SUNS4508 Wednesday 15 September 1999

Manila, Sep 14 (IPS/Johanna Son) -- Developing Asia is making a "stronger than expected" recovery from the financial meltdown that began two years ago, with South Korea as the outstanding performer, the Asian Development Bank (AsDB) said in a report issued on Tuesday.

As a result, the Manila-based AsDB says, Asia's developing countries are expected to post GDP growth of 5.5 percent this year, up from 2.3 percent in 1998.

These figures have been revised from the Bank's previous estimates of 4.4 percent growth for this year, as contained in its 'Asian Development Outlook' released in April this year.

The new figures are part of an update the Bank did after seeing changed conditions in the region during the year, chief economist Jung Soo Lee said.

"Asia's economic recovery in the first half of 1999 has been stronger than expected," he remarked.

"Since the first quarter of 1999, economic activity in developing Asia has picked up substantially. This trend strengthened further in the second quarter," Lee added.

"As a result, the region's outlook has changed sharply, from that of prolonged recession to rapid turnaround," he explained.

In many economies, the Bank noted encouraging financial and economic reforms, recovering commodity prices, higher demand for electronics (a key export from the region), the return of some investments and expansion in intra-regional trade.

The AsDB says the recovery is being led by South Korea, which together with Indonesia and Thailand were among the worst hit by the economic crisis that broke out in 1997.

South Korea posted 4.6 percent GDP growth in the first quarter of 1999, and 9.8 percent for the second quarter. It is expected to reach 8 percent growth for this year.

That is a big improvement over the 5.8 percent contraction its economy went through in 1998. The AsDB had earlier expected only 2 percent GDP growth in 1999.

"The strength of the economic recovery in the first half of 1999 has surprised even the most optimistic observers," explained the AsDB report.

This the report attributes to the Seoul government's quick movement to restore confidence in the banking sector, putting in more than 45 billion U.S. dollars since September 1998 in order to recapitalise banks.

Some social indicators are showing improvement, though the effects of the recession will be around for some time.

"Unemployment has come down to 6.2 percent in June 1999 from 8.7 percent in February," the report observed, although this is still three times the pre-crisis level.

Other indicators show positive change as well, ranging from rising consumption to the recovery of imports that had fallen drastically in the wake of the crisis in 1998.

The report says that the results of efforts to restructure the 'chaebol' bear watching, as well as the government's efforts to reduce debt and revive capital inflows.

The Bank also revised growth projections for Thailand, which it now says will post GDP growth of 3 percent. Its earlier estimate for this year was zero growth for the country, which the AsDB report said "started to show some signs of recovery in the beginning of 1999".

Unemployment however remains high at 8.5 percent of the labour force, as of February.

The Indonesian economy, while still precarious, is projected to reach GDP growth of 2 percent this year, up from the Bank's earlier estimate of zero growth. In 1998, the Indonesian economy contracted by 13.2 percent, the largest contraction among the crisis-hit economies.

In Indonesia, the crisis "seems to have bottomed out and there are signs of a recovery after nearly two years of financial and economic turmoil", the AsDB report said.

The country's rebound is attributed to better performance by the agriculture sector, and better prices including for oil, which it exports, helped as well.

Still, the Bank says restructuring the bank system needs to continue. Social safety nets for vulnerable groups must be improved, while the government needs to an eye on its debt.

While "downside risks may moderate the (Asian) recovery in 1999 and 2000", the AsDB said: "These seem to be lower than they were twelve months ago. But they have not disappeared."

"Any complacency on this account and an assumption that recovery has already taken hold coould have serious adverse consequences" for the region, it concluded.

The Bank also made new GDP growth estimates for Malaysia, now expected to grow by 2 percent this year, up from the old estimate of 0.7 percent.

Taiwan is seen to post GDP growth of 5.5 percent, instead of 4.9 percent, Singapore 5 percent instead of just 1 percent, and the Philippines 3 instead of 2.4 percent.

South Asia is expected to post GDP growth of 6.3 percent this year, led by India with 7 percent instead of the previously- projected 5.9 percent.

Sri Lanka is seen to grow by 5 percent this year, same as the Bank's earlier estimate. Bangladesh's expected GDP growth rate is 4.8 percent and Pakistan, 3.1 percent.