Testing times for Asian tigers

ALAN Greenspan’s implicit promise not to let the US economic slowdown skid into something really nasty cannot be delivered too soon for much of Asia.

Stock markets have been tumbling from Bombay to Taipei. The Morgan Stanley Capital International Index (MSCI) Far East ex -Japan reflects a fall of more than one third in share prices across the region.

The storm clouds have been gathering for months.

Almost every country put reform firmly on the backburner this year, seduced by the false confidence of exports showing huge gains off a low base, and translated into over optimistic forward estimates of GDP.

Nowhere has any credible attempt been made to clean up an often-corrupt banking sector, and to rein in powerful business cartels.

The IMF recently highlighted the scale of looming problems in a report showing that telecommunication and IT equipment companies accounted for well over half the market capitalisation of Asian stock markets.

It only took a sneeze from the US to induce a severe head cold among manufacturers and investors.

A sharp reversal of the chips with everything menu of American importers has come at a bad time.

The relatively new and unwelcome development has been political uncertainty in a number of countries.

Taiwan’s problems began when president Chen Shuibian high-handedly cancelled a partly built nuclear power station project.

That provided the long-ruling Kuomintang party with the excuse to try to lever Chen out of power before he has finished a year of his term.

The soap opera impeachment trial of president Joseph Estrada in the Philippines is a distraction from the serious social and economic problems facing that country.

Thailand’s 62 million people are about to go to the polls, with Prime Minister Chuan Leekpai at risk of being unhorsed by the moneybags of the colourful Thaksin Shinawatra and his newly minted Thai Rak Thai party.

As for Indonesia, it is hard to know where to start.

The Attorney General’s office recently released Bank of Indonesia governor Sjahril Sabirin from house arrest.

Sabirin, who still faces a trial connected to the Bank Bali scandal, promptly went back to work at the central bank.

He is on a collision course with President Abdurrahman Wahid who wants him out.

Well known vested interests are sabotaging halfhearted attempts to clean up the banking and corporate morass.

Clearly Asia is facing a different sort of crisis in the Chinese year of the snake.

The balance of payments in most countries is in reasonable shape.

There has been no 1998-style flight of capital, because little had been coming in.

Instead, growth is likely to stumble, consumers will zip up their billfolds again, and currencies will be under pressure, bringing debt problems swept under the carpet back into view.

These are not the best of tidings for Australia in 2001, which will be a year in which exports will have to pick up the slack from falling domestic demand if GDP is to expand at 3.5-pr cent.

However, at least Asian growth remains positive, and a surprise on the upside could conceivably come from potential regional powerhouses Japan and China.

The days of Japanese Prime Minister Yoshiro Mori are surely numbered. The financial markets were under whelmed by his recent cabinet reshuffle.

The gigantic fiscal splurge on wasteful and corrupt public works spending overseen by the ruling LDP has been an abject failure.

US investors were prepared to buy the Japanese restructuring story that did not materialise this year. They would return if they were given any encouragement.

Although the 8 per cent GDP growth for China may be something of a mirage, the country is chipping away at its reform mountain with some degree of success.

The latest numbers suggest that Chinese exports are likely to have risen 23 per cent by the end of the year to US$240 billion. Perhaps more importantly, imports have climbed nearly 30 per cent to US$219 billion.

Exports account for around one fifth of the PRC economy and the task is to boost domestic demand.

The State Bureau of Metallurgical Industry has reported that steel production in 2000 will come in at 127 million tonnes, well over the target of 110 million tonnes.

Something is moving. Lets all hope the next move comes from Alan Greenspan.

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