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Thursday, December 09, 1999, updated at 10:36(GMT+8)
Business World Bank: Recovery in Developing World to Accelerate But Fragile

Despite a faster than expected global recovery, the lingering effects of the global financial crisis continue to depress output across developing countries, and hamper efforts to reduce poverty worldwide, according to a new report released by the World Bank on December 7.

Global Economic Prospects and the Developing Countries 2000, the World Bank's yearly report on prospects for developing countries, argued that recovery from the financial crisis is " fragile and uneven," with some regions recovering much faster than others.

The report projected the economic growth in developing countries to grow by 2.7 percent in 1999, and accelerate to 4.2 percent in 2000.

Growth will be strong in Asia this year and next as the crisis countries recover from the depths of recession, but it will remain well below historical averages, despite a continued robust performance in China and India, the report said. Outside Asia, average per capita income in developing countries will actually decline in 1999.

The report said that as the effects of the crisis recede, growth in developing countries, excluding the transition economies, is projected to average 5 percent a year in 2002-2008, a much faster rate of growth than in industrial countries. Nonetheless, this will be significantly lower than developing countries achieved during the pre-crisis 1990s.

The lower growth projection reflects assumptions that capital flows will take time to recover and that they will remain volatile, and that commodity prices are unlikely to stage a strong recovery from their recent historic lows. In addition, the crisis has uncovered, and in some cases accentuated, serious structural weaknesses in developing countries, particularly in financial systems and government accounts, that will take considerable time to resolve. These weaknesses leave developing countries exposed to renewed bouts of volatility.

For the first time, Global Economic Prospects presented forecasts for poverty reduction in developing countries. It concluded that in many developing countries, progress in the fight against poverty is likely to fall short of the goal set by the international community, which calls for poverty to be reduced by half by 2015.

The report said that the crisis increased poverty in 1998 in East Asian Crisis countries and Russia, which, in turn, has stalled the progress of the early 1990s in reducing poverty worldwide. Urban poverty increased in all East Asian crisis countries in 1998. For example, in Korea, poverty among its urban population more than doubled, from 9 percent in 1997 to 19 percent in 1998.

Despite the cyclical recovery in East Asia, serious structural problems remain. The value of non-performing loans range from approximately 30 percent of gross domestic product in South Korea and Malaysia to 60 percent for Thailand, well above the experience of most earlier crises. Moreover, non-performing loans continue to rise as further problems are revealed, and weak firms add to their problems by borrowing new money to make interest payments on their existing debt.

Without vigorous corporate and financial restructuring, sustainable growth will take longer to return, the costs of the crisis are likely to rise, and economies will remain vulnerable to new external and internal shocks, the report said. (Xinhua)

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