1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 JCER/Nikkei Consensus Survey on Asian Economies April 10, 2017 Reforms, Growth Move Ahead Diversified, Resilient Economies in 20 Years After Crisis Economists: Infrastructure, Productivity are Challenges By Kiyoshi Kusaka, Principal Economist Economists give high marks on the developments of Southeast Asian economies in the last 20 years after the Asian Financial Crisis, saying that continuing reform have made it possible for them to achieve strong growth and to be more diversified and resilient. Introduction of new measures have worked to avoid other financial crises and to make the region s financial system stable. They face various challenges including infrastructure developments, increase of productivity and further reforms to keep the growth and to overcome the middle-income trap. Twenty years have passed since the Asian Financial Crisis of 1997. The JCER/Nikkei Consensus Survey asked leading economists in five Southeast Asian countries Indonesia, Malaysia, the Philippines, Singapore, and Thailand to evaluate the subsequent development of Asian economies, collecting twenty-three answers in total. The survey was conducted March 10-30, 2017. Economies Stronger, Diversified The economies of Southeast Asian nations have developed strongly following the financial crisis. Indonesia and the Philippines, large and low-income countries in the region, have achieved average growth of more than 5% in the roughly twenty years since the crisis. For twenty Percentage Changes in Real Economic Growth years the Indonesian economy grew fairly 20 solidly with an average of 5.3%, says 15 Juniman, chief economist of Maybank Indonesia. The Philippine economy grew at 10 close to 6% average for the last ten years, 5 much faster than the 3-4% of twenty years ago, reports Chief Market Strategist 0 Jonathan Ravelas of BDO Unibank. Referring to the Association of Southeast Asian Nations (ASEAN) as a whole, Centennial Asia Advisors CEO Manu Bhaskaran says: Asian economies are generally much stronger now. Most -5-10 World ASEAN5 India China ASEAN5: Indonesia, Malaysia, Philippines, Thailand and Vietnam; Source: IMF World Economic Outlook Oct. 2016
Southeast Asian countries have bright economic outlooks. ASEAN economies, like the Chinese and Indian economies, have been growing faster than the world economy. Economists now view these economies as not only stronger, but also more diversified and resilient than before. Nomura Singapore s senior economist Euben Paracuelles believes that the Malaysian economy has become more diversified and resilient since the Asian Financial Crisis. Bank of Ayudhya Chief Economist Somprawin Manprasert reports that while Thai GDP growth has been lower than pre-crisis, economic stability has [improved]. Bhaskaran of Centennial Asia says that Asian economies are plugged into global value chains. Nattaporn Triratanasirikul, head of research at Kasikorn Research Center in Thailand, focuses on the presence of Thai-owned companies in the global market, in particular agri-businesses. Changes in 20 Years Since Asian Financial Crisis Indonesia Malaysia Philippines Singapore Thailand India Korea China GDP in local currency Constant price GDP per capita in USD Exchange rate Population Doing Business GDP Change USD Change 1$= Change* Mil. Change rank 4216 tril. 8979 tril. 457.6 bil. 1062 bil. 3.18 tril. 7.59 tril. 149.9 bil. 391.3 bil. 5.35 tril. 9.47 tril. 31.8 tril. 113.5 tril. 676 tril. 1464 tril. 11.0 tril. 60.0 tril. 213 232 239 261 177 357 216 545 1394 3362 5103 9500 1276 2862 26262 52887 3046 5742 418 1603 13137 27221 708 8140 241 186 224 201 188 383 207 1149 2397 13327 2.48 4.43 26.33 49.69 1.43 1.41 25.89 35.20 35.86 76.98 864 1170 8.29 6.88 0.18 0.55 0.56 1.01 0.73 0.46 0.73 1.2 197 255 21.2 31.1 71 102 3.6 5.5 60.0 68.8 955 1292 45.5 50.6 1223 1373 30.0% 46.9% 42.1% 50.8% 14.6% 35.4% 11.2% 12.2% 129** 91*** 467 tril. 37438 120 125 20 Japan 113 86 1.06 1.0% 528 tril. 32478 113 126 34 Upper row: numbers in 1996 for GDP and population; Jan. 1997 for exchange rates; 2012 for Ease of Doing Business Rank; Lower row: 2015 for GDP and population, Jan. 2017 for exchange rates, 2017 for Doing Business Rank; *Jan.1997=1; **Out of 183 countries; ***out of 190 countries; Source:Reuters for exchange rates, World Bank for Doing Business Rank, IMF World Economic Outlook, Oct. 2016 for others 18 23 136 99 1 2 17 46 132 130 8 5 91 78 Reforms and Policies Economists see the pursuit of economic reform and appropriate policies underlying the strong economic growth of the past two decades. Over the past twenty years, Malaysia has enacted various reforms in the form of new regulations and policies, says Wan Suhaimie Wan Mohd Saidie, head of economics department at Kenanga Investment Bank. Furthermore, he adds, Malaysia has been successful in diversifying its economy from agriculture-based to manufacturing-based. He also notes that it is moving toward value-added service. Economist Wisnu Wardana of Indonesia s Bank - 2 -
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Japan Center for Economic Research Danamon feels the country is going in the right direction in terms of economic prudency and structural reform. Needless to say, reforms are not always perfect and sometimes produce new problems. Dendi Ramdani, head of industry and regional research at Indonesia s Bank Mandiri, points out the structural issues the country faces. He finds that Indonesia has been short of growing industrial sectors, and that the economic structure has transformed to have a larger proportion in services but a smaller industry sector. He also points out that the economy is more dependent on the commodity sector. Now, he stresses, Indonesia under President Jokowi should make large efforts in accelerating industrialization. Survey respondents did not address politics in specific terms. It is nevertheless clear that political leadership is necessary to push reforms forward. It should also be noted that no serious military confrontations have occurred in ASEAN countries in the past twenty years. Measures to Avoid Financial Crisis The Thai baht, Indonesian rupiah, and other Asian currencies came under attack in 1997 and were forced to move to the float system. The exchange rates of the baht, rupiah, Philippine peso, and Malaysian ringgit fell 50-80% against the U.S. dollar. These currencies have long remained weak, but new crises have not materialized. After the financial crisis, new multinational initiatives to avoid other financial disasters were introduced. Japan proposed the New Miyazawa Initiative in 1998, which later developed into the Chiang Mai Initiative, bringing about a multilateral currency swap arrangement. Changes of Asian currencies against USD; 1996=100 160 140 120 100 80 60 40 20 0 Thailand Indonesia South Korea Philippines Malaysia China Chart made by author based on annual average rates Individual countries introduced systems for better supervision and regulation of financial activities. Policy addressing the vulnerability of the banking and financial sector has been proven successful. Thailand has been able to withstand global shocks very well and strength in this area leads to investor confidence, says Senior VP Phacharaphot Nuntramas of Siam Commercial Bank- Economic Intelligence Center in Thailand. India Japan According to Chief Economist Lim Chee Sing of RHB Research Institute, in Malaysia a more diversified economy with a stronger institutional framework and a better capitalized banking system has evolved since the Asian Financial Crisis. - 3 -
Challenges Economists warn that various challenges persist. Infrastructure improvements remain unaddressed, says Bhaskaran of Centennial Asia. Insufficient infrastructure remains a bottleneck facing future economic development in many Asian countries. In February the Asian Development Bank announced that total demands of infrastructure in 45 Asian countries would come to USD 26 trillion by 2030. In many countries including Indonesia, the Philippines, and Thailand, not a few infrastructure projects face delays in implementation. Reforms in the financial sector have proceeded, but remain insufficient. Banks are not optimal yet in their role to support growth, says CEDED chairman Umar Juoro of Indonesia. Improving productivity is also a big challenge. As Nomura Singapore s senior economist Euben Paracuelles points out, unfavorable demographics have presented new challenges for economic policies, which have struggled to raise labor productivity growth. The middle-income trap question haunts ASEAN countries with the exception of Singapore. Associate Professor Randolph Tan of Singapore University of Social Sciences stresses it is not a question unique to Asian economies. He focuses on the role of regional integration as a component of further development. Asian economies do have a challenge of reconciling their historical differences. Unlike Europe, we have been much slower to do so, and that will affect our ability to expand cooperation to the level that will be needed to elevate our economies to the next level of development. Developments in the 20 Years Since the Asian Financial Crisis 1997 Thailand abandons peg system amid financial crisis (July 2) Malaysia introduces capital control as ringgit falls sharply (Oct. 2) IMF announces $23 billion rescue plan for Indonesia (Oct. 31) IMF announces $57 billion bailout package for South Korea amid its financial crisis (Dec. 3) Thailand falls into negative growth (1997 and 1998) 1998 Indonesian president Suharto steps down amid anti-govt. riot (May 21) Russian financial crisis starts (Aug. 17) Malaysian ringgit moves to peg system (Sept.) New Miyazawa Initiative proposed (Oct.) Indonesia, Malaysia, Philippines, Singapore and Korea fall into negative growth. 1999 ASEAN5, Korea return to positive growth 2000 NASDAQ closes at 5048, reflects the peak of dot-com bubble 2001 September 11 terrorist attacks 2002 Attention turns to BRICs Bombing in Bali island kills 202 people amid Indonesia s political instability 2004 Yudhoyono becomes Indonesia s president (-2014) 2005 Chiang Mai Initiative agreed 2006 PM Thaksin Shinawatra ousted by military coup in Thailand 2008 Lehman Brothers goes into bankruptcy, triggers the world financial crisis (Sept. 15) U.S. introduces zero interest rate policy and QE1, leads to easy money era - 4 -
2010 Benigno Aquino becomes Philippine president, introduces economic reform measures ASEAN adopts Master Plan on Connectivity China s GDP exceeds Japan s, becomes the world s second largest 2011 ASEAN+3 Macroeconomic and Research Office (AMRO) established Samsung Electronics takes largest market share in smart phones, exceeds Apple 2014 Narendra Modi becomes India s PM, begins Modinomics Oil price falls from around $100/barrel in summer to $60 in Dec., signals end of resource boom U.S. ends quantitative easing in December 2015 ASEAN Economic Community established (Dec.31) 2016 Rodrigo Duterte becomes Philippine president ==================== Japan Center for Economic Research (JCER) Nikkei Building 11F 1-3-7 Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan Tel: + 81-3-6256-7710 - 5 -