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Asia Recovery Report - March 2000

Asia Recovery Report - March 2000

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This inaugural issue of the Asia Recovery Report (ARR) focuses on the five countries most affected by the crisis: Indonesia, the Republic of Korea, Malaysia, the Philippines and Thailand. The recovery process in these five countries together with its strengths and weaknesses are discussed. The theme of this ARR is the most immediate and complex challenge to the recovery process—the restructuring of banks and the corporate sector.
This inaugural issue of the Asia Recovery Report (ARR) focuses on the five countries most affected by the crisis: Indonesia, the Republic of Korea, Malaysia, the Philippines and Thailand. The recovery process in these five countries together with its strengths and weaknesses are discussed. The theme of this ARR is the most immediate and complex challenge to the recovery process—the restructuring of banks and the corporate sector.

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Published by: Asian Development Bank on Nov 05, 2013
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Asia Recovery Report 2000
March 2000http://aric.adb.org
Contents
Tracking Asia's Recovery:A Regional Overview
 3
Country UpdatesIndonesia
 19
Republic of Korea
 28
Malaysia
 36
Philippines
 44
Thailand
 53
Bank and CorporateRestructuring
 62
Highlights
Asia’s recovery has been encouraging and faster than ex-pected but incomes and living standards have still a wayto go to reach pre-crisis levels.The recovery is uneven—Korea has experienced the stron-gest recovery, while Indonesia is furthest behind—and it isnot yet broad-based.Asset markets have led the recovery, with exchange ratesand equity valuations at the forefront, but property mar-kets have yet to recover.Exports and public spending have driven recovery in thereal economy so far; private consumption and investmentare beginning to track upward as well.Bank re-capitalization and restructuring is proceeding atan uneven pace, fastest in Korea and Malaysia, at a mod-erate pace in Thailand and slowest in Indonesia; recoveryis mainly cyclical not structural.Corporate restructuring and resolution of corporate debthave proceeded more slowly than bank restructuring in allthe affected countries; however, there are signs of progressin resolving more cases.The social dimensions of the crisis cannot be ignored if theAsian economies are to achieve their growth potential; in-vestments in education, health and improved social safetynets are essential.The recovery process will be further consolidated and pos-sibly strengthened in 2000, driven mainly by domesticdemand.Some have suggested that a more cautious approach toreforms is now needed to allow growth to take root; this “growth first” approach is risky and may invite a recur-rence of problems at a later date.There is no room for complacency or for slackening reformefforts; if reforms are continued, in the long run, the crisismay indeed appear to be a relatively moderate disturbancein Asia's rise and dynamism.
The Asia Recovery Report (ARR) is asemi-annual review of Asia’s recoveryfrom the crisis that began in July 1997.The analysis is supported by high–frequency indicators compiled under theARIC Indicators section of this web site.This inaugural issue of the ARR focuseson the five countries most affected bythe crisis: Indonesia, the Republic of Korea, Malaysia, the Philippines andThailand. The recovery process in thesefive countries together with its strengthsand weaknesses are discussed. Thetheme of this ARR is the most immedi-ate and complex challenge to the re-covery process—the restructuring of banks and the corporate sector.
Continued overleaf 
Asian Development BankRegional Economic Monitoring Unit
6 ADB Avenue, Mandaluyong City0401 Metro Manila, Philippines
Telephone
(63-2) 632-5458/4444
Facsimile
(63-2) 636-2183
E-mail
aric_info@adb.org
How to reach us
 
Acronyms, Abbreviations, and NotesCountry-specific Recovery Prospects
Indonesia’s recovery has been constrained by politicaluncertainties and instability, but with a new democrati-cally elected President it is poised to begin recovery inearnest this year.Korea is back with the strongest recovery in the region,but
chaebol
reform remains to be accomplished.Malaysia’s selective capital controls policy may haveprovided the authorities with breathing space to stimu-late the economy through expansionary macroeco-nomic policies and structural reforms; but the jury isstill out on the efficacy of capital controls.Philippine banks report recovery in lending activitiesand a decline in the share of NPLs, indicating the re-covery is gathering momentum; but fiscal consolida-tion and governance issues have to be addressed.Thailand’s market-led approach to financial restructur-ing is finally starting to pay dividends as banks reportprogress in clearing bad debts.
The
 Asia Recovery Report 2000
was preparedby the Regional Economic Monitoring Unit of the Asian Development Bank and does notnecessarily reflect the views of the ADB's Boardof Governors or the countries they represent.
ARICAsia Recovery Information CenterASEANAssociation of Southeast Asian NationsBIBank IndonesiaBISBank for International SettlementsBLBIBank Indonesia liquidity creditsBOTBank of ThailandBSPBangko Sentral ng PilipinasCAMELCapital, Asset Quality, Management,Earnings and LiquidityCARcapital adequacy ratioCDRACCorporate Debt Restructuring AdvisoryCommitteeCDRCCorporate Debt Restructuring CommitteeCIFcost, insurance, and freightCPIconsumer price indexCRCCCorporate Restructuring CoordinationCommitteeEIUEconomic Intelligence UnitEPFEmployee Provident FundFDIforeign direct investmentFedFederal Reserve BoardFIDFFinancial Institutional Development FundFOBfree on boardFRAFinancial Sector Restructuring AuthorityFSCFinancial Supervisory CommitteeFSSFinancial Supervisory ServiceGDPgross domestic productGIRgross international reservesIBRAIndonesian Bank Restructuring AuthorityIMFInternational Monetary FundINDRAIndonesian Debt Restructuring AgencyJCIJakarta Composite IndexKAMCOKorean Asset Management CompanyKDICKorean Deposit Insurance CorporationKLCIKuala Lumpur Composite IndexKOSPIKorean Stock Price IndexMOFMinistry of FinanceMOFEMinistry of Finance and EconomyNPLnon-performing loanOECDOrganisation for EconomicCo-operation and DevelopmentPHISIXPhilippine Stock Exchange Composite IndexPRCPeople’s Republic of ChinaROAreturn on assetsROEreturn on equityS&Lsavings and loanS&PStandard & PoorsSECSecurities and Exchange CommissionSETStock Exchange of ThailandSMEsmall and medium enterprisesWPIwholesale price indexWTOWorld Trade OrganizationBbahtPpesoRMringgitRprupiahWwonnot availableppreliminaryQquartery-o-yyear on year
 
Tracking Asia’s Recovery—A Regional Overview
The Recovery Process—Asset Markets and the Real Sector
Following more than a decade of stellar growth, Thailand's GDPcontracted in 1997. The other affected economies (Indonesia,Republic of Korea, henceforth Korea, Malaysia, and the Philippines)grew more slowly in 1997 and by early 1998 output had begun tocontract. By the end of that year, GDP had nose-dived by 13.2percent in Indonesia, 10.4 percent in Thailand, 7.5 percent in Ma-laysia, 5.8 percent in Korea and 0.5 percent in the Philippines. Butthis dramatic reversal of fortunes proved short-lived. Most econo-mies bottomed out and started picking up in late 1998 or early1999. And as the year progressed, economic recovery gatheredmomentum. Korea turned in an outstanding performance in 1999by growing at 10.2 percent. The growth performance of Malaysia,Thailand and the Philippines was more moderate at 5.4 percent,4.0 percent and 3.2 percent, respectively. Indonesia's growth per-formance at 0.23 percent was also positive but slow.While recovery is tangible, it is not yet broad-based. There arevariations in the pattern of recovery across countries, and acrossthe components of aggregate demand and supply. As is usuallythe case, recovery in financial markets has preceded recovery inthe real sector.Also, per capita incomes have yet to climb back to their pre-crisislevels in Indonesia, Malaysia, the Philippines and Thailand. Oneway to gauge the extent of the recovery is to compare per capitaincome levels in local constant prices with the pre-crisis levels(Figure 1). For all countries, but Thailand, 1997 is the most recentpeak in GDP per capita incomes. In Thailand, 1996 is the peak. Bythe end of 1999, only Korea had a level of GDP per capita thatexceeded its previous peak. In all other economies GDP per capitastill has lost ground to make up. Mainly because it did not fall somuch, the Philippines has the shortest way to go, and may regainor exceed its most recent peak by the end of 2000. Malaysia maytake another two years, with full recovery of lost income takingeven longer in Thailand and Indonesia. Even then GDP per capita
Figure 2:
 Exchange Rate Index
(weekly average, last week of 1997June=100, $/local currency)
Source: ARIC Indicators.
Figure 1:
 GDP per Capita Index
(1996=100)
Note: 1999 data on population are ADB staff forecasts.Sources: ADB, Key Indicators of DevelopingAsian and Pacific Countries; various nationalsources.

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