Asian economies differ in response to global crisis

Aditya Suharmoko, THE JAKARTA POST, JAKARTA | Tue, 03/24/2009 9:10 AM

The road to economic recovery varies across Asian countries, with Indonesia, China and India perhaps the least affected by the global economic crisis, a seminar heard Monday.

China and India, two of the fastest growing economies in the world, are expected to still post positive economic growth this year, despite slowing from the past few years. Indonesia will also score positive growth, although it may be about 30 percent slower than in 2008.

The International Monetary Fund has said global growth may contract by between 0.5 percent and 1.5 percent this year.

“There is great hope that emerging economies, such as China and India, will launch new Keynesian initiatives leveraging private-sector funds and become the new engines of global growth that will drive the world economy to growth and prosperity once again,” said Naoyuki Yoshino, a professor at Keio University in Tokyo.

He was presenting his paper at a seminar titled “East Asia’s response to the global economic crisis” in Jakarta on Monday.

Yoshino said developed countries would be restricted from issuing government bonds to finance fiscal stimulus measures due to enormous fiscal deficits.

Japan, for instance, has public debts amounting to 180 percent of its GDP.Keynesian policies usually call for financing fiscal stimulus by issuing government bonds during hard times.

But Yoshino said issuing “revenue bonds” could be a way to utilize private sector funds.

With revenue bonds, the government bears a portion of infrastructure costs, with the remaining costs funded by the private sector through the issuance of revenue bonds, he said.

“The private sector will get return based on the expected revenue from the project to be constructed,” Yoshino said.

“In some Asian countries, notably China and India, domestic demand will increase when their economies are revitalized through efficient infrastructure development.”

South Korea, as a trade-dependent country, needs developed countries to aim their economic stimulus package at infrastructure, which may help recover South Korea’s falling exports.

As an example, financial aid to Detroit automakers in the US will affect the competitiveness of South Korea’s automakers.

Meanwhile, Indonesia, whose economy is mainly dependent on domestic demand, has allocated Rp 12.2 trillion (US$1.05 billion) for the development of infrastructure and the rural sector.

University of Indonesia economist M. Chatib Basri said spending on labor-intensive infrastructure projects would have a significant impact on job opportunities and economic growth.

The seminar was also of the opinion that Indonesia was relatively better off than neighboring countries in coping with the global crisis, with Thailand and the Philippines severely hit by the crisis.

“Fiscal policy is the only option left,” Bhanupong Nidhiprabha, an associate professor at Thammasat University, wrote in his paper.

“Unless the government maintains law and order to restore business sentiment and consumer confidence, both monetary and fiscal stimuli will fail miserably.”

Thailand’s political condition is far more unstable compared to Indonesia.

The country has seen chaotic power struggles in the past two years.

The Philippines may be facing an even worse economic situation, as the monetary policy has not been unable to accelerate lending, and with its fiscal policy “constrained by a historically poor ability to raise the tax to GDP ratio”, said Maria Socorro H. Gochoco Bautista, a professor at the University of the Philippines, in her paper.

“The right kind of expenditures needs to be undertaken,” she said.

“These might include direct cash transfers to the poor in exchange for a promise to keep children in school.

“Allowing peso depreciation, assuming enough workers remain employed abroad, will also boost incomes of the poor and middle classes to sustain spending.”