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ADB raises growth forecast for Asia in 2000

MANILA: The Asian Development Bank said on Monday it raised the growth forecast for Asia in 2000 but warned against growing fiscal deficits and complacency in pursuing reforms.

Tadao Chino, the bank's president, told Reuters in an interview growth in the region could reach "a little more than six percent" compared with an earlier forecast of 5.7 percent.

The forecast excludes Japan, New Zealand and Australia.

Recovery has been faster than expected, and commitment to structural reforms in the banking and corporate sectors, as well as more transparency in governance are essential, he said.

"Lack of progress in these areas will have a detrimental impact on investor confidence and also on recovery," he said.

Chino also said: "There is some concern over the high fiscal deficits that crisis countries incurred to stimulate domestic demand.

"These fiscal deficits are not for now a destabilising factor. It will not be sustainable to continue on relying on deficit for economic recovery," he said.

NEED TO DEVELOP CAPITAL MARKETS

To sustain growth, the challenge for Asia is to develop its capital markets.

He said the share of the equity markets in the total financial sector in countries such as South Korea, Indonesia and Thailand was only 10 to 20 percent in 1998, while the bond market comprised five percent.

"Because of the underdeveloped capital markets, firms in Asia were often denied access to long-term funds," Chino said.

"Strong initiatives and policy reforms are needed to develop domestic capital markets."

Growth in developing Asian for 2000 will be supported by improved domestic demand and investments, and a pick-up in intra-regional trade, he said.

Asia's growth will also depend on a strong U.S. economy and a recovery in Japan, Chino said.

For the five crisis affected countries in Asia, inflationary threats could come from the lagged effect of the easier fiscal and monetary policies adopted in 1999 to induce growth, and the impact of higher oil prices, wages, rental prices, and excess demand, Chino said.

These countries are Indonesia, Thailand, Philippines, Malaysia and South Korea.

"Korea, Malaysia and Thailand will face higher but still moderate price increases of about three percent this year," Chino said.

He said inflation in Indonesia could stabilise to around five to six percent in 2000 from 20.5 percent last year.

Philippine inflation in 2000 could be less than the 6.6 percent posted in 1999, he said.-Reuters