ASIAN SUB-REGIONAL
COOPERATION
The economic crisis that
has engulfed most of Asia for over a year now has provided
an opportunity to further enhance and deepen sub-regional
cooperation at the ASIAN level. Economic activities at the
EAST ASIAN Growth Area (BIMP- EAGA), the
Indonesia-Malaysia-Thailand Growth Area (IMT-GT) and the
Indonesia-Malaysia-Singapore-Growth Area (IMS-GT) continued
to be pursued to further promote economic development of the
sub-regions. The sub-regions. The sub-regions have now
evolved into economic networks which generate opportunities
for trade and investments.
In the IMT-GT, a total of
69 cooperative projects with a value of RM 18 billion have
been initiated. About 28 of these projects are in the trade
and investment sectors, 13 in infrastructure, 10 in
agriculture, 6 in tourism. 5 in human resource development
and 4 in the services sector. About 20% of the projects have
been implemented and the rest are in various stages of
implementation. The joint venture projects and areas of
cooperation range from the development of the Common Border
Wholesale Market at the Malaysia-Thailand Border Area;
investment in oil-palm plantations in Indonesia; setting up
a Muslim Livestock and Food Processing Centre in the Pattani
Industrial Zone; the establishment of a Special
Telecommunications Zone; the Satun-Perlis highway project;
the Landbridge Project; the introduction of border passes
and staff exchange programmes; efforts to harmonize
professional practices and standards and the establishment
of interest free banking services in the sub-region.
Emphasis is also placed on nurturing the small and medium
scale enterprises (SMEs) to play a significant role in the
economic development of the region. To support the SMEs, the
Joint Business Council (JBC) has identified several measures
which include encouraging the local commercial banks to open
their windows to SMEs; to explore the possibility of
establishing a regional merchant bank with ADB and the World
Bank and implementing the private sector initiative with
regard to interest free banking and over the counter market.
The JBC is also planning to hold a SMEs convention in 1998
which would expose the SMEs to opportunities present in the
region.
In the BIMB_EAGA there has
been significant developments since its inception in 1994.
Greater sea and air linkages have been established and the
tourism industry in particularly viewed as a potential
cuisine in the light of the economic crisis facing the
region. Efforts are being taken to position the BIMP-EAGA
Shipping Association is expected to be set up soon. A new
airline, the Borneo Airways has taken to the skies to tap
the tourism potentials of Sabah, Sarawak, Kalimantan and
Boreneo. The Philippines has extended the travel-tax
exemption of EAGA bound air and sea passengers embarking
from the international ports in Mindanao until March 2000.
Brunei Darussalam has harmonised air, land and sea entry
requirements for national of Indonesia and the Philippines
and introduced 72 hour transit visa for almost all travelers
visiting the country. Malaysia and Brunei are also studying
the possibility of having a special Smart Card for trans
boundary travel between the two countries.
Construction activities in the BIMP-EAGA region have
intensified and an EAGA-wide consortium has been agreed to be formed
as a vehicle for EAGA cooperation at the project level. The consortium
is aimed at creating synergy and competitive products and services
among contractor and consultant services providers within the EAGA
sub-region. The first BIMP_EAGA Construction and consultant services
providers within the EAGA sub-region. The first BIMP-EAGA Construction
and Construction Materials in October 1997 which has generated US$5
million in terms of actual and negotiated sales. BIMP-EAGA's potential
has also drawn interest from countries like Australia (Northern
Territory) and Japan as well as the Islamic Development Bank. Trade
Agreements between Australia and BIMP-EAGA include road building
technology transfer, halal and chilled beef shipments to Brunei and
Malaysia as well as remote power generation. The Japanese have been
involved in the Davao Integrated Development Program and also have
conducted a feasibility study on the establishment of a seaweed
processing facility in Sulu or Tawi-tawi. The IDB is said to be
interested in the establishment of an Islamic bank in Minadanao,
Philippines.
In the IMS-GT region, emphasis has been placed on the
improvement of the accessibility of the region as well as
collaboration in the tourism sector. The linkage between Singapore and
Johore has been enhanced through the second link while Indonesia has
proposed the development of a linkage from Dumai to Port Dicksom in
Malaysia. The sea link is expected to facilitate trade, tourism,
people mobility and industrial development. The generate greater
awareness of the region, initiatives have been taken to develop an
IMT-GT Travel Manual. There has also been a proposal to formulate a
two-year tourism rolling plan which would seek to further enhance the
region's collective attractiveness.
NORTH EAST
ASIAN ECONOMIES
The North East Asian economies, comprising China, South
Korea, Taiwan and Hong Kong SAR are expected to register a sharp
slowdown in 1998 as a result of the regional financial crisis. There
has been a larger than expected decline in consumption and investment
due to the loss of confidence, corporate debt burdens and large
capital outflows. Evidence of greater economic weakness in Japan has
also had an adverse impact on these economies. Consequently, the GDP
growth for these countries is expected to range from negative 7%
(South Korea) to 5.5% (China).
Output
Growth for China in 1998 is expected to slow down
significantly to 5.5% (1997: 8.8%) due to weakening in both domestic
and external demand and excess inventory accumulation that will need
to be run down. The recent widespread floods has also contributed to
lower growth. Proposed infrastructure spending on roads, airports and
railways and cuts in interest rates will provide some support for
increased activity in 1998. The slowdown in growth has also increased
the importance of accelerating structural reforms in the financial and
public enterprise sectors. In South Korea, growth is expected to
contract to 7% in 1998 (1997:5.5%). The financial crisis has brought
about further declines in equity markets and assets values. There has
been increased problems in financial and corporate sectors. Confidence
and activity throughout the region has also eroded due to the slowdown
in Japan. The decline in consumption (1998: 25.1%, 1997: 35%)
outweighed the strong positive stimulus to growth from net external
demand. Spillovers from within the region have also affected Taiwan
with growth slowing down but projected to remain positive at 4% in
1998 (1997: 6.9%). Taiwan has been less hard hit given the country's
strong macroeconomic position and sound financial sector. Hong Kong
SAR's economy is now projected to register a negative growth of 5% in
1998 (1997: 5.3%), reflecting the further slackening in consumer
demand, a sharp fall in investment and a further drop in exports.
North East Asia : Gross Domestic Product, Inflation and
Current Account Balance
|
|
1997
|
1998
|
1999
|
|
Gross
Domestic Product Growth (%)
|
|
China
|
8.8
|
5.5
|
8.1
|
|
Hong
Kong, SAR
|
5.3
|
-5.0
|
0.0
|
|
South
Korea
|
5.5
|
-7.0
|
-1.0
|
|
Taiwan
|
6.9
|
4.0
|
3.9
|
|
Inflation
Rate (%)
|
|
China
|
2.8
|
<1
|
3.5
|
|
Hong
Kong, SAR
|
5.7
|
3.0
|
-3.8
|
|
South
Korea
|
4.4
|
8.5
|
4.3
|
|
Taiwan
|
2.1
|
2.0
|
2.0
|
|
Current
Account Balance (US$b)
|
|
China
|
35.5
|
31.6
|
15.0
|
|
Hong
Kong, SAR
|
-5.5
|
-0.0
|
-1.9
|
|
South
Korea
|
-8.2
|
39.0
|
26.7
|
|
Taiwan
|
7.7
|
5.1
|
6.0
|
Inflation
Inflation in North East Asian economies is expected to
range between 1% to 8%. The inflationary pressures from the currency
depreciation is becoming increasingly felt by most of the most
affected countries. Inflation in China is however expected to be low
as tight fiscal and monetary policies has kept money supply under
control. Adequate grain reserves nationwide would also ease shortages
in flooded hit areas and no serious price rises are expected.
Inflation in China is expected to be less than 1% in 1998. (1997:
2.8%). Consumer prices in South Korea recorded sharp increases of 9.5%
and 9.% in February and March 1998 respectively. Since then inflation
has come down due to the stabilised exchange rate, weakness in
domestic demand and n wage pressures. Inflation is however expected to
remain high at 8.5% in 1998 (12997: 4.4%). In Taiwan, while the
weakening of the NT dollar against the US dollar has put upward
pressure on domestic prices, the stable trend in international price
levels, moderate domestic inflation in the services sector and stable
food prices will help to hold down inflation. For 1998, inflation is
forecast to remain at 2% (1997: 2.1%). In Hong Kong SAR, inflation is
expected to decline to 3% in 1998. (1997: 5.7%). Externally induced
inflation is expected to remain subdued and domestically generated
inflationary pressures are likely to recede further with the envisaged
slowdown in economic growth and the process of price and cost
adjustment in the local economy.
Trade and balance of Payments
The trade performance of the north East Asian economies
will be lower in 1998 given he sharp fall in imports. The current
account position is however expected to remain positive with the
exception of Hong Kong SAR.
China's trade surplus surged by 22.8% to reach US$31.3
billion in the January to August period of 1998. (1997: US$40.3
billion). Exports rose on year-on-year basis by 5.5%, far below the
export growth of 20.9% in 1997. Exports for the year are expected to
slow down considerably to 4% in 1998 (1997: 20.9%). Imports for the
January to August period grew by just 0.4% to US$87.3 billion. Imports
from Hong Kong which have traditionally been heavily weighted in
favour of inputs for processing before re-export have suffered a sharp
slowdown. For 1998 as a whole, imports is expected to register a
moderate growth of 5% (1997: 3.7%). The current account is expected to
remain in surplus in 1998 at US$31.6 billion (1997:US$35.5 billion).
In South Korea, the current account surplus reached a robust US$25.5
billion in the first seven months of 1998, compared with an US$11.1
billion shortfall in the same period of 1997. The current account
position was mainly bolstered by a US$3.95 billion surplus in the
merchandise trade account, as imports nose dived by 44.4% from a year
ago, far out-pacing a 9.7% drop in exports. Imports declined because
of the slowdown in domestic consumption and investment and the
weakness of international petroleum prices. Meanwhile exports have
been hit by external factors such as depressed Asian markets and the
depreciation of competitor countries' currencies. Nevertheless, export
volume is expected to register a 13.8% growth for the whole of 1998
while imports are projected to contract to 11.3%. The current account
surplus for the whole of 1998 is projected at US$39 billion (1997:
-US$ 8.2 billion).
In Taiwan, export growth fell by 7.2% in the second
quarter of 1998 under the impact of Asian financial crisis resulting
in a lower trade surplus of US$ 1.33 billion as compared to US 1.69
billion in the same period last year. For the whole of 1998, exports
are expected to slow down to 7% from 9% in 1997. Imports are also
expected to fall to 9.4% (1997: 14.2%). The current account balance
for Taiwan will show a moderate surplus of US$5.1 billion in 1998
(1997: US$7.7 billion). In Hong Kong SAR, exports of goods and
services are forecast to contract to 2.% and 4.% in 1998 respectively
(1997: 6.1%; - 0.6%) due to sluggish demand in the regional markets.
Imports are also, expected to follow suit given weakening consumption,
rising unemployment and the contracting economy. Imports of goods are
expected to contract to 3.5% in 1998 while services imports would slow
down to 1% (1997: 7.2%; 4.3%). The current account is expected to
remain in balance in 1998 (1997: 0US$ 5.5 billion).
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General Section
