ADB Surveys Asian Developing Country Prospects

• Pages: 184

Page 184

The substantial decline in export growth in East and Southeast Asia served as the prelude to "the worst year the region has seen since its development began accelerating three decades ago," according to the Asian Development Outlook, 1998. The report, which focuses on the economic progress and prospects of the Asian Development Bank's (ADB) developing country members, notes that currency and financial crises followed quickly on the heels of this export slowdown.

In 1997, the growth rate dropped to 6.1 percent; inflation declined to 5.6 percent, and the current account situation improved to a deficit of less than 1 percent of GDP in 1997. But these average figures in 1997 mask widely divergent experiences within the region and do not reflect the full impact of the Asian crisis on these economies (see chart for overall trends and projections). Given the significance of the financial turmoil for many of these economies, the study provides an analysis of the evolution, causes, and impact of the crisis and offers policy options and lessons.

In a section on population and development, the report asks whether the crisis is not at least partially attributable to declining competitiveness. While adjustment to changing international conditions has always been necessary, in the present context, Mitsuo Sato, President of the ADB, stresses, "such adjustment is imperative." To underscore this point, the study gives greater weight to policy and development issues in its country profiles.

Risks and Uncertainties

For Indonesia, Korea, and Thailand, failure to address the crisis that has left their economies in disarray would not only exacerbate their problems, the report warns, but also undermine the growth momentum in the rest of the world. "A full commitment to economic and policy reform is a prerequisite for early recovery and sustained future growth," it adds, noting that in 1998 government actions, particularly in Indonesia and Korea, to "deal with the private sector's maturing large external debt will inevitably determine these countries' performance."

There is important work to be done elsewhere as well. The report casts a wary eye on the level of commitment, the degree of implementation, and the speed with which the reform process is proceeding in South Asia and the Central Asian republics. The study also notes the likelihood of continued pressure on the Hong Kong dollar...