently - unusual, and there is a lack of any true sense of altruism in those cultures". But he admitted that in terms of the financial crisis, the worst effects seemed to be over.
Mr Severino cautioned, however, that the fragility of the recovery was being compounded by political and social unrest in some countries. He said that in Thailand, Korea and Malaysia, conditions were likely to be even worse than in 1998, despite what certain indicators might show.
"Financial and corporate restructuring is also proceeding at a relatively slow pace, which is understandable given the magnitude of everything that needs to be done ... but this impacts the pace of growth. In 1999 we expect growth of around zero ... with some countries doing a little bit better, and some doing worse. Indonesia will certainly be on the wrong side."
Mr Severino said financial markets appeared to be making a significant assumption about the prospects for the region.
"For the crisis countries, the market is making an assumption that might prove to be a big one," he said. "There is huge work still to be done."
He said much of the region's expected financial recovery depended on structural reforms being pursued on the mainland and Vietnam, "which [both] continue to play a very important part in the region's production and demand."
"They have to continue their reform programs, and so have a very important part in terms of their impact on progress for the whole region."
Mr Severino said he believed the medium-term prospects for the region were quite healthy, and that the same economic fundamentals that had first propelled Asia before the crisis, remained intact. The World Bank was confident Beijing would embrace the key structural reforms needed in the state enterprise and financial sector, and that it would maintain the value of the yuan.
However, it said the devastation wreaked by the financial crisis had damaged governments' ability to pull their population out of poverty. Until 1997, East and Southeast Asia were forecast to cut poverty by half by 2015. But only the mainland and South Asia were predicted to achieve this goal.