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20 years after crisis, economists see a hardier Southeast Asia

Survey highlights reforms since 1997 currency chaos -- and unfinished business

Thai baht notes. Regional efforts to promote financial stability have paid off.

TOKYO -- Southeast Asian countries deserve high marks for their development since the Asian financial crisis of 1997, according to a new survey of prominent local economists.

Ongoing reforms have helped the economies achieve strong growth rates, while becoming more diverse and resilient, the economists said in the JCER/Nikkei Consensus Survey, conducted from March 10 to 30. Various measures have also enhanced the stability of the region's financial systems, helping to avert a repeat of the crisis, the respondents said.

Still, the experts see a range of challenges ahead, such as developing infrastructure, boosting productivity and carrying out further reforms to maintain growth momentum and dodge the middle-income trap.

Twenty-three economists in five Southeast Asian countries participated in the poll: Indonesia, Malaysia, the Philippines, Singapore and Thailand. Here is a rundown of what they had to say.

Stronger, more diverse

Association of Southeast Asian Nations economies, like China and India, have been outpacing the world economy. In the past two decades, Indonesia and the Philippines -- both large, low-income countries -- have achieved average growth of more than 5%.

"For 20 years, the Indonesian economy grew fairly solidly, with an average [rate] of 5.3%," said Juniman, chief economist at Maybank Indonesia. The Philippines grew at "close to 6% [on] average for the last 10 years -- much faster than the 3-4% of 20 years ago," noted Jonathan Ravelas, chief market strategist at BDO Unibank.

Looking at ASEAN as a whole, Centennial Asia Advisors CEO Manu Bhaskaran observed: "Asian economies are generally much stronger now. Most Southeast Asian countries have bright economic outlooks."

Growth rates are only part of the story. The Malaysian economy, for example, "has become more diversified and resilient since the Asian financial crisis," according to Euben Paracuelles, senior economist at Nomura Singapore.

Somprawin Manprasert, chief economist at Thailand's Bank of Ayudhya, said that while "Thai GDP growth has been lower than pre-crisis [levels], economic stability has [improved]."

Bhaskaran added that Asian economies "are plugged into global value chains," while Nattaporn Triratanasirikul, head of research at the Kasikorn Research Center in Thailand, focused on the "presence of Thai-owned companies in the global market, in particular agribusinesses."

Secrets of success

Reforms and prudent policies, economists said, have underpinned the strong growth seen in the last two decades.

"Over the past 20 years, Malaysia has enacted various reforms, in the form of new regulations and policies," explained Wan Suhaimie Saidie, head of the economics department at Kenanga Investment Bank. "Furthermore, Malaysia has been successful in diversifying its economy from agriculture-based to manufacturing-based."

Wisnu Wardana, an economist at Indonesia's Bank Danamon, feels "the country is going in the right direction in terms of economic prudency and structural reform."

Reforms, of course, can beget new problems. Dr. Dendi Ramdani, head of industry and regional research at Indonesia's Bank Mandiri, pointed out the structural issues the country faces, noting that its "economic structure has transformed to have a larger proportion in services but a smaller industry sector." On top of that, he added, "the economy is more dependent on the commodity sector."

"Indonesia under President Jokowi should make large efforts in accelerating industrialization," Ramdani advised, referring to President Joko Widodo by his nickname.

Survey respondents did not go into specifics about politics. Nevertheless, there is little doubt that political leadership is essential for advancing reforms. The peace factor is also worth noting: ASEAN has not dealt with a serious military confrontation in the past 20 years.

Crisis avoidance

Back in 1997, the Thai baht, Indonesian rupiah and other Asian currencies came under attack and the countries were forced to move to floating systems. The exchange rates of the baht, rupiah, Philippine peso and Malaysian ringgit fell 50-80% against the U.S. dollar.

These currencies have long remained weak. New crises, however, have not materialized.

In the wake of the turmoil, multinational initiatives were introduced to ward off financial disasters. Japan in 1998 proposed the New Miyazawa Initiative, which later developed into the Chiang Mai Initiative, bringing about a multilateral currency swap arrangement.

Individual countries, meanwhile, strengthened supervision and regulation of financial activity. "Policy addressing the vulnerability of the banking and financial sector has been proven successful," said Phacharaphot Nuntramas, senior vice president at Thailand's Siam Commercial Bank Economic Intelligence Center. "Thailand has been able to withstand global shocks very well, and strength in this area leads to investor confidence."

In Malaysia, "a more diversified economy with a stronger institutional framework and a better capitalized banking system has evolved since the Asian financial crisis," said Lim Chee Sing, chief economist at the RHB Research Institute. 

Even so, the economists stressed that various challenges remain. Indexes such as the World Bank's "Doing Business" ranking highlight the shortcomings of the business environments in low-income countries like Indonesia and the Philippines, despite improvements. Malaysia and Thailand face the middle-income trap.

Obstacles ahead

"Infrastructure improvements remain unaddressed," said Centennial Asia's Bhaskaran, noting a key development bottleneck in many Asian countries.

In February, the Asian Development Bank announced that total infrastructure demand in 45 Asian countries would come to $26 trillion by 2030. In many countries -- including Indonesia, the Philippines and Thailand -- not a few infrastructure projects have been delayed. 

At the same time, financial reforms have progressed but remain insufficient. "Banks are not optimal yet" in their role "to support growth," said Umar Juoro, chairman of Indonesia's CIDES.

Improving productivity is also a major challenge. As Nomura Singapore's Paracuelles pointed out, "Unfavorable demographics have presented new challenges for economic policies, which have struggled to raise labor productivity growth."

As for the middle-income trap, Randolph Tan, an associate professor at the Singapore University of Social Sciences, stressed it is not an issue "unique to Asian economies." He also emphasized the role of regional integration in paving a path forward.

"Asian economies do have a challenge of reconciling their historical differences," he said. "Unlike Europe, we have been much slower to do so, and that will affect our ability to expand cooperation to the level that will be needed to elevate our economies to the next level of development."

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