SINGAPORE, Nov. 6 (UPI) -- While East Asia's recovery was in full swing in the first half of this year, it is now challenged by a combination of global, regional and domestic uncertainties, and that underlines the urgency for policy-makers to advance reforms, the World Bank said Wednesday.
In its half-yearly update on East Asia and the Pacific, the World Bank said that sustaining adequate rates of economic and social development in a more complex and difficult environment would depend more than ever on the quality of countries' own policies and institutions.
"We see East Asia's recovery challenged by a number of factors. The anticipated pace of global economic recovery has been slower than expected, demand for East Asian exports has slackened off, and the recent sharp fall in high-tech demand suggests that the road to recovery in this critical sector might be a bumpy one, said Jemal-uddin Kasum, vice president for East Asia and the Pacific.
"This year's sharp rise in world oil prices will sap income in the majority of East Asian countries, while recent terrorist attacks in Bali and elsewhere will depress tourism and business confidence, at least for a time, taking a toll on the near term growth outlook for Indonesia in particular," he added.
While the recovery this year was relatively broad-based, since it was powered by exports, private consumer spending, and in some cases fiscal stimulus, private investment spending has remained weak. Growth itself hasn't addressed problems of excessive corporate leverage and distressed debt.
"Debt-equity ratios, though they have fallen in some instances, remain high by international standards. Together with low-corporate profitability, they continue to depress the investment climate and undermine the prospects for accelerated medium-term growth," Kasum noted.
The report calls for actions to improve law and order and public security; maintain prudent macroeconomic management of external and domestic fiscal positions; strengthen governance, administration and public financial accountability in delivery of services.
This means completing the restructuring agenda that has been unresolved since the 1997-98 financial crisis, improving financial sector supervision and regulation, and undertaking broader reforms to strengthen the investment climate.
The report said that security concerns and the political focus on upcoming elections in some countries will increasingly crowd the policy and reform agenda.
Elections are due in 2004 in Indonesia, the Philippines and Malaysia.
However, World Bank officials said there were some reasons for optimism.
Homi Kharas, chief economist for the East Asian region, noted that world trade and growth in the developed world is still expected to be stronger in 2003 than 2002. Further, China remains a powerful source of export demand for other countries in East Asia, offsetting the loss of East Asian exports to Japan.
"This extremely rapid rise in exports to China this year will clearly not be sustained, but the underlying trend in the importance of China as an export market for East Asia will continue, as it has for the last decade," said Kharas.
Poverty in the region is also at a record low; it is expected to fall to around 41 percent of regional population in 2002 (at the $2 a day level), from about 50 percent after the financial crisis.
