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Asian bank economist sees growth, more challenges
Monday, April 26, 1999
By BRUCE RAMSEY
East Asia is coming out of its recession, but it will be quite a while before it returns to growth rates of 7 percent, the chief economist of the Asian Development Bank says.
The bank is owned by 57 member governments, including the United States, and is based in Manila. Its economist, Korean-born Jungsoo Lee, spoke yesterday to a Seattle luncheon sponsored by the National Center for APEC.
Lee said Asian countries have made major steps in reducing financial risk by closing or shoring up sick banks, converting debt from short term to long term and moving to floating currencies, which move
more in sync with the yen than the
dollar.
He said the deeper problem, "too-close ties between government, business and banks," is not yet solved, but is widely recognized.
Reform in industrial companies "is not as satisfactory," he said.
South Korea, his home country, is making the fastest comeback. Its economy, which shrank 5.5 percent last year, should grow by 2 percent this year. Restructuring of the big chaebols, however, lags; they face a big task of raising equity and adopting more revealing accounting systems.
Hong Kong's economy shrank by 5.1 percent in 1998 as its property prices, the highest in the region, plunged. Yields are still low, and the bank's "Outlook 1999" says prices may have further to fall. Hong Kong's economy is forecast to decline 0.5 percent this year.
Malaysia, down 6.2 percent last year, is forecast to rise 0.7 percent, Lee said, "if the political situation does not deteriorate." Malaysia has been widely criticized for jailing its finance minister, Anwar Ibrahim, on lurid charges, and for imposing capital controls. The controls have been eased, but Anwar, a figure with a political following, has been convicted and sentenced to prison.
China grew at 7.8 percent last year and is forecast to grow another 7 percent. The growth will be entirely internal, Lee said; exports and imports are both falling. (A recent report in the Chinese-language World Journal newspaper says that Chinese airlines have a surplus of aircraft and have leased out planes to Nepal and Mexico.)
The bank's "Outlook 1999," produced under Lee's direction, argues that orthodox financial policy has been the correct approach. It supports the conditions put on International Monetary Fund loans, saying they were "intrusive but necessary." It also argues that IMF loans have not created an unacceptable "moral hazard" by bailing out bad investments.
"Critics have exaggerated the moral hazard argument," the report says. "Typical investors in Asia have seen the value of their investments reduced to a third or a quarter of their previous value. Second, it is hard to believe that governments relish the tough conditions the IMF imposes on them. Third, the costs of not intervening in Asia's crisis would have been extraordinarily high. Investors would have fled even more quickly, countries would have been forced to default on their debts, and the region (and perhaps the world) would have been plunged into an even more serious crisis."
P-I reporter Bruce Ramsey can be reached at 206-448-8391 or bruceramsey@seattle-pi.com
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