SE Asia's Recovery May Slow if Markets Fall Further: ADB
MANILA - Southeast Asia's recovery from its worst financial crisis ever may be scuttled if regional stocks and currencies stumble further from their recent lows amid rising interest rates, the Asian Development Bank (ADB) has warned.
But the Manila-based bank pointed out that the weakening of regional currencies did not signal another turmoil similar to the foreign exchange crisis which erupted in mid-1997, pushing the region into recession.
The Indonesian rupiah, the Philippine peso, the Thai baht and the Singapore dollar have sagged in recent weeks, partly in the absence of political and economic reforms, as well as concern over a potential US interest rate hike and worries the region's key electronics sector boom will ease off, analysts have said.
Stock markets in the region have been depressed most of this year, despite a few gaining ground in June.
"Is this the beginning of a new crisis? My answer is no because so far there are no reasons to believe that," ADB's director of programs Yoshihiro Iwasaki said.
"But at the same time, I caution that if the trend continues, it will have a number of negative impacts on overall recovery of the region," warned Iwasaki, also the bank's acting chief economist.
Iwasaki said while banking and corporate reforms appeared to be progressing in the region, "it may be a bit weakening in some cases in recent months, particularly debt restructuring of corporate sector."
If Southeast Asia is unable to cushion itself from further rises in US interest rates - which itself could be heading for a soft economic landing - then investments crucial to fuel economic growth in the region could slow down, Iwasaki added.
By pushing up the cost of funds, rate hikes could affect bank profitability and corporate debt restructuring essential to stoke economic growth.
Falling equity values in the region - in some cases in tandem with currency declines - could constrain demand for new share issues and force companies to differ or delay new projects, which in turn could dampen overall recovery, he said.
Another key reason for the current problems in Southeast Asia was the "unexpected" rapid economic recovery - or what economists call V-shaped recovery - from the financial crisis which started in 1997.
"Initially, it was very welcomed but there was some overshooting, [including] substantial and remarkable recovery in stock markets. So, part of the recent falls is obviously a correction," he said.
The Indonesian rupiah has suffered its biggest plunge so far this year, down 12 percent against the US dollar amid political and economic concerns in Southeast Asia's largest nation.
The Philippine peso is down by about 10 percent against the greenback, pressured by a Muslim insurgency in the south of the archipelago, while the Thai baht hit a 10-month low last week amid concerns over the slow pace of banking reforms.
The Singapore dollar slumped to a 22-month low last week amid worries over the slide of neighboring currencies and concerns that semiconductor and personal computer-related demand may be topping out.
Iwasaki said he was optimistic that Southeast Asia would be able to contain the current problem as the region's defense system was now stronger than it was in 1997.
"Basically, I'm still optimistic. This is not a systematic or a major cause for concern or arrival of a new crisis.
"I must say that obviously the region is much stronger in terms of financial sector regulatory framework, even corporate governance, than in 1997, much more ready now to absorb shocks than before," he said, pointing to falling debt levels and more competitive real exchange rate levels in the region. - AFP |
