News Analysis: After 4 Years, Is Asia Rid of Impacts of Crisis?

Thailand's fourth anniversary of the breakout of the devastating Asian financial crisis was highlighted by a revered Buddhist monk who on Monday donated another batch of gold and dollars to help the government to fund its urgent economic programs.

The donations, including 687 kg gold and 30,0000 dollars, were collected by the monk from the common people around the country, which shows a public yearning for getting out of the impacts of the crisis as soon as possible.

To be sure, four years after the devaluation of the Thai baht opened a Pandora's Box which trapped the whole region into economic chaos on July 2, 1997, most countries, including Thailand, are now already on the track of steady recovery.

People in Bangkok and other metropolitans across Asia resumed buying new cars and new factories mushroomed again everywhere, but a question still seems unavoidable: are we truly out of the crisis?

The answer will probably be: Asia is moving out all the impacts of the crisis, but not completely yet.

During the crisis years of 1997 and 1998, the economies which have created the Asian Miracle between 1980s and 1990s plunged into recessions, massive business shut-offs and layoffs, and currency devaluations one after another.

The so-called Crisis Five countries, namely Thailand, South Korea, Malaysia, the Philippines and Indonesia, were considered to be the most-affected, as their economies in 1998 contracted 10.2 percent, 6.7 percent, 7.4 percent, 0.6 percent and 13 percent, respectively.

But they all moved quickly back on the growth line, owing to strict financial controls, economic reforms, stimulus packages and international aids. All the five economies succeeded in returning to growth since the second quarter of 1999 and have so far kept the momentum.

However, the recent signs of a worldwide economic slowdown have proved the fragility of the recovery process. When the United States started to lose the steam of its growth engine since late last year and Japan stayed in its doldrums, the Asian economies began to feel that the crisis is still not far away.

As exports to the United States, the major market for most Asian countries, declined, the economic growth in these nations can not keep their fast pace. During the first quarter of this year, the Crisis Five recorded an average growth rate of 3.3 percent, a considerable decline compared with the 4 percent in the last quarter of 2000 and the 7 percent of the eight straight previous quarters.

The recent growth deceleration in Asian countries cuts across sectors, but is most visible in manufacturing. South Korea's manufacturing industry grew at a meager 4.3 percent in the first quarter this year, compared with an average growth rate of over 18 percent during eight previous quarters. Similar situations occurred in Malaysia and Singapore.

The slowdown in growth and production was accompanied by softening domestic demand and declining consumer confidence. Meanwhile, in the foreign exchange market, regional currencies have weakened in recent months, with currency depreciations against the U.S. dollar ranged from 2.7 percent in the Philippines to about 15 percent in Indonesia.

Accordingly, the 2001 growth projections for most countries in the region have been slashed recently. The Asian Development Bank has cut the average growth forecast for the whole East Asian region to 5.1 percent from the earlier 5.6 percent, compared poorly with the 7.5 percent growth rate the region achieved in 2000.

Facing the woes, Asian countries have responded with expansionary fiscal measures and easing monetary policies to simulate the economy. South Korea raised its current budget by 11. 3 percent and also front-loaded two thirds of it during the first half of the year while the Thai parliament newly adopted a budget for the fiscal year 2002 whose value increased 12.4 percent compared with the former one.

In Singapore, the government provided a 10 percent tax relief to spur consumption and investment while Malaysia announced a spending package equivalent to one percent of the Gross Domestic Product (GDP) to encourage growth.

Central banks in most Asian countries also lowered interest rate levels following the rate cuts by the U.S. Federal Reserve Board.

Asian nations also made consistent efforts to cut down the level of nonperforming loans (NPLs) in the financial sector, which is said to be vital to the overall recovery process after the crisis. Most countries have formed national asset management companies to absorb these NPLs.

The task of corporate debt restructuring is being pushed forward. Malaysia and Thailand have resolved 72 percent and 47 percent, respectively, of their corporate debts by March.

Despite the downside trend this year, there is a silver lining on the horizon of Asian economy. Many analysts predicted the current slowdown will be short-lived and East Asia will regain a fast pace of recovery and growth, which is predicted at 6 percent next year.

However, analysts argued that even if this turnaround will come true, the process of getting rid of the impacts of crisis years is still far from being completed, given the changeable global economic climate, the heavy dependence on the U.S. market, the still troubled financial and corporate sectors and the rising public debt level of Asian countries.

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