Southeast Asia Makes A Comeback

The most striking feature of economic development in the Southeast Asian landscape during 1999 was that all the countries which had suffered a decline in 1998 recorded positive growth. The rates of growth were, of course, modest by the historical standards of these countries. They were nevertheless remarkable because of the deep output contraction in many of these countries in the previous year.

A second important feature was the steep drop in inflation as measured by consumer prices. The remarkable deceleration in inflation partly reflected substantial appreciation in exchange rates; it was also symptomatic of feeble aggregate demand. The latter is particularly evident from the fact that the investment/GDP ratio in most of the countries remained at about the same level as in 1998, which was considerably lower than in the preceding years.

 

The deceleration in inflation permitted expansionary fiscal policy, which was seen as essential for economic revival. However, the rising fiscal deficit may become a cause for concern in the future. There are substantial fiscal implications of the remaining agenda for the reform and restructuring of the financial and corporate sectors, including public sector enterprises in the subregion. The resurgence of broad-based durable economic growth will be key to the emerging revenue needs of governments.

An upturn in exports was another source of stimulus for recovery in Southeast Asia in 1999. This turnaround became marked during the second half of the year. The gains were relatively strong in all the economies except Indonesia, which suffered a decline in the absolute value of its exports, though of a much lower magnitude than in the previous year.

Better commodity prices will be a helpful factor for the subregion, while the large increase in oil prices will provide an extra stimulus to oil exporters, of which there are quite a few in the subregion. Manufacturing activities and business confidence are likely to be revived further through strong export growth.

However, there are risks in relying on exports as the principal stimulus for sustained recovery, especially if the export growth simply reflects a cyclical increase in external demand rather than enhanced competitiveness. This consideration underscores the need for revival of domestic demand.

BRUNEI: The economic growth of Brunei Darussalam, though modest compared to that of its neighbours, was respectable in 1996-97, averaging close to 4 per cent per annum. The economy was, by and large, insulated from the direct impact of the Asian economic crisis owing to its large hydrocarbon resource base.

Nevertheless, growth fell noticeably and remained stagnant at 1 per cent in both of the following years. The persistence of low oil prices in 1998 and up to early 1999 reduced both government revenue and capital spending, although the latter was in part offset by a supplementary budget introduced in 1998 to help boost economic activities. Among other factors causing a deceleration of growth were a decline in domestic consumption, a fall in construction spending, the collapse of the Amedeo group of companies (the country