The fallout from the Sept. 11 terror attacks is unlikely to push East Asia into a crisis similar to the one in 1997 to 1998, but the region's recovery from the current global economic downturn will be delayed, the Asian Development Bank said yesterday.
"There has been a setback to recovery. Another crisis? Definitely not," Pradumna Rana, manager of the ADB's regional economic monitoring unit, said at a briefing to launch the Manila-based bank's quarterly review.
Several indicators showed the regional economies were more resilient than during the 1997 to 1998 crisis, making the likelihood of another major financial meltdown hitting East Asia extremely remote, the ADB said. East Asian economies, including the five worst-hit countries, run current account surpluses and hold sufficient foreign reserves to stave off potential attacks on their currencies, it said.
"It is also important to remember that the 1997 crisis was primarily a capital account crisis that was exacerbated by pegged, but unsustainable, exchange rates," the ADB said.
"Since then, many East Asian countries have moved toward more flexible exchange rate regimes. This should enable them to adjust to external shocks more smoothly."
With East Asia largely dependent on the global economy for growth, the ADB has trimmed its growth forecast for the region, with recovery expected to surface in the latter half of next year.
The ADB shaved this year's growth forecast for East Asia by 0.5 percentage points to 3.9 percent, and by one percentage point to 4.7 percent for next year.
"This would be the region's second slowest yearly growth in two decades, after the 1.4 percent GDP contraction in 1998 at the height of the Asia crisis," the ADB said in its Asia Economic Monitor.
Growth will only emerge in the second half of next year instead of the year-end recovery initially projected.
"With the worsening of the global economic situation in the aftermath of the Sept. 11 attacks, the economic slowdown in East Asia is likely to deepen further, while being more prolonged," the ADB said.
"The current slowdown is being caused by an external demand shock that is being felt all around the region," it said.
Despite the region's improved resilience, the ADB warned policymakers against complacency if they are to avoid another major crisis. It is crucial for the region to continue with economic restructuring, it said.
"The years since the onset of the Asian crisis represent the most turbulent half decade in East Asia's recent economic history," said the ADB.
"The turbulence and volatility hitting the region suggest that, in a rapidly integrating global economy, countries have to remain vigilant, as problems in one part of the world feed through to other parts at a rapid pace," the bank said.
"In such an environment, there is simply no room for policy drift."
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