'Asia open to economic crisis'

The Treasurer yesterday cast doubt on the Asian economic recovery, telling the World Economic Forum that a lack of progress in reforming financial institutions and laws had left the region vulnerable to another crisis.

Mr Costello spoke at the first session of the forum, held in a half-full auditorium due to protests outside. The last of six speakers, he was the only one who did not talk in glowing terms of the region's strong recovery since the depths of recession in 1997 and 1998.

"Let's not get too euphoric," he said. "Let's ask ourselves the questions: How much has changed since 1997? Is there any difference in the international financial architecture today from what prevailed in 1997?" In particular, Mr Costello was sceptical about the notion that Asia was in a better position to cope if international investor sentiment turned sour and capital was once again pulled out rapidly, prompting another currency crisis.

He compared the massive capital withdrawals to 100,000 volts being pumped through a "house wire".

The International Monetary Fund had made errors with the last Asian crisis and was still far from perfect, he said.

As well, reforms to improve transparency, corporate governance and debt reduction had been hard to find.

"I don't think we should congratulate ourself on the great success on any of the programs," he said.

While the growth spurt in Asia over the past two years had gone a long way to reversing the massive plunge in living standards, there were clear concerns in most major Asian economies.

South Korea, one of the region's outstanding performers, still needed to reform its massive corporate conglomerates.

Japan's return to growth was shaky, Malaysia had adopted restrictive capital controls, Thailand still had major debt write-off programs to implement and Indonesia had a very long road ahead of it.

On top of that was the rise in oil prices, which particularly hurt the growing, energy-dependent industries of the region.

The theme of the forum's Asia-Pacific summit was "leveraging the drivers of growth", and other speakers preferred to emphasise the good points.

The chief economist of the Nomura Research Institute, Mr Richard Koo, said Japan had not been given credit for its structural reforms.

Much of this was due to the typical Japanese way of doing business without fanfare.

Mr Koo spoke of Japan's "balance sheet recession", a lack of spending as corporations and households spent their money paying down huge debts accumulated before the asset price collapse at the beginning of the 1990s, rather than on consumption and investment.

He believed that process had reached an end, and that Japan was at the beginning of a strong upturn in the next year or two.

The chief executive officer of PricewaterhouseCoopers, Mr James Schiro, argued that e-commerce had the potential to have a more profound impact on the region in the next few years than the IMF rescue package.

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-- Carl Jenkins (Somewherepress@aol.com), September 11, 2000