PRESS CONFERENCE ON 'ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC, 1999'

Press Briefing

PRESS CONFERENCE ON 'ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC, 1999'

The economic crisis that had begun in the second half of 1997 in the South-East Asia region had turned out to be deeper and longer-lasting than had been foreseen, Asda Jayanama, Permanent Representative of Thailand, said at a Headquarters press conference this morning.

Several economies in the region had experienced large contradictions of output, while others had suffered significant reductions in their growth rates, he said. Out of 19 developing countries of mainland Asia, seven had suffered negative growth in 1998, compared to none in 1996 and only one in 1997. The seven were Iran, Indonesia, Malaysia, Philippines, Thailand, Hong Kong and the Republic of Korea.

Mr. Jayanama was presenting the Economic and Social Survey of Asia and the Pacific, 1999 on behalf of the Foreign Minister of Thailand, who is the current Chairman of the Economic and Social Commission for Asia and the Pacific (ESCAP). The Survey consisted of two parts: part I, an analysis of recent macroeconomic developments in the region and related policy issues; and part II, an in-depth examination of the theme topic of the fifty-fifth session of the Commission to be held in Bangkok from 22 to 28 April: Asia and the Pacific into the Twenty-first century: information technology, globalization, economic security and development.

The stubborn persistence of the crisis remained the most dominant feature of the economic landscape of the Asian and Pacific region, he said. "For South-East Asia, 1998 was perhaps one of the worst years on record", he declared. East and North-East Asia had also experienced a large contraction of output. In the economies of South and South-West Asia, the relative insulation of the financial markets had moderated the contagion effect of the regional economic crisis on the domestic economy, he noted, adding that, on average, that sub-region was relatively better off than others.

The continued crises in those economies inevitably had a severe impact on their social situation, Mr. Jayanama said. A number of the countries were experiencing severe social problems in the form of mounting unemployment and increased incidence of poverty. Education and health had suffered badly.

The ability of governments to address those problems had been constrained by reduced revenues and, in some cases, by conditionalities of the bailout packages, he said, adding that some of the conditionalities had recently been relaxed. Some positive signs had been seen, such as major improvements in current accounts; substantial rebuilding of foreign exchange reserves; recovery of exchange rates and stock markets; significant decline of interest rates; and low inflationary pressures.

Overall prospects for recovery in 1999 and beyond remained uncertain owing to a combination of factors, both internationally and within the economies of the region. "Nevertheless, there is a growing consensus that a gentle recovery should begin and that we have seen the worst of the crisis", Mr. Jayanama observed. Conditions had to be created in order for the recovery to take root and be sustainable.

The Survey made a number of recommendations, including, at the national level, the restructuring of corporate and financial sectors, and greater circumspection with respect to capital accounts, and flexible macroeconomic management. "A wide range of actions at the international and regional levels will also be required", he said, adding that reform of the international financial architecture was an urgent requirement. The reform should involve, among other things, improvements in emergency assistance; better supervision of capital flows, and a more equitable delineation of the roles of foreign creditors and debtors in situations of debt-servicing difficulties.

At the regional level, the Survey recommended greater cooperation in financial-sector supervision; establishment of common prudential standards; and the development of early warning systems. Mention was also made of a proposal on the establishment of an Asian fund.

On the second part of the report, which dealt with information technology issues to be discussed at the forthcoming fifty-fifth session of ESCAP, Mr. Jayanama said that investment in information and communication technology in the region had grown at 15 per cent a year from 1992 to 1997. There had been rapid growth in the number of telephones and computers, cellular phones and Internet connections. The region was increasingly seeking to undertake electronic commerce. The internet economy would reach $500 billion by 2002, he said, adding that banking was increasingly being done through information and communication technology. There had been 245,000 automatic teller machines, about one third of the world's total, in operation in the ESCAP region in 1997 and the number was increasing, he said.

Mr. Jayanama warned of pitfalls against which governments in the region had to be careful: greater use of information and communication technology by institutional investors and hedge funds increased exposure of Asian financial markets to reversals and contagion. The solution was better regulation with the assistance of international coordination, monitoring and regulatory standards. Governments needed to encourage information and communication technology-based financial systems, as their use could reduce corruption and promote modern functioning of financial systems.

A correspondent asked what progress had been made on the several proposals put forward in the aftermath of the crisis, including the establishment of a new world financial organization and an Asian monetary fund.

Press Conference on Economic Survey - 3 - 8 April 1999

Mr. Jayanama said that the idea of overhauling the international financial system was difficult, and that the developed countries, especially those in the West, were against it. The existing system would have to be fine-tuned, he said. Regarding the International Monetary Fund (IMF), the system was being reviewed by the "Group of 22" (the Development Committee), of which the Finance Minister of Thailand was a member. It would not be an overhaul of the system as the developing countries wanted. "There may be some talk about capital control, but basically it would be the same system with improvements", he said.

He said the Asian fund mentioned in the survey had been proposed by the Japanese to help countries in the region in crisis. But it had been opposed by the United States and the IMF, which felt it would encourage recipient countries not to undertake reform. He said the fund was not meant to be a handout, and that it could play a very useful role in terms of "peer supervision". The $100 billion involved had been reduced to a third. Individual countries had to improve their governance, and their system of banking. The argument was that if their system was efficient and clean and that there was "no crony capitalism", their countries would not have to fear short-term capital movements.

Responding to another question, Mr. Jayanama said that in the pre-crisis period, international bankers had been anxious to lend money to Asian countries as the returns had been very high. They had begged Asian countries to borrow from them, which they had done at low rates. When things had begun to go wrong, the bankers, mutual funds, and the hedge funds had begun to take their monies out, thus triggering the contagion effect.

Earlier, Mr. Jayanama said he had hoped that representatives of the permanent missions responsible for press matters, particularly, those from the Asian-Pacific region, would be present. The policy of restricting press conferences only to accredited media should be rectified, he said. Those representatives were interested in the launching of the ESCAP report. "I don't think they should be denied the chance of coming here (to room S-226)".

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