Asian Recovery in 1999? Well Manu Bhaskaran(SG Securities,Singapore) thinks so.
Ratan:
Looks like there is some hope for an Asian recovery in 1999 according Bhaskaran,I think he might have a better insight into the situation in Asia as he is the middle of it all and probably has better understanding of the developments in the region.I still think Indonesia is a goner for at least couple of years,Malaysia I don't know but they did manage some trade surplus for the last month or so but mind you not because of an increase in exports but due to a slow down in imports but still....I do however think Thailand and S.Korea have a better chance in recovering sometime in 1999 and Philippines for sure as they are in much better position than the other two already but we shall see.
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Source:Far Eastern Economic Review.
At the Turning Point
By Manu Bhaskaran
October 22, 1998
United States President Bill Clinton has described the world as being on the brink of a precipice, and officials and analysts are competing to make the most dire predictions. I believe, however, that at least in Asia's crisis-hit countries--Thailand, South Korea, the Philippines, Malaysia and Indonesia--the adjustment processes are beginning to yield some positive signs. If these trends persist, then it is likely that most of these countries will return to positive growth by mid-1999.
But such self-adjusting mechanisms can only work within a zone of stability dictated by such factors as the global environment, political stability and the policy regime. Since global factors pose the greatest risk for emerging Asia, the first question is whether Asia will get what it needs from the global environment.
Will global factors support Asian recovery? Fortunately, crisis-hit countries in Asia are likely to benefit from three external factors. First, interest-rate cuts are likely to accelerate in the U.S. and then in Europe. U.S. rates are likely to come down a total of 100 basis points from their early September level. Second, monetary policy is easing in the U.S. and European Union; combined with still-reasonable domestic demand, that is likely to underpin economic recovery in Asia. Third, there are likely to be stronger aid inflows to emerging markets--a large package for Brazil and the promised $30 billion Japanese package for Southeast Asia.
The past few weeks have delivered some good news. The yen's strengthening has allowed regional currencies to strengthen. Risk perceptions have moderated, allowing interest rates to come down. Sure, part of this yen recovery is unsustainable--the part due to technical reasons such as unwinding of large speculative positions. But an improved appreciation of risks in Japan against those in the U.S. is also responsible for a good part of the yen's rebound. If this is the case, fears of the yen collapsing and forcing a Chinese renminbi devaluation will subside and this should reduce the perception of the risks confronting emerging Asian economies.
So long as there is no unpleasant shock from Japanese banks or some other financial earthquake, Asian recovery some time in 1999 is more than likely. On each critical adjustment--policy change, financial-sector cleansing, the real economy's response and corporate adjustment--Thailand seems to be making the most headway, with South Korea a little behind.
Policy adjustment: Thailand, with its relatively resilient social system, has been able to adhere reasonably well to its agreements with international agencies. The same cannot be said of other countries in Southeast Asia. In Malaysia there has been a policy backlash, while in Korea initial success in policy adjustment has more recently given way to some hesitation.
Financial-sector restructuring: In all countries there has been some progress in cleaning up the detritus from the financial collapse. None of the banking-sector packages seen recently are perfect or complete; most set aside sums for bank recapitalization that are insufficient. Nevertheless, Thailand's August 14 package, which combines a sustainably looser monetary policy with government recapitalization assistance, could work. Korea has also moved quite boldly, but its package appears too optimistic about nonperforming loans and there is less export recovery, corporate restructuring and currency strength.
The real economy: Some benefits of devaluation are gradually appearing. Current-account surpluses have returned, inflation has peaked and interest rates are falling everywhere. Tourist receipts are also showing a strong recovery.
But the key remains a recovery in the volume of exports which underpin gross domestic product recovery. Two factors are vital: First, U.S. and EU demand must remain strong and Japan must not melt down. The likelihood is that domestic demand will remain firm and ensure economic growth in the U.S. and EU at between 2% and 2.5% in 1999. Fiscal spending and tax cuts should suffice to keep Japanese growth in positive territory for calendar 1999. Second, because emerging Asia is so disproportionately dependent on electronics, the global electronics outlook needs to improve. The forecasts suggest a modest recovery in key electronics segments such as semiconductors and disk drives in 1999.
Corporate restructuring: Asia's crisis is mainly a private crisis and substantial surgery in the corporate arena is essential. This is where progress is slow--everywhere. Asian companies need a mindset change. Only then can they undertake what is needed, which includes major restructuring of balance sheets and their portfolio of businesses, and a shift in focus to shareholder value. The evidence of such a change is weak but gathering.
So my bottom line is--the trough is in sight and the only way is up. Sure, there is a long way to go but there are powerful adjustment mechanisms at work which now point to a full-fledged recovery in 1999.
Manu Bhaskaran is managing director and group head of research at SG Securities (Singapore) Pte. Ltd.
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