The World Bank said Monday that East Asian economies could slip back into another recession if lingering weaknesses in the banking and corporate sectors continue to be ignored.
In a semiannual report, the bank said the region’s recovery from the 1997-1998 currency and financial crisis “continues at an impressive pace,” with the region posting 6.9% growth in 1999 and on target to do even better in 2000.
But it also cautioned that the recovery could be derailed should structural reforms, especially in the banking and corporate sectors, not be followed through.
The Asian Development Bank also predicted Monday that economic growth this year in developing Asia will average 6.9%, an upward revision from its earlier projection of 6.2% growth.
The Manila-based bank also said gross domestic product growth in the region will moderate to 6.5% in 2001.
“The upward revision is based on stronger domestic demand and sustained growth in external demand,” the Asian Development Outlook 2000 Update report said.
The World Bank report said, “Threats to growth, while lower than six months ago, are still present. They continue to emanate from slow or imperfect policy initiatives and from an always possible global or regional downturn.”
For the five crisis-hit East Asian economies — Indonesia, Malaysia, the Philippines, South Korea and Thailand — to secure sustained growth down the track, it pointed to the need to tackle the domestic debt overhang in banks and corporations, among other problems.
The report said persistent effort will be required to restructure loans, take losses, and seek out new capital for banks and corporations.
Masahiro Kawai, the bank’s chief economist for East Asia and the Pacific, said Thailand and Indonesia still have problems in either or both of the two sectors that have hampered their growth.
“In Thailand, there remain some problems in its financial sector. For Indonesia, reforms in the banking and corporate sectors are the remaining challenges along with uncertainty over the future course of its politics,” he said.
Meanwhile, the World Bank study report also said soaring crude oil prices are a source of growing concern for East Asia, and economies worldwide.
The ADB report said that South Korea, which showed a strong GDP growth of 11.2% in the first half of the year due to resurgent domestic private demand, is likely to lead the continued recovery of economies devastated by the Asian financial crisis.
It will take another year for Thailand’s per capita GDP to reach pre-crisis levels, the report said, adding that it may take even longer for Indonesia, where interwoven economic and political uncertainties are hindering recovery.
Malaysia posted growth of over 10.3% during the first half of this year, mainly due to improved external demand for manufactured goods — especially electronics products and parts — and buoyant private consumer demand, the report said.
The Philippines grew 3.9% in the first half, reflecting an upturn in the agriculture sector and continued growth in the service sector.
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