EAST ASIA UPDATE REGIONAL OVERVIEW Special Focus: · Public Financial Accountability in East Asia · Renewing Trade as An Engine for Growth and Poverty Reduction October 2001 East Asia and Pacific Region The World Bank REGIONAL OVERVIEW Introduction likely to suffer the most severe downturn because of their particular exposure to the global hi-tech recession, 2001 The horrific September 11 terrorist attacks on the projections for these countries already having been slashed United States have created a new reality for the East Asia before September 11 (Figure 1). Fortunately these region, in both the near and longer terms, not only in the economies are also best-positioned to absorb the shock economic field, but also in those of politics, security and because of low poverty rates, good economic management, international relations. Assessments of the economic impact and other sound fundamentals such as high foreign reserves, of the attack can only be very uncertain at this point, low short term debt, and good governance institutions. however. The main impact in the near term will be to heighten uncertainty and depress consumer and business Table 1. Global Forecasts Before and After Sept. 11 confidence both in the United States and elsewhere, effects End August 2001 End Sept. 2001 that are hard to gauge with any precision ­ other than that they are likely to be large. Some of the economic results of 2001 2002 2001 2002 the attack will also depend on the scope, timing and duration World growth 1.5 2.6 1.3 1.6 of the military response undertaken by the U.S. and its allies, OECD 1.2 2 0.9 1.0 which are also uncertain at present. Among longer-term World Trade 1.6 6.1 1.0 4.0 consequences, the premium on more profound structural and Source: World Bank DEC Prospects Group 10/10/01. institutional reforms that bolster growth and political stability has increased. Despite the uncertainties, some `best guesses' about the economic effects of the attack can be Figure 1. Change in Consensus Forecasts for made. 2001 Growth between June'00 and Sep.10 2001 8 (1) Growth Prospects. Growth in the U.S., which had been Source: Consensus Forecasts, various near recession, and in Japan, which was already in recession, issues. Regional totals are simple averages. 6 will now slow even more in the rest of 2001 and in 2002. OECD growth is now expected to reach only around 1 (%) percent in both 2001 and 2002. (Table 1.) The cyclical 4 downturn in the world economy so far this year has centered Growth on a recession in the global hi-tech sector, resulting in a GDP 2 plunge in the exports of many East Asian economies. By July or August economies with a high reliance on hi-tech Forecast Date like Korea, Malaysia, Philippines, Singapore and Taiwan 0 (China) were seeing U.S. dollar exports declines of around Jun-00 Dec-00 Mar-01 10-Sep-01 20-35 percent on year earlier levels. The region's export -2 downturn is now likely to become broader based as the China Japan Latin Am. (4) impact of the terrorist attack on consumer confidence in the EAP NIEs (3) EAP Crisis 5 Vietnam U.S. and around the world dampens demand for the region's consumer and services exports. Growth in the developing East Asia region is Overall, the prospects for a recovery in world trade expected to fall to 4.6 percent in 2001 from 7.3 percent in and in East Asian exports have been pushed back by 6-9 2000, and to recover only mildly to about 5 percent in 2002. months. Aggregate growth in East Asia inclusive of Japan These would be the region's second weakest years since and the Newly Industrialized Economies (NIEs) is expected 1990, bar only the near zero growth year of financial crisis, to slump from a robust 3.6 percent in 2000 to less than 1 1998. (Table 2.) Most of the slowdown in the developing percent in 2001.1 However because of the region's diversity, East Asia group is concentrated in the Crisis 5 countries. outcomes are likely to differ widely. Growth in the NIEs is However, these countries, while also major hi-tech exporters, have a broader export base in some cases , and are 1 expected to achieve aggregate growth of 2-3 percent in In this report the East Asian Newly Industrializing Economies (NIEs) refer to Hong Kong (SAR), Singapore and Taiwan (China). 2001, significantly higher than the NIEs. Earlier fears that They are not included in the developing East Asia group, which these countries were ill equipped to withstand a major comprises the East Asian `Crisis 5' countries (the five countries external shock because of financial and corporate sector most affected by the financial crisis of 1997-98, Indonesia, Korea, weaknesses appear to be unfounded. Growth will still reach Malaysia, Philippines and Thailand), China, Vietnam and a number around 7 percent in China, which contains two thirds of the of small developing economies in the region.. East Asia Update 3 region's poor (at the $2 a day poverty line). Other transition (3) Poverty. Painful as these short-term developments are, countries such as Cambodia and Vietnam have shown the impact on poverty is less than might have been expected, continued buoyancy in domestic investment this year, and because the steepest declines in growth are in the NIEs and are less affected by the hi-tech recession. richer Crisis 5 countries, which have relatively low poverty rates. Still, with less growth, this year's downturn in East Table 2. East Asia ­ Real GDP Growth Asia will stall the pace at which income poverty in the Projection region falls, extending the longer term trend of a slowdown 1998 1999 2000 2001 2002 in the pace of poverty reduction since the mid 1990s. The proportion of people living below the $2 a day line is Developing East Asia 0.3 6.9 7.3 4.6 5.0 expected to edge down from an estimated 47 percent in 2000 East Asia 5 -6.7 6.8 6.9 2.3 3.4 to a forecast 46 percent in 2001. Given continued robust Indonesia -13.2 0.8 4.8 3.3 3.5 growth in China and other transition countries, which Korea -6.7 10.9 8.8 2.4 3.4 contain the large majority of the region's poor, the main Malaysia 7.4 6.1 8.3 0.9 3.7 source of slower region wide poverty reduction in 2001 is Philippines -0.6 3.4 4.0 2.5 3.5 likely to be the sharp slowdown in growth in Indonesia, Thailand -10.8 4.2 4.3 1.6 3.0 Philippines and Thailand, which contain most of the rest of Transition the region's poor. In a longer-term perspective, it is notable China 7.8 7.1 7.9 7.1 6.8 that the pace of poverty reduction in the region has slowed dramatically, something that, persisting over time, cannot Vietnam 4.0 4.8 5.5 4.9 5.8 but have deep social, political and policy implications. Small Economies -0.1 5.4 1.7 1.9 3.6 Between 1990 and 1996 the regional poverty rate at $2-a- day fell from 67 to 49 percent, but from 1996 to 2000 it fell East Asia NIEs 4.1 4.8 8.0 -0.6 3.6 only two percentage points more. The less numerically Japan -1.1 0.8 1.5 -0.8 0.1 significant reason is the financial crisis and slow recovery in Memo: All East Asia -0.3 2.8 3.6 0.7 1.7 Indonesia, Philippines and Thailand. The other is slower Small Economies are weighted average of Cambodia, Lao PDR, income growth in China's rural areas ­ where most of Mongolia, Papua New Guinea. See Appendix Table 1. NIEs are China's poor are - even as urban income growth has gone Consensus Forecasts September 10, 2001. from strength to strength. Thus the drama of East Asian Predicting when the rebound in the world economy poverty reduction will largely depend on how countries will come is not easy, but it is probable that the steep cuts in address disparities in rural-urban and intra-regional growth, interest rates, income tax cuts and post-attack emergency as well as the structural and institutional improvements spending increases in the U.S., as well as policy measures in needed to bolster growth overall. other industrial countries, will lead to a rebound in the (4) Capital Flows. In general the region's financial markets second half of 2002, strengthening into a more full blown had performed relatively well before September 11. Despite global recovery in 2003. serious emerging capital market crises in Turkey and (2) Sectoral Effects. Oil prices have been volatile after the Argentina, there were few signs of a generalized contagion terrorist attack, but have generally fallen as the prospect of effect or pullback of private flows to the region. Gross weakening world demand has offset the risk of military capital market flows to the region of about $31.5 billion in action in the Middle East. If major disruptions are avoided, the January-July 2001 were only slightly lower than the weak world growth will tend to push oil prices lower in same 2000 period. This overall stability reflected 2002. However countries which rely on worker remittances improvements in crisis countries' external balance sheets in from the Middle East could be hurt by political turmoil the last several years , including a buildup of foreign reserves there, as well as from weaker growth in Asia. Remittances to and reductions in short term debt. Exchange rates, while the Philippines are already down. Non oil commodity prices volatile, were not much different in early September from have weakened in 2001, and are likely to weaken further the start of the year, while the majority of equity markets with lower world growth after the attack. Some of the had actually risen modestly over this period. Capital market smaller economies of the region which rely on commodity stresses were concentrated on the Philippines and Indonesia, exports like Mongolia, Papua New Guinea, Fiji and the reflecting political uncertainties earlier in the year, as well as island economies will be hurt by lower non-oil primary concerns about high public debt. After the attack secondary commodity prices. As regards other sectoral effects of the market spreads for Indonesia and Philippines widened. attack, airline travel, tourism and insurance are likely to be Equity prices fell sharply in most countries in the region. In the worst affected, while inputs for military materials, IT general the region will share to some extent in a more infrastructure and telecommunications may benefit, so that widespread investor pullback from emerging markets. East Asia with its reliance on hi-tech exports may be less Corporate restructuring and privatization efforts may be badly affected than other regions. However selected Pacific hampered by reduced foreign investor interest. islands and countries like Thailand will feel a more (5) Fiscal Policy. A number of countries have increased significant effect of the pullback in world tourism. fiscal expenditures somewhat to help smooth the impact of the export shock , including China, Korea, Malaysia and East Asia Update 4 Thailand. Such expenditures can be especially helpful when crucially on making real progress on corporate carefully targeted to address social protection, infrastructure restructuring, especially in operational terms. A positive or other particular sectoral needs that may be warranted in a sign is that, despite this year's slowdown, policy makers sharply slowing economy. However, concerns about have continued to put in place measures to facilitate relatively high or growing public debt ­ especially when restructuring. Going forward, implementation of these measured inclusive of contingent liabilities ­ mean that in measures will be the key. With a global anti-terrorist most countries higher spending can only be sustainable for a campaign including efforts to shut down money limited time. Indeed very high public debt levels will laundering, there will be a premium on reforms to essentially preclude greater fiscal stimulus in Indonesia and improve financial transparency, regulation and the Philippines. Given these constraints, a temporary supervision, accounting and auditing standards, and increase in spending ­ where possible - is best seen as a corporate governance. means of addressing specific social or sectoral objectives, and as a complementary policy that allows countries to · Competitive pressures on East Asian firms have continue to make progress on difficult structural policies like increased as countries in Latin America and the corporate restructuring, even in the current weak economic transition economies in Europe have undertaken far climate. reaching policy reforms. Growing interest in regional trade issues, renewed international efforts to launch a (6) Medium Term Effects and Structural Reforms. new round of global trade talks and China's entry to the While the short-term outlook for the world and regional WTO all create an important opportunity over the next economies have worsened, the aggressive loosening of several years to substantially advance East Asia's trade monetary and fiscal policies undertaken by the developed liberalization agenda as a means of enhancing growth countries in response will not only stimulate recovery, and poverty reduction. China is emerging as the probably from the second half of 2002, but will also tend to economic center of gravity for the region, with a growing ensure that the rebound, when it arrives, will be a steep one. share of the region's GDP (about 54 percent in 2000), Debtor countries in the region will benefit from lower capital inflows and trade. China's WTO accession poses international interest rates, and, possibly, from a lower a competitive threat in some sectors and for some dollar. A key issue for policy makers is to position countries economies in the region. But it also represents a large to take full advantage of the global recovery when it arrives. and fast growing market opportunity - in absolute terms Medium term structural reforms that strengthen the China is now almost as important a destination for East fundamental underpinnings of development are likely to Asian exports as Japan. The need to rally developing have a more significant impact on growth and poverty countries for a global campaign against terrorism may reduction than any short-term gains from fiscal stimulus. lead to more seriousness in putting through multilateral At the same time, this year's largely unexpected global and regional trade liberalization efforts that pay more downturn has shown the weakness in a strategy of simply attention to developing country needs. Greater security trying to `grow out' of the problems left over from the measures after the attack will also hamper mobility, financial crisis of 1997-98. Indeed, in the wake of the having similar effects to a tariff on international trade September 11 attack, higher uncertainty and risk may and movement. That provides another reason for become a more prevalent feature of international affairs for offsetting such a tax through renewed multilateral trade some time. Structural reforms should also help make the liberalization, as well as through infrastructural region's economies more robust in riding through a more investments to improve customs, port and logistics uncertain and volatile external environment. The importance efficiency while strengthening security. of renewed attention to corporate and financial · The turbulent but essentially peaceful political restructuring, trade reform and institutional and governance transitions in Indonesia and the Philippines this year reforms has increased not decreased in the post September suggest that the region is in a transition period that 11 world. combines growing political debate, conflict, and · Some East Asian crisis countries had already questioning of traditional governance practices, on the experienced a weakening of private investment before one hand, and a gradual emergence and consolidation of the downturn in the world economy and in exports, more constitutional and democratic institutions, norms especially as business confidence has been affected by and values on the other. After significant political stress concerns about the slow pace and quality of corporate in several countries earlier in the year, there was indeed a and financial sector restructuring so far. While strengthening of democratic politics and an abatement in countries have made progress on recapitalizing banks, political uncertainty in some key countries over the last protecting depositors and gradually strengthening six months. In Indonesia confidence in political stability supervision and regulation, non-performing loans remain rose with the peaceful constitutional transfer of power to high and in some cases show worrying signs of increase the government of Megawati Soekarnoputri. In the this year. On the corporate side, debt-equity ratios, while Philippines congressional elections strengthened the having come down, generally remain high by authority of the new Macapagal Arroyo government. In international standards. Further progress will depend Thailand uncertainties surrounding the position of newly East Asia Update 5 elected prime minister Thaksin Shinawatra were resolved in the U.S. so far in 2001 had been led by a severe cyclical by a ruling of the Constitutional Court. And East Timor downturn in business investment, especially in high passed an important milestone on August 30 with technology goods. After the terrorist attack the US peaceful elections for a new constituent assembly. downturn will become much more broad based as a result of However, going forward, there may be potential for more falls in consumer and business confidence, declines in political stress in countries where a broadly supported personal wealth and supply disruptions in transportation. effort to crack down on terrorism may be challenged by Growth is expected to fall to only around 1 percent in both minorities of the population. In this context governance 2001 and 2002, the latter representing a cut of more than one and institutional reform efforts are increasingly percentage point from pre -attack forecasts. important for economic and social advance in the region, to improve public and business confidence and Japan, which takes about 11 percent of Asian exports, had already been in recession before the attack, as its exports strengthen the legitimacy of democratic governments by combating corruption, improving public financial fell sharply because of the global hi-tech recession, bank bad management and improving the ability to deliver vital debts continued to balloon and business investment fell. Japanese stock markets plunged 6 percent in the week after public services to the population. the attack, and had fallen 30 percent for the year. With Japanese banks obliged to mark their equity holdings to The global export shock: varied regional growth market values at the end of September, the fall in stock outcomes prices could further severely erode the capital base of Japanese banks, aggravating the existing recession in Japan, Just as East Asia's recovery from the financial crisis and possibly, contribute to a substantial weakening of the of 1997-98 was powered by a surge in exports that yen. A significantly weaker yen would sharpen competitive responded to surprisingly strong world growth in 1999-2000, pressure on hard-pressed East Asian exporters. so this year's regional downturn is principally the result of a massive negative export shock driven by a steep downturn in East Asia's exports to other East Asia will also be the world economy. How countries adapt to this shock, and depressed by the simultaneous downturn in many countries' what economic growth they are able to achieve, is likely to own domestic demand and imports. China, whose strong vary greatly, however, depending on the sensitivity of growing economy was still pulling in imports at a double- domestic economies to external factors, the policy choices digit pace in the first half of 2001, and whose share of available to governments, the extent of political stability or regional exports doubled to 10 percent over the last decade, uncertainty, and the prevailing financial health or weakness is one bright spot in the regional export picture. One can of banks and firms, among other domestic issues. look to a continuation of this trend making China a major powerhouse of import demand for the rest of the region over The Global Shock the coming decade, but in 2001 it will not be enough to Global growth is expected to fall to only 1.3 percent offset the other negative influences on regional exports. in 2001, the slowest since 1993, with OECD high-income country growth down to 0.9 percent, the lowest since the Figure 2. Share of Major Markets in East Asian Exports 1982 world recession. (Appendix Table 1.)2 The more than 25 2.5 percentage point fall in world growth from 2000's robust USA pace would be the largest such decline since 1974. World growth is forecast at a still weak 1.6 percent in 2002, having 20 been cut a full percentage point from the pace forecast before the September 11 terrorist attack. World trade growth in real terms is expected to fall to about 1 percent in 2001, %15 down from over 13 percent pace in 2000, itself the highest in Japan more than 20 years. Growth is expected to fall at the same time in all three 10 major developed regions, the US, Japan and Europe, with China the largest fall in the world's largest economy, the United States, which was a market for some 23 percent of 5 developing Asia's aggregate merchandise exports in 2000. 1990 1995 2000 (Figure 2 and Appendix Table 6). The economic downturn The impact of this highly cyclical pattern of world 2 growth on East Asia has been exacerbated by its having Projections for the world economy in this report represent the World Bank Development Economics Prospects Group's started as a boom and bust cycle in world business investment spending, focused especially on the high assessments as of October 10 2001. These projections are technology capital goods sector, one where many East Asian work in progress for the Bank's Global Economic Prospects 2002 report to be published in November, which may differ countries serve as important global production platforms for hi-tech multinationals. Strong world demand for hi-tech at from the assessments presented here. East Asia Update 6 the end of the 1990s was underpinned by the need for firms by the global hi-tech recession, which has sent their exports to reequip with rapidly advancing new technologies for into a much steeper deceleration than had been expected competitive reasons (`e-commerce'), by expenditures to earlier in the year. By July-August Singapore's U.S. dollar address the `Y2K' problem, and, as assumptions about the exports were down around 20 percent from year earlier profitability of the new technologies became ever more levels, while Taiwan (China)'s were down by around 35 optimistic, by a massive run up in hi-tech equity prices, percent. Fortunately these two economies are also ones which in turn provided low cost financing for further capital with low levels of income poverty. spending. Figure 3 shows both the enormous 1999-2000 Growth in the developing East Asia region (i.e. surge in world sales of semiconductors, a key hi-tech component, as well as the collapse in these sales that began excluding Japan, Hong Kong (SAR), Taiwan (China) and in late 2000. The downturn in world trade is now likely to Singapore) is expected to reach 4.6 percent in 2001, down sharply from 7.3 percent in 2000.3 (Figure 4 and Appendix deepen and become more broad-based as the economic consequences of the terrorist attack are felt. Table 2.) Developing East Asian growth is expected to rise only modestly to around 5 percent in 2002, significantly Figure 3. Semiconductors: World Price and Sales below a pre -attack forecast of just over 5.5 percent. 1990-2001 (3 Month Moving Averages) 0.80 20 Figure 4. East Asia: Real GDP Growth 1990-2002 16.0 18 East Asia 0.70 Crisis 5 Price - 16 Left 12.0 China 0.60 Scale Other Transition 14 8.0 0.50 12 Price Sales 10 4.0 0.40 World Sales - 8 Right Scale 0.30 0.0 6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 0.20 4 -4.0 Nov-90May-91 Nov-91 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 May-92 May-93 May-94 May-95 May-96 May-97 May-98 May-99 May-00 May-01 -8.0 Other Transition=Cambodia,Lao PDR,Mongolia,Vietnam. Weights are US$ GDP in 1995-99. Predicting when the rebound in the world economy will come is not easy, but it is probable that the steep cuts in interest rates, income tax cuts and post-attack emergency Most of the slowdown in developing East Asia's spending increases in the U.S., as well as policy measures in growth is concentrated in the Crisis 5 countries, a group that includes countries like Korea and Thailand, where hi-tech other industrial countries, will lead to the start of a rebound in the second half of 2002, strengthening into a more full comprises 30-40 percent of total exports, and Malaysia and blown global recovery in 2003. Given the substantial the Philippines, where they comprise 50-60 percent of exports. (Figure 5 and Appendix Table 8.) Overall export loosening of monetary and fiscal policies in some industrial countries, the cyclical rebound, when it arrives could be growth in these four countries in July-August was down quite a steep one. Preliminary World Bank projections are around 20 percent from year earlier levels. (Appendix Table 7.) Crisis 5 GDP growth is expected to fall from near 7 for world growth to approach 4 percent in 2003. percent in 2000 to less than 2.5 percent in 2001, and then to Diversity of Regional Growth Outcomes recover modestly to around 3.5 percent in 2002. Apart from generally weaker world growth in 2002, recovery in world Coming on top of an already large cyclical downturn demand for hi-tech products may be muted, and many East in the world economy, the impact of September 11 terrorist Asian countries continue to grapple with difficult medium attack is likely to push back the prospects for a recovery in term problems of financial and corporate sector weakness world trade and in East Asian exports by 6-9 months. and of high public indebtedness. Aggregate growth in East Asia inclusive of Japan and the NIEs is expected to slump from a robust 3.6 percent in 2000 Within the Crisis 5 the sharpest growth declines are to only 0.7 percent in 2001 and 1.6 percent in 2002, the latter expected to occur in Korea and Malaysia, the wealthiest about half a percentage point lower than projections before countries (with hardly any poor at the one or two dollar a the attack. day poverty lines), which were growing at 8-9 percent in 2000. Among lower income (and higher poverty) members However, because of the region's diversity, the impact of the external shock will lead to quite varied outcomes for growth. Japan and NIEs such as Singapore 3Growth rates for regional and sub-regional groups are weighted and Taiwan (China) will see full blown recessions this year. averages using average US$ GDP in 1995-99 as weights. The The two NIEs have been among the most seriously affected `Other Transition' group in Chart 3 comprises Cambodia, Lao PDR, Mongolia and Vietnam. East Asia Update 7 of the crisis group such as Indonesia, Philippines and commodity exports did get hurt by falling prices. Dollar Thailand, growth is expected to fall by less, though still prices for non-oil primary commodities (as measured by the substantially, to a 1-3 percent pace, having recovered more World Bank's index of 33 commodities) are expected to fall sluggishly after the financial crisis to reach a 4-5 percent by near 9 percent overall in 2001, with significant price pace in 2000. Here, among other factors, the peaceful declines in many commodities such as rice, vegetable oils, transition to and consolidation of new governments in rubber, lumber and copper produced by East Asian Indonesia and Philippines should be a positive factor. countries. (Figure 6.) Many of the smaller economies of the region remain heavily dependent on commodity exports. Figure 5. East Asia: Structure of Merchandise Exports Such exports comprise 70 percent or more of the exports of (% Share, 1998) Mongolia and Papua New Guinea, and about 45 percent of EAP Fiji's. Mongolia's growth was also hurt by natural disasters, Papua N.Guin while that in Papua New Guinea and Fiji was also affected Mongolia by high levels of political volatility and uncertainty. Fiji Cambodia Figure 6. East Asia: Commodity Prices Viet Nam (US$ - Index 1997 Q1=1) 1.20 China Thailand Philippines 1.00 Malaysia Korea 0.80 Indonesia 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0.60 Electrical,Data Proc.,Telecom Machinery Textiles,Apparel,Footwear Agriculture, Forestry 0.40 Rice Coconut Oil Palm Oil Rubber Most other parts of East Asia are expected to fare LogsMeranti 0.20 somewhat better, in part related to the fact that countries with a more diversified export reliance on `medium' or `low' Q1.97 Q2.97 Q3.97 Q4.97 Q1.98 Q2.98 Q3.98 Q4.98 Q1.99 Q2.99 Q3.99 Q4.99 Q1.00 Q2.00 Q3.00 Q4.00 Q1.01 Q2.01 tech exports such as textiles and apparel, other more labor intensive manufactures, or agriculture and forestry products have suffered a less sever export slowdown so far in 2001. Growth will still reach around 7 percent in China, which The Pace of Poverty Reduction contains two thirds of the region's poor (at the $2 a day At a minimum this year's economic slowdown will poverty line). China exports a diversified basket of high, slow the pace at which income poverty in the developing medium and low tech products, and its export growth, while East Asia region falls. But the risk of a downside outcome down sharply from 2000, averaged 10 percent in the first 7 with recession and an increase in poverty levels has also months of 2001. Growth is also bolstered by public risen, highlighting the continued vulnerability of households infrastructure spending and by new inflows of foreign direct to external shocks, something driven home in the 1997-98 investment in anticipation of the country's entry to the crisis. The principal reason for not expecting a rise in WTO. poverty is that growth is expected to remain relatively robust Cambodia and Vietnam's more labor intensive and in China and other transition economies which contain a low-to-medium tech exports like garments are less affected large proportion of the region's poor. However the rate of by the global slowdown than are hi-tech exports, and they poverty reduction will certainly slow in the Crisis 5 continue to enjoy buoyancy in domestic investment. countries taken as a group, one which contains much of the Garments comprise 80 percent of Cambodia's exports and rest of the region's poor, and where 2001 growth is expected grew nearly 40 percent in the first half of 2001. Textiles, to fall on average by over four percentage points. The apparel and other non-high tech manufactures make up proportion of the region's population living below the two $ around 50 percent of Vietnam's exports, and while growth of a day poverty line is expected to edge down from 47 percent these exports has slowed, the slowdown has not been as in 2000 to 46 percent in 2001. (Figures 7,8 and Appendix severe as in hi-tech. Now, with US consumer demand and Tables 4, 5). imports slowing in the wake of the attack, these more In a longer-term perspective, the most important diversified exporters may feel the downturn in external poverty trend of the last decade is that the pace of poverty demand more keenly. reduction in the region has slowed dramatically, something While world demand for primary commodities has that, over time, cannot but have profound social, political not weakened as much that for hi-tech products like and policy implications. Between 1990 and 1996 the number semiconductors, countries with a heavy reliance on of people under $2 a day in East Asia fell by 220 million, East Asia Update 8 while the $2 poverty rate fell from 67 to 49 percent. The the difficult problems of disparities in rural-urban and inter- rapid poverty reduction of this period continued the trend of provincial income growth will largely determine how the the 1980s, and, for several countries, of earlier decades as drama of East Asian poverty reduction turns out. well. But between 1996 and 2000 the $2 poverty rate is estimated to have fallen by only two percentage point more, Figure 8. Poverty - Headcount Index - % while the number of people below this level is estimated to ($2-a-day poverty line) 90.0 have risen slightly. East Asia Figure 7. Poverty - Headcount Index - % 80.0 Crisis 5 ($1-a-day poverty line) 60.0 China East Asia 70.0 Other Transition (3) 50.0 Crisis 5 China 60.0 40.0 Other Transition (3) 50.0 30.0 40.0 20.0 30.0 10.0 1990 1996 1999 2000 2001 2002 0.0 The second is that, following the plunge in growth 1990 1996 1999 2000 2001 2002 and rise in poverty during the financial crisis, growth in the East Asian Crisis 5 countries with large numbers of poor like The slowdown in regional poverty reduction derives Indonesia and Thailand may be converging to a trend pace from two sources. The first is slower poverty reduction in of around 5 percent (perhaps less), that would be China, the home of more than 70 percent of people earning significantly lower than in the pre-crisis period. Achieving less than $2 a day in the region.4 Most Chinese earning less higher growth on a sustained basis will require addressing than $2 a day live in rural areas, and, despite strong overall difficult structural and institutional problems that will take economic growth, the pace of income growth in rural areas time to solve. Here too, poverty outcomes are affected by has slowed in recent years. Rural per capita incomes grew persistent regional disparities in income levels and growth on average at 6.9 percent in real terms between 1980 and rates between less and more developed areas within 1996, but at only 3.6 percent between 1996 and 2000. countries. Economic growth and poverty reduction continue Meanwhile urban incomes grew at 5.4 and 6 percent in these at a reasonably rapid pace in the transition economies of two periods respectively. In a broad sense, the rapid rural Indochina ­ Cambodia, Lao PDR and Vietnam. However, growth of the earlier period was supported by enormous one- while the absolute number of poor in Vietnam is quite large off efficiency and productivity gains generated by the move ­ estimated at about 48 million at the $2-a-day level in 1999 from collectivist to incentive based agriculture, while in the ­ Vietnam's numbers relative to the regional total are not later period, when these gains were largely exhausted, large enough to change the overall trend of regional poverty growth has fallen back towards the limits dictated by the reduction. pace at which new technology, capital and other inputs can be applied in agriculture and other rural economic activities. Greater Resilience to International Capital Market The growth of rural income was also curbed by adverse Volatility changes in the agricultural terms of trade in 1996-2000, Gross international private capital market inflows to when output prices, especially those for grain, fell sharply in emerging markets in the first half of 2001 are estimated to the face of large marketed surpluses. How China resolves have fallen by 20 percent from the same period of 2000. 5 Much of the fall in gross flows this year was however concentrated on a few large recipients like Argentina and 4 Poverty estimates for China are based on income distributions from several rounds of a nationally representative household survey Turkey, where concerns about economic fundamentals such conducted by the Rural and Urban Socio-economic Survey as fiscal deficits and high domestic and external Organization. The latest available round of this survey is for 1999. indebtedness have provoked serious capital market crises. Urban and rural poverty measures are estimated separately using Gross capital market flows to major recipients in East Asia urban and rural income distributions, and these are then aggregated appear indeed to have reached $31.5 billion in the January- into national poverty measures using population weights. Poverty July 2001, only slightly below the volume in the same period measures for a sector are estimated using sector-specific income of 2000, which was itself the first year of substantial Lorenz curves and mean consumption available from the surveys. (Income Lorenz curves are used because consumption distributions are not available for all the years.) 5Capital market flows refer to loans, international equity issues and international bond issues. East Asia Update 9 recovery in flows to the region after the financial crisis of during 2000 and depreciated by another 20 percent or so by 1997-98. (Table 3. See Appendix Table 9 for composition June 2001. However the improvement in confidence with the of gross flows.) accession of the Soekarnoputri government in July led to a Table 3: Gross International Capital Market Flows to East strong recovery of the rupiah, about half of which was Asia retraced after the terrorist attack. By September 21 the (US$ Millions) rupiah against the dollar was broadly back at December 1997 1998 1999 2000 2000 2001 2000 levels. Jan-Jul. Jan.-Jul Figure 9. Ratio of Short Term External Debt* to Foreign China 24,844 9,709 6,937 25,483 11,785 6,472 Reserves 3.00 Indonesia 20,083 1,107 1,695 2,163 1,536 254 Korea Korea 26,860 5,838 14,604 22,703 10,904 17,277 Indonesia 2.50 Malaysia Thailand 10,502 3,313 5,984 6,548 1,655 4,373 Malaysia Philippines 6,600 4,674 7,225 6,425 4,100 2,077 2.00 Philippines Thailand 8,491 5,552 3,470 3,769 2,025 1,107 Total 97,379 30,194 39,914 67,092 32,005 31,559 1.50 Source: World Bank estimates. See Appendix Table 9 for flows by type 1.00 The likelihood of a substantial pullback in private capital flows to emerging markets has risen substantially after the September 11 terrorist attack, as the political and 0.50 economic risks attached to investment in developing countries have risen. The East Asia region will inevitably 0.00 1996-Q4 1997-Q4 1998-Q4 1999-Q4 2000-Q4 share to some extent in such a pullback, with countries Debt to BIS Banks. perceived as politically and fiscally unstable more affected than others. Fortunately the external financial positions of Figure 10. Stock Market Indices Jan 1997 - Sept. 2001 many countries have improved since the 1997-98 financial (Jan.1997=1) crisis. These countries have run persistent (if recently 1.60 declining) current account surpluses since the financial Indonesia crisis. In one sense these surpluses reflect a failure of 1.40 Korea domestic investment and consumption to mount a sustained, Malaysia 1.20 strong recovery in line with exports and savings, and are in Philippines that sense a source of medium term concern. But they have 1.00 Thailand also underpinned substantial improvements in the structure Index of the crisis countries' external balance sheets, thereby 0.80 reducing their vulnerability to volatility in international capital markets. Broadly speaking the current account 0.60 surpluses of recent years (augmented in some cases by 0.40 increased net inflows of FDI) have been used to build up foreign reserves while paying down external debt. Short 0.20 term external debts ­ a particular source of vulnerability in the financial crisis ­ have been sharply reduced as compared to foreign reserves. (Figure 9.) These improvements should Stock markets in the Crisis 5 countries also showed provide some financial cushion for countries over the next 6- 9 months, when stress in international capital markets may some greater stability in 2001 before the terrorist attack. be most intense. Equity indices in these countries had fallen by 20-50 percent in 2000 as the emerging global hi-tech recession and the The adoption of more flexible exchange rate regimes downturn in domestic economies were discounted. (Figure in several countries should also help foster a more smooth 10.) Before the terrorist attack, equity prices had actually adjustment to external shocks. Indeed, despite the sharp risen over the course of 2001 in the majority of the Crisis 5 slowdown in exports, the exc hange rates of the main countries, including an over 20 percent rebound in Thailand, countries in the region with a floating rate regime were not falling only in the Philippines. These gains were generally much different against the US dollar in early September more than wiped out as East Asian markets participated in from what they had been in December of 2000, and the the large worldwide pullback in equity markets after the reaction after the September 11 attack has generally been attack. Datastream's World equity price index fell 11 percent muted. The Korean won experienced the largest between the attack and September 21, while East Asian depreciation, of about 7 percent from the start of the year markets fell a median 14 percent, ranging from an 18 percent through late September, while the Philippines and Thailand fall in Thailand to a more muted 3 percent fall in China. saw depreciations of about 3 percent over this period. In Indonesia the rupiah had depreciated by over 30 percent East Asia Update 10 Eurobond spreads for Indonesia and the Philippines Figure 12. Public Sector Fiscal Balance 1997-2001. rose steeply from the middle of 2000 to early 2001, and (% of GDP) these two countries also saw pullbacks in first half 2001 8 Indonesia Korea gross capital market inflows. (Figure 11 and Table 3 above). Malaysia Philippines These reactions can however be linked to fundamental Thailand factors such as high levels of political uncertainty and 4 tension in the recent ultimately peaceful transitions to new presidential administrations in those countries, as well as concerns about their high fiscal deficits and domestic indebtedness. Spreads rose by about 50 basis points in the 0 1997 1998 1999 2000 2001 days after the terrorist attack. Figure 11. Eurobond Spreads Jan'99 - Sept. 14, 2001 -4 1,200 China Indonesia Korea Malaysia 1,000 Philippines Thailand Source: IMF. Indonesia, Korea are central government. Estimate for 2001. -8 800 In few cases would it therefore be possible to use fiscal stimulus as an alternative to deepening and extending 600 corporate and financial restructuring for any length of time. This is especially so as the prospects for a strong recovery in 400 the world economy have been set back after the September 11 terrorist attack. On the contrary, since serious operational 200 restructuring can have a short term depressing impact on output and employment, a temporary fiscal stimulus is best 0 seen as a complementary policy that allows countries to continue to make progress on restructuring, even in the current weak economic climate. Figure 13. Public Sector Debt 1997-2001 (% of GDP) Mixed Potential for Fiscal Policy to Help Stimulate 100 Domestic Growth While the external vulnerability of countries in the 80 region has diminished, this year's slowdown may still tend to exacerbate domestic stresses and vulnerabilities. Several 60 countries in the region have therefore adopted somewhat more stimulative fiscal policies in 2001 to help mitigate social stresses, tackle specific sectoral objectives like 40 infrastructure, and, to the extent possible, smooth the impact of the export slowdown on a still weak financial and 20 corporate sector. Indonesia Korea Malaysia Philippines However, the size and duration of the fiscal stimulus Thailand countries are able to deliver while maintaining 0 1997 1998 1999 2000 2001 macroeconomic stability ­ or whether they can generate Source: IMF. Indonesia, Korea are central government. Estimate for such a stimulus at all - varies greatly, depending in part on the size and future sustainability of public sector debt. China has adopted stimulative fiscal policies since the Public indebtedness in major countries of the region has Asian crisis of 1997-98, using infrastructure investment risen sharply since the 1997 financial crisis, due to the costs spending to offset the near term deflationary impacts of of recapitalizing financial sectors, earlier fiscal stimulus structural reforms, such as the restructuring of state owned efforts and the inflation of foreign currency debts in local enterprises, as well as of downturns in export markets. price terms as a result of currency depreciation. Public debt China's explicit fiscal deficit has risen and its explicit public (exclusive of unrecognized contingent liabilities) ranges debt more than doubled to 23 percent of GDP between 1996 from 20­35 percent of GDP for China and Korea, through and 2000. Taking into account the flow of new bad loans in 60-70 percent for Thailand and Malaysia, to a higher range the financial system and other quasi-fiscal liabilities, of 80-100 percent for the Philippines and Indonesia. however, it is estimated that the fiscal deficit could be twice (Figures 12, 13) as large and the amount of public debt at least three times as large (about 75 percent of GDP). Looking forward, reforms of the financial system, strengthening of tax revenues and East Asia Update 11 other budgetary reforms will be important in putting China's will last, the shift to higher spending will also need to be public debt on a sustainable path while allowing ambitious regularly and carefully evaluated in the light of the long run planned public spending increases for development sustainability of public debt. purposes. In Korea greater fiscal stimulus is planned for 2001 Private Investment Climate: the Corporate and with a budgeted public sector deficit of 0.1 percent of GDP (down from a 1.1 percent surplus in 2000). A supplementary Financial Restructuring Agenda spending package adopted in September would push the While the export downturn has been the primary deficit closer to 1 percent of GDP. Thailand plans an influence depressing regional growth this year, signs of increase in the public sector deficit to 5.4 percent in fiscal domestic weakening were apparent in some of the post-crisis 2001 from 4.6 percent in 2000, including more village and countries even before the impact of the global slowdown health funding. The measures could provide a fiscal impulse was felt. In several countries fixed investment spending of about one percent of GDP in FY2000/01. However Thai started weakening from early-mid 2000 (Figure 14), and in public debt is likely to reach 60 percent of GDP in 2001, all post-crisis countries it remains significantly below pre- with future gradual increases in the surplus on the primary crisis levels. Fixed investment in the first half of 2001 was fiscal balance likely to be needed to maintain fiscal 25 - 50% below early 1997 levels in Indonesia, Malaysia and sustainability. Malaysia has also adopted cuts in personal Thailand, and 10-15% lower in Korea and the Philippines, income taxes, tax incentives for selected industries, and where investment had been less seriously affected during the higher spending on education and other development crisis. Among the factors affecting business confidence are projects that would increase the public sector deficit to 4.3 concerns about the slow pace and quality of corporate and percent from only 1.5 percent in 2000, driven by. With financial sector restructuring, and therefore about the public debt estimated to reach 67 percent of GDP in 2001, continuing financial vulnerability of firms and financial policy makers would likely wish to consider the need for institutions to economic shocks, notably this year's export greater fiscal consolidation from 2002. shock. Options for fiscal stimulus in the Philippines and Figure 14. East Asia - Quarterly Real Fixed Investment - Indonesia are even more constrained by high public debt. 1997:1 to 2001:2 (Seasonally Adjusted; 1997 Q1 = 1) Fiscal efforts in the Philippines will aim to prevent an 1.20 increase in the public sector deficit from the 4.6 percent 1.10 reached in 2000, through a mix of reductions in low priority Philippines expenditures, improvements in tax administration and efforts 1.00 to reverse a serious slide in revenues. Fiscal consolidation 0.90 efforts will need to be strengthened in 2002. The deterioration in Indonesia's fiscal position since the financial 0.80 Korea crisis has seen its central government debt rise from 23 0.70 percent of GDP in 1996 to near 100 percent at the end of Malaysia Indonesia 2000. The worsening fiscal position reflects the very large 0.60 costs of bank recapitalization after the crisis, the cost of 0.50 energy subsidies, and, in 2001, the impact of poorly Thailand designed fiscal decentralization reforms. In June 2001 the 0.40 Indonesian government and parliament agreed a package of cuts in fuel subsidies and other measures to avert an Thailand explosion in the fiscal deficit for the year. Greater success in selling off nationalized banks and other corporate assets In the years since 1997-98 the crisis countries have in taken over by the state after the financial crisis would help general succeeded in recapitalizing banks, improving bank pay down public debt and reduce public financing needs. capital adequacy and protecting depositors. They have made Indonesia's debt to GDP ratio at the end of 2001 is expected persistent if gradual progress in the complex medium term to be somewhat lower than at the end of 2000, mainly tasks of strengthening financial transparency, supervision because of some appreciation in its real exchange rate versus and regulation, corporate governance and legal and judicial the dollar. regimes (something that becomes even more important with the need to trace terrorist financing). Despite these Generally speaking the shift towards somewhat higher improvements, however, NPLs remain high and this year fiscal expenditures in the region this year represents a several of the crisis countries have seen either slight sensible response to the export shock. The value of the fiscal increases or a slowing in the pace of decline of the share of measures being undertaken in the region this year will NPLs in total loans, using the more stringent definition of however depend to a significant extent on how carefully they NPLs that includes those held by Asset Management are targeted to and how efficiently they are used on specific Companies (AMCs). (Figure 15 and Appendix Table 10). priorities such as social protection or infrastructure. Given On the corporate side, while debt-equity ratios have come the inevitable uncertainty of how long the global slowdown down, they generally remain high by international standards, East Asia Update 12 while interest coverage ratios remain low, so that a fall in consolidation of the sector into 10 large banking groups is earnings could readily translate into both lower corporate now virtually complete. New guidelines on capitalization, investment and rising bank NPLs. and on risk and liquidity management were implemented and the country's 10 year Financial Sector Master Plan Looking forward, the keys to further financial sector released in the first part of the year. By March Danaharta, improvement in most cases are now to step up the pace of the Malaysian AMC, had disposed of or restructured 80 asset disposal by AMCs, including reprivatizing banks percent of assets acquired. Corporate debt restructuring nationalized after the crisis, make real progress on corporate continues to make progress through both the voluntary restructuring, especially in operational terms, and to CDRC process and court led proceedings. In August the continue to strengthen regulatory, governance and legal and state investment company Khazanah made a bid to acquire judicial regimes. A positive sign is that, despite this year's 90 percent of the large, heavily indebted UEM/Renong economic slowdown, policy makers in the region have group, which has so far failed to come to terms with its generally indicated a willingness to do more on financial and creditors, raising the prospect of a wholesale restructuring corporate restructuring, and continue to put in place of the group, including asset sales to private investors. measures to facilitate it. Going forward, implementation of these measures will be the key. Korea has also made substantial progress on financial sector restructuring since the crisis, with a consolidation of In Thailand a leveling out and slight increase in the the commercial banking system, operational restructuring to NPL ratio this year is attributed to the weakening economic strengthen profitability, recapitalization, and improvements climate and the poor quality of earlier restructuring. The in prudential regulation and oversight of banks. The corporate sector remains highly leveraged, with debt-equity replacement of blanket with partial deposit insurance at the ratios for listed companies still averaging near 300 percent. beginning of 2001 should help stimulate further financial The new national Thai Asset Management Corporation sector restructuring and reduce moral hazard. The (TAMC) established in June could however be a strong authorities also announced their intention to begin instrument not only for asset recovery but also for corporate privatization of banks nationalized after the financial crisis. restructuring, including at an operational level. TAMC's Regulation over non-bank financial institutions (NBFIs) has enhanced legal powers include strong foreclosure and also been strengthened after a large boom-and-bust lending liquidation powers that can largely bypass the cumbersome cycle in this sector in 1998 and 1999. court system, and the ability to place consenting debtors into debt workout and business reorganization. While the new The progress in the financial sector also brings the body has strong powers, its impact will of course depend on urgency of accelerated corporate restructuring to the implementation. The government has also set up a taskforce forefront now: most of the bonds issued by Korean to study changes to the bankruptcy law that will help deal corporations in 1998 and 1999 come due in 2001 and 2002, with the huge backlog of debt restructuring cases in the civil some 54 trillion won in 2001 alone. The aggregate debt- courts. equity ratio for manufacturing companies has decreased from about 4:1 in 1997, but at about 2:1 at end-2000, Figure 15. East Asia Crisis 5: Non Performing remains high, while about a quarter of large companies have Loans (As % of Total Loans) 70 interest coverage ratios of less than 1. Corporate restructuring continues to be hampered by weaknesses in insolvency procedures, protracted disagreements among 60 creditors over burden sharing, the vulnerabilities of many 50 commercial banks with high corporate exposures, pressures Indonesia for forbearance from large chaebols, and anticipated political Korea 40 Malaysia pressures generated by a weakening economy and upcoming Philippines elections. Attention this year has largely focused on Thailand 30 attempts to mount financial rescues of two heavily indebted and loss-making affiliates of the Hyundai group, Hyundai 20 Engineering and Construction and Hynix Semiconductor, although the ultimate economic survival of the firms remains 10 open to question. Given the weakening economic climate, a Dec. 1998 Dec. 1999 Dec.2000 Mar. 2001 Jun.2001 broader, more aggressive and operationally focused Note: inclusive of loans held by Asset Management Companies. corporate restructuring effort is now urgent, underpinned by further strengthening of the insolvency system. NPLs in Malaysia also inched higher, largely due to a tighter reclassification of loans. A large volume of bank- The NPL ratio in the Philippines has drifted higher guaranteed corporate debt comes due in 2001-02, which, if over the last couple of years, reaching 17.7 percent as of July called in the current weak economy, would convert into 2001. Unlike other countries affected by the 1997 financial bank NPLs. The impact on the banking system would, crisis, the Philippines has not established a centralized asset however, be mitigated by continuing progress in financial management company. Instead it encourages private sector restructuring and reform since the crisis. The initiatives in this area and several foreign investment banks East Asia Update 13 are negotiating with local banks to buy NPLs. . Two large that developing Asia's services exports rose from 6 to 11 banks (PNB, Equitable-PCI) were subject to runs early in the percent of world services exports between 1990 and 1997, year, during the political crisis surrounding former president but that they had fallen back to about 9.5 percent of the Estrada, obliging the authorities to provide a large volume of world market by 1999.7 Further, the export structures of liquidity support. The authorities are now trying to several high and middle income countries in the region have rehabilitate PNB, and are encouraging the provision of become more similar over the past decade, with a growing additional capital from private sources for both banks, concentration in similar sectors such as high tech, in part as although they are hampered by the lack of adequate legal a result of government policy efforts to promote high tech, tools to overcome resistance of existing owners. making countries more vulnerable to sharp cyclical swings in world markets for these products. Indonesia's NPL rate (inclusive of loans held by IBRA, Indonesia's AMC) fell to 53 percent in May 2001. Figure 16. East Asia: Share of World But a recent sample survey by the central bank also Merchandise Exports (%) 1980-2000 suggested that a significant part of loans classified as normal 4.5 Korea or precautionary may need to be downgraded to non- China performing status, and, in the current weakening Hong Kong (SAR) macroeconomic climate, there are also concerns about the 3.5 Singapore quality of new lending and the pace of increase of new Taiwan (China) NPLs. Recapitalization of state banks was completed in 2000, but progress on operational restructuring and 2.5 improving governance has been slow. Efforts to privatize the first of the eleven Banks Taken Over after the crisis (BTOs) have not gone smoothly, though the government 1.5 remains committed to completing the majority sales of two banks by end 2001. The recovery of assets held by IBRA has also been slow, with only 6 percent of the face value of 0.5 assets, or Rp 36 trillion, recovered by the end of 2000, 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 although the pace of recoveries did accelerate sharply in 2000. An ambitious Rp 39.5 trillion target has been set for 2001. The Jakarta Initiative Task Force (JITF) approach, Figure 17. East Asia: Share of World which facilitates restructuring in cases where IBRA is not a Merchandise Exports. (%) 1980-2000 majority creditor, also gained momentum in 2001. Indonesia Malaysia 1.4 Philippines Thailand Renewing Trade as an Engine for Growth and Poverty Reduction 1.0 Rapid and sustained growth in international trade has long been a hallmark of successful growth and development strategies among the East Asian countries. During the 1990s 0.6 new low-income entrants to world markets like Cambodia and Vietnam achieved annual average export growth rates of 20-30%, suggesting the continued possibility of reproducing the earlier and better known export success stories of 0.2 countries such as Korea, Malaysia and China. 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Nevertheless, concerns about the region's ability to exploit the gains from integration with the world economy Competitive pressures on East Asian firms have have grown over the last five years, in particular in the wake increased as policy reforms over the last 10-15 years in other of the region's financial crisis, and with the present serious developing regions ­ principally Latin America and the downturn in exports. After rising rapidly for several transition economies in Europe - have tended to make their decades, the share in world exports of countries like Hong policy and institutional frameworks as good as or better than Kong (SAR), Singapore, Taiwan (China), Korea, Malaysia those in East Asia. For example, trade policy regimes in and Thailand either fell or was broadly flat between 1995 these regions have on average become as or more open than and 2000. (Figures 16, 17).6 Recent WTO data also indicate those in East Asia. (Figure 18). 6 The rise in world export shares of some of these countries in 2000 reflects the high proportion of hi-tech in these countries' exports these countries' exports in 2001, that rise in market shares is likely and the extraordinary surge in world demand for high-tech to be reversed. equipment in that year. Given the plunge in hi-tech trade and in 7WTO | Trade Statistics - International Trade Statistics, 2000 East Asia Update 14 While the degree of openness in services sectors is undertake a broad, far-reaching program of structural and quite difficult to measure empirically, recent research institutional reforms. But a prospective new round of global suggests that barriers to services trade in East Asia are trade talks under the auspices of the WTO also offers a relatively high in some sectors, for example financial major concrete opportunity for the region more widely to services and telecommunications. (Mattoo, Rathindran and renew the impetus of reform, as does new interest in Subramanian, 2001. Figure 19; higher index values indicate initiatives to strengthen regional integration. (China's greater openness). The study notes that liberalizing services accession and these multilateral and regional options are may have higher effects on growth than liberalizing goods discussed in a Special Focus on East Asian trade trade. In many services foreign firms can only compete by accompanying this Regional Brief.) making foreign direct investments in the host country, creating the potential for spillovers of new technology and China Enters the WTO skills to the host. Increased competition and a larger scale of China's entry to the WTO is expected to activity will also boost productivity. The study finds a revolutionize the organization of business activity and strong statistical association between services openness and government regulation in the country. General WTO per-capita income growth in the 1990s. disciplines such as most-favored nation (MFN) treatment, as well as specific commitments to reduce trade barriers, phase Figure 18. Average Unweighted Tariffs - East Asia & LAC 40.0 1.60 out export subsidies, improve transparency of state-owned enterprises, and adopt improved intellectual property rights E Asia - (7 large) 1.50 will all force major corporate restructuring and institutional 35.0 LAC - (7 development. Far-reaching opening of services sectors to Large) 1.40 E.Asia/LAC foreign participation will occur in financial services 30.0 Ratio (RHS) 1.30 telecommunications, transport, domestic trade and distribution. On conservative static assumptions a recent % 25.0 1.20 study finds WTO accession would add 2 percent to China's Ratio income. (Ianchovichina and Martin, 2001). Huge expected 1.10 20.0 increases in China's share of world garment production and exports would be balanced by increases in its textiles, 1.00 beverage and tobacco, automobile and other manufactures 15.0 0.90 imports. East Asian Newly Industrializing countries would be the principal beneficiaries of these new opportunities. 10.0 0.80 Indonesia and other developing South East Asian countries 1980-85 1986-90 1991-95 1996-1999 would also have new export opportunities in China, but these gains would tend to be offset by heightened Figure 19. Services Liberalization Indices: Telecoms & competition from China in third markets, especially in Financial Services apparel. South Asia (3) EAP(5) Multilateral Options Financial SSA/MNA(17) Services A prospective new round of global trade talks under ECA(3) the auspices of the WTO offers the region a major concrete LAC (18) High Income (26) opportunity for renewing the impetus of reform. As talks on this subject have gone forward, many countries have expressed a desire to see a new round fashioned in a way SSA/MNA(42) that takes the interests of poor countries more directly into ECA(3) account. Among key issues for such a round are those of South Asia (5) greater Market Access, especially reducing trade barriers in EAP(8) Telecoms areas of greatest interest to developing countries, such as LAC (21) High Income (21) agriculture, apparel, textiles and other labor intensive manufactures, all of which are important to East Asian 0 2 4 6 8 10 countries. Also important are Implementation Issues, that is Source:Mattoo,Rathindran&Subramanian.(2001). better tailoring implementation of existing and new trade Renewed trade liberalization initiatives, especially in agreements to the local capabilities of developing countries, services, can therefore be an important means of improving an issue of special relevance to the small, less-developed productivity by increasing competition and removing East Asian countries. However it is also important to note impediments that hinder firms from seeking out competitive that not all forms of global cooperation related to trade are advantage, alongside complementary efforts to strengthen best handled through the rule based forum of the WTO ­ institutions and overcome gaps in infrastructure. China's just many trade related issues need to be addressed through a agreed entry to the WTO provides an example of an East broad complementary range of global institutions and Asian country using trade reform as an opportunity to forums. One example is `aid for trade', that is increasing multilateral and bilateral foreign aid to help least developed East Asia Update 15 countries strengthen complementary institutions that allow activities that are to be liberalized and the depth of them to make the most of open trade policies. Similarly, integration that is undertaken. In addition, an uncoordinated issues like environmental protection or labor standards can pursuit of many different bilateral and other regional often be better addressed through targeted collective action arrangements can itself lead to a more inefficient outcome agreements (like the Montreal Protocol on the ozone layer) overall, with a complex criss-crossing `Spaghetti Bowl' of or specialized institutions like the International Labor agreements with different standards, rules of origin and other Organization, rather than as an adjunct to trade agreements. institutions. Recent studies of the potential economic gains from Table 4: Effect on economic welfare a new multilateral trade round to further liberalize trade in (Percent of GDP) agriculture, manufactures and services suggest substantial Proposal China Korea ASEAN Japan US gains for the world in general, and for East Asia in Japan-Korea -0.0 0.3 -0.0 +0.0 -0.0 particular. Recent calculations by World Bank researchers China+Korea+ +0.3 +0.7 -0.2 +0.1 -0.0 using a computable general equilibrium model of the world Japan economy suggest that complete liberalization of ASEAN+ 3 +0.2 +0.7 +0.9 +0.1 -0.0 APEC +0.5 +0.7 +0.7 +0.4 -0.0 merchandise trade between 2005 and 2010 could yield liberalization additional global income of around $312 billion per year by (MFN) 2015, even looking at purely static effects. (World Bank, APEC +0.6 +0.9 +0.8 +0.4 +0.0 2001). Of this total nearly one quarter is expected to accrue preferential to developing East Asia, substantially larger than these liberalization countries' 16-17 percent share of world GDP in purchasing Source: Gilbert and Scollay (2001). China includes Hong Kong (SAR). power parity terms. The gain would represent a 2 percent increase in East Asian annual income. The study finds that unskilled wages would rise faster than skilled wages or Among general results suggested by recent research (see for example World Bank, 2000), perhaps the clearest is capital returns, thereby enhancing the poverty reducing effects of a new global trade round. Of course the precise that the RTA is more likely to be welfare enhancing the results of such studies vary according to their assumptions more economically diverse is its membership, and in particular if it includes both developed and developing about economic structure and behavior. But they do generally agree in estimating large gains in both global and ­ countries. Thus the most comprehensive recent study of where it is specifically studied - East Asian welfare. potential East Asian RTAs (Gilbert and Scollay, 2001) find that a large diverse grouping that includes countries as Francois (2000), for example, calculates the ASEAN diverse as the ASEAN countries, China, Korea, Japan countries would garner $43 billion, or 11% of global gains of $385 billion from a 50% cut in trade restrictions in (ASEAN+3) would have much greater welfare enhancing effects than narrower regional groupings. But, given the agriculture, industry and services. enormous volume of trade between East Asia and North Regional Options America, the study also finds that APEC wide MFN liberalization would generate even larger welfare gains. The experience of the failed attempt to launch global (Text Table 3). And even that outcome would be dominated trade talks at Seattle underlined the importance of reflecting by global multilateral liberalization. Two conclusions the views and interests of developing countries much more suggest themselves. First, there is a clear economic incentive strongly in the future. In this regard, China's forthcoming for leading developed and developing countries to make the entry into the WTO will strengthen the voice in this forum of political investment in achieving a multilateral global trade both the region and of developing countries more generally. round, or, failing that, in an APEC wide liberalization. However, the failure of the Seattle talks and the possibility Second, in the absence of these outcomes, other RTA of only slow progress or failure in future negotiations has options should be structured as `stepping stones' towards also been one reason for a renewed interest in East Asia in rather than barriers to wider multilateral liberalization. Some Regional Trading Agreements (RTAs). The list of approaches to help achieve this include keeping trade prospective new RTAs in East Asia that have been suggested barriers against non-members as low as possible, allowing or discussed in various venues is a long one, including a accession on the same terms as existing members, and trying number of proposed bilateral trade pacts. to ensure that the rules of various RTAs conform to common This is a notable change in a region previously minimum standards and WTO rules. distinguished by a consensus in favor of a non- discriminatory multilateral approach. While RTAs can provide a means of enhancing competition and efficiency Growing Importance of the Governance Agenda gains under some circumstances, discovering and building consensus for the conditions that lead to a more positive Political events in East Asia this year suggest that the rather than a more inefficient outcome can pose a region is in a transition period that combines increased significant challenge: much depends on the structural political volatility, debate, conflict, civil society pressures characteristics of the countries that become members, their and questioning of traditional governance practices, on the policies towards non-members, the breadth of economic one hand, and a gradual emergence and consolidation of East Asia Update 16 more democratic institutions, norms and values on the other. congressional elections, giving it a small but workable If political volatility and strife were a more predominant majority in the congress. It is notable that opposition to note earlier in the year, the last six months have however public corruption has been a major force animating civil seen in some respects an easing of political uncertainty, the society engagement and protest in both Indonesia and the strengthening of the political legitimacy of key governments Philippines this year. Better public accountability in general in the region, and consequently some improvement in and public financial accountability in particular are a key political stability. part of the growing demand for better governance in the region. Such reforms are important not just to curb These developments provide an indication that the corruption, but also to better husband scarce resources and to region is not necessarily on a road of accelerating political improve the volume and quality of services that such volatility and instability. Rather they suggest that greater resources yield. Nor is the growing public attention to political turbulence and stress will increasingly become a financial accountability surprising. A Special Focus on normal part of life in the region, but that, over time, Public Financial Accountability later in this East Asian governments and political institutions are also becoming Regional Brief points out that the World Bank's Country reshaped to meet the demands of civil society for greater Financial Accountability Assessments (CFAAs) and Country participation and political accountability. In addition, apart Procurement Assessment Reports (CPARs) find public from their intrinsic value, it is also increasingly clear that financial accountability institutions to be weak or extremely governance and institutional reform efforts are a key for weak in the majority of ten East Asian countries surveyed. economic and social advance in the region, not only because Only in Korea and Malaysia are they found to be reasonably of their positive impact on public and business confidence, strong. but also to strengthen public financial management of scarce resources and to improve the state's ability to deliver vital The Focus notes that most East Asian countries are public services to the population. In several countries of the implementing financial accountability reforms of one sort or region that are predominantly Muslim or have large Muslim another. However reforms in some countries tend to minorities, the quality of governance institutions will be emphasize large outlays on computer hardware and software tested as governments attempt to contribute to the global for management information systems, rather than more basic campaign against terrorism, while maintaining the rule of reforms of the budget process itself, the incentives facing law and domestic stability. public agencies, information disclosure and the quality of In Indonesia, which has been racked by separatist, monitoring and control. Some of the more promising ethnic or religious conflicts in areas such as West Irian (Irian reforms and experiments in the region entail a shift in Jaya), Aceh and the Malukus, as well as by mounting emphasis from detailed ex-ante spending agreements with political opposition to the government of President spending units, and from micro -management of their inputs, Abdurrahman Wahid, a key turning point came in July when to strengthening internal control in the spending units, giving the parliament, on a near unanimous vote, removed them more authority over the allocation of resources within a President Wahid and selected Megawati Soekarnoputri as fixed envelope, strengthening ex-post audit and emphasizing president. This exercise of authority by the legislative will outputs and outcomes. The Focus cites Thailand's `Hurdle likely prove a milestone in the long term consolidation of Standards' pilot program and Vietnam's Ho Chi Minh City democratic institutions in a country where the executive "Running Costs" regime as examples of reforms in this power has been overwhelmingly predominant till now. The direction. Indonesian rupiah appreciated by more than 20 percent in the three weeks following the vote. Confidence was further Some innovative recent programs also suggest that bolstered by the appointment of a well-respected economic delivery of public services and management of public team and the reaching of agreement on a renewed package budgets can be greatly improved by the direct involvement of internationally supported reforms. An important milestone of local communities and of civil society more broadly. The was also passed in East Timor, with peaceful elections on Kecamatan Development Project in Indonesia and the August 30 for a new constituent assembly which will draft Budget Advocacy Project in the Philippines are two leading the new country's constitution. examples of the community and civil-society based In the Philippines, civil society concerns about approaches to strengthening financial accountability. (See corruption scandals contributed to the fall of former Box 1). president Estrada in January. Since then the new government of Gloria Macapagal Arroyo faced down violent protests by supporters of Mr. Estrada in May, and strengthened its authority by winning the majority of seats in recent East Asia Update 17 Box 1: Civil Society Monitoring of Budget Management and Service Delivery in Indonesia and the Philippines The Kecamatan Development Project in Indonesia is an innovative experiment in community-driven development that involves local communities in overseeing public financial management and service delivery by local government. A lump sum budget is made available to all villages within a selection of poor sub-districts (kecamatans). Villages and kecamatans manage and are accountable for this funding. Using these budgets, each community is able to decide the projects it wishes to undertake from a menu of options, and is responsible for overseeing the project finances and ensuring service delivery. In order to ensure transparency, project performance indicators and information on financial disbursements are posted on notice boards in each community. The project has found that community capacity is nearly always higher than official agencies initially believe. Most Indonesian communities have been able to manage simple administration, procurement and book-keeping and have been able to comply with national standards provided they are given in appropriate formats. The project has found that community-based accountability mechanisms can work as an effective supplement to the more formal approaches of sector ministries. The Budget Advocacy Project in the Philippines attempts to develop the capacity of civil society to participate in the national budget process, which otherwise undergoes only limited scrutiny, despite its importance in financing service delivery and shaping the direction of national development. The project, devised by the Philippines Governance Forum, maintains a database of relevant economic and fiscal information; conducts public briefings and publishes papers on budget and fiscal issues; designs and delivers training programs on budget literacy; and provides technical advice to government on budget management and service delivery. The project works with the Caucus of Development NGO Networks, and seeks to expand partnerships, particularly among NGOs and the academic and business communities. Source: World Bank staff References Gilbert and Scollay. (2001). Assessing the Implications for East Asia of New Regional Trading Arrangements in the Asia-Pacific. Paper presented at `East Asia's Future Economy' Conference. Bangkok. May 2001. Ianchovichina, E. and W. Martin. (2001), `Trade Liberalization in China's Accession to WTO.' Policy Research Working Paper No. 2623, World Bank, Washington DC. Forthcoming Journal of Economic Integration. Mattoo, Aaditya, Randeep Rathindran and Arvind Subramanian. (2001). Measuring Trade Liberalization and Its Impact on Economic Growth: An Illustration. World Bank. World Bank, (Forthcoming). Global Economic Prospects and the Developing Countries 2002. East Asia Update 18 Country Sections 8 known about the underlying quality of the restructured loans. Progress on asset-recovery also continues to be difficult; by East Asia 5 end-July 2001 IBRA was able to recover Rp. 13.3 trillion, Indonesia about 34 percent of its total 2001 recovery target of Rp. 39.5 trillion. A peaceful transfer of presidential power from Abudurrahman Wahid to Megawati Soekarnoputri ended Fiscal sustainability has become a crucial medium- months of heightened social tension and political term challenge for Indonesia. In June Parliament approved a uncertainty. The new President's cabinet appointments were package of measures to prevent a large deficit overrun and widely acclaimed. A new letter of intent with the IMF was achieve the 2001 target of 3.7 percent of GDP. The measures include increasing fuel prices for non-industrial signed at the end of August, emphasizing measures to users (with measures to compensate low-income restore macroeconomic stability and re-start the stalled households), raising electricity prices for large consumers, structural reform program in the bank and corporate sectors. reducing the non-neutrality of fiscal decentralization on the The rupiah, which had depreciated virtually continuously central government budget, selected cuts in lesser priority through 2000 and the first half of 2001 to reach 11,600 per development spending; and a range of administrative dollar by the end of May, appreciated strongly after the revenue measures. The fiscal outlook for 2001 remains resolution of the political crisis to reach 8,500 by the end of difficult nevertheless, and there is also likely to be a shortfall August. Since then, however, it has depreciated steadily on in financing: IBRA sales and the government's privatization account of external payments pressures, reaching 9500 by program have been lagging, while external financing for mid-September. Inflation rose to a 2 year high of over 13 budget support has been held up by failure to meet various percent in July because of the earlier currency weakness, conditions. The draft budget for 2002 aims to cut the deficit administrative price increases for fuel, government wage to 2.5 percent of GDP. This comes at a cost: the central hikes, and accelerated monetary growth. government's development budget, for example, is expected to be cut to 2.8 percent of GDP (down from 3.1 percent this Recovery in the real economy remains fragile. Year- year). The central development budget has been cut three on-year growth in the first half of 2001 fell to 3.4 from 4.7 years in a row, and this is reflected in the declining quality percent in the first half of 2000. Consumption growth eased of Indonesia's infrastructure and social services. Local as consumer confidence plummeted, and net exports had governments could compensate by ncreasing the size of i declined substantially in the wake of the global slowdown their development budgets (now estimated to be about 2.0 even before the recent tragic events in the United States. percent of GDP), but there is no certainty this will actually But fixed capital formation, defying pervasive evidence of happen. investor pessimism, climbed significantly in the first half of 2001, maintaining a trend that began in early 2000. Part of Growth projections for 2001 and 2002 have been this could be statistical artifact, but it could also indicate lowered because of the worsening global economic increased maintenance and rehabilitation of capital as environment following the terrorist attacks in the United growing manufacturing and rising capacity utilization have States. Growth is now expected at about 3.3 percent in 2001, exacted a toll on plant and machinery, as well as genuine remaining about the same at 3.5 percent in 2002. Non oil new investment in export sectors, where currency export revenues will continue to fall for the rest of 2001 and depreciation has boosted profitability. Imports weakened remain anemic next year. This could in part be compensated with slowing exports and domestic demand, and foreign by higher than expected oil export revenues, depending on reserves have been stable, totaling $28.6 billion at the end of how US military action affects the oil market, OPEC's August. While the official capital account continues to be production decisions and the impact of the global slowdown in significant surplus, thanks in large part to the Paris Club on oil consumption. Investment growth may slow as arrangement, the private capital account remains in a large investors adopt a wait-and-see attitude to unfolding global deficit due to debt repayments and other capital outflows. events and the reactions of the Indonesian public. These factors will place additional pressure on Indonesia's fragile Bank restructuring and reform slowed in the first half public finances and test the resolve of the government to of 2001 on account of the difficult political and economic maintain macroeconomic stability and push ahead with conditions. The banking system as a whole remains under- economic reforms. capitalized ­ despite a large injection of government bonds. On the bright side, NPLs in banks declined by Rp. 28 trillion Korea in 2000 as troubled loans got restructured. But little is Korean growth fell to a year-on-year rate of 2.7 percent in the second quarter of 2001, the sixth straight 8More detailed individual Country Briefs on China, quarter of decline, from a peak of 13.1 percent in the last Indonesia, Korea, Malaysia, Philippines and Thailand are quarter of 1999. As in other East Asian countries, the available online at the external website for the World Bank's slowdown of the economy in the last 2-3 quarters was East Asia and Pacific Region: exacerbated by a sharp fall in Korean exports, driven by the http://www.worldbank.org/eap, under the panel "In the slowdown in the world economy, and by the recession in the Region", with the title "Half -Yearly East Asia Update". global hi-tech industry in particular. In the case of Korea, East Asia Update 19 however, the economic deceleration had begun earlier, led investment has reduced the demand for Malaysian by a decline in fixed investment and in personal electronics exports although this was slightly offset by consumption growth from early 2000 onwards. Fixed higher exports of petroleum products. Exports will come investment spending in Korea had been very strong in 1999, under further pressure with the expected further slowing of supported by a boom in lending by poorly regulated non- the world economy after the terrorist attacks in the US. In bank financial intermediaries, investment trust companies addition, a major realignment of international currencies as a (ITCs) in particular. The bankruptcy of the debt-laden result of worsening banking sector problems in Japan could Daewoo group in mid 1999, however, led to the collapse of create further competitive pressures for Malaysia under its the ITC sector and a sharp tightening in credit conditions for current pegged exchange rate regime. Private investment corporate investment. The fixed investment downturn is led slowed (in part because of continued political uncertainty) and despite higher public sector capital spending, overall by plant and machinery investment, which had been the gross fixed capital formation was up just 0.2 percent in the particular focus of the 1999 boom, but was down by 11 second quarter. Private consumption expanded at 1.6% and percent in the second quarter of 2001. public consumption by 4.8%. The trade balance remains The bulk of consensus forecasts for growth in 2001 positive although there were sharp offsetting contractions of have been reduced to a 2-3 percent range. Growth will be both imports and exports. The 2001 budget took a simulative restrained by the gloomy near term prospects for hi-tech fiscal position with a projected deficit of 4.4 percent of GDP exports, which comprise about 40 percent of total exports following the 4.2 percent deficit in 2000. and 15 percent of GDP. In addition, domestic demand also The consumer price index rose just over 1.5% in remains clouded by the underlying weakness in the the first half of 2001 while producer prices have been falling corporate sector coupled with the continued fragility of the since November last year. There have been only slight financial sector. The aggregate debt-equity ratio of changes in interest rates over the last 12 months although manufacturing companies is still high at about 210 percent. there has been a modest compression of bank spreads. Corporate profitability has worsened recently with the net Non-Performing Loans have started to rise again income of all 521 listed companies (with fiscal years ending although this is largely due to expiry of temporary in December) falling sharply during the first half of the year forbearance provisions rather than changes in current by 31.1 percent to Won 9.2 trillion from Won 13.4 trillion a fundamentals. However close to RM5 billion of corporate year ago. Nearly 30 percent of large companies have debt will come due in the last six months of 2001 most interest coverage ratios less than one. Problems in the issued as five year paper in the last days of the boom. Hyundai group continue, especially in two of the largest Almost half of this is unsecured. A further 21 percent carry companies in the group, Hyundai Engineering & bank guarantees. Next year another RM 5 billion will come Construction and Hynix Semiconductor. In addition, a due a third of which is guaranteed. New pressures on the number of weak and heavily indebted mid-size chaebol are banks could arise if the rollovers are not smooth. uncertain to survive. A key recent development in corporate restructuring is Despite falling exports, the country continued to the conditional voluntary offer at RM4.50 per share for UEM maintain a positive trade balance through July ($9.5 billion made by the government. The offer raises the prospect of on a balance-of-payment basis) but only because imports removing the current controlling shareholders of the Renong have fallen much faster than exports, particularly in the past group including Halim and embarking on a wholesale five months. The capital account showed a net outflow of restructuring of the group. This could involve sales to private $6.5 billion through July, due to lower FDI and portfolio investors of some major assets such as TDC the inflows, and to repayment of IMF loans. Nevertheless, telecommunications arm of the Renong conglomerate. buoyed by the country's current account surplus, foreign Although government led, a successful conclusion of this reserves rose to a record $99 billion at the end of August. initiative would be a welcome development. On the fiscal front, the fiscal balance this year was initially designed to be mildly expansionary with a target Philippines consolidated central government deficit of 0.1 percent of Following a turbulent transfer of power in January, GDP as compare with a surplus of 1.3 percent of GDP in political conditions were stabilized by a favorable outcome 2000. However, a supplementary budget amounting to Won for representatives aligned with President Macapagal-Arroyo 5.1 trillion was passed by the National Assembly in early in the May Congressional/Senate elections. The easing of September, which plans to increase consolidated central political uncertainty and several initial policy successes government deficit to 0.9 percent of GDP. It aims to provide could have been expected to improve confidence in a limited fiscal stimulus to offset the current slowdown. . economic management. These successes included the passage of an Anti-Money Laundering Act and of the long- Malaysia delayed Electric Power Reform Act (which, inter alia, GDP growth slowed sharply, falling to just 0.5% yoy provides the legislative backing for restructuring of the in the second quarter of 2001. The slowdown in the global National Power Corporation and privatization of its economy and particularly the reduction in US business generation facilities); adherence to interim budget deficit East Asia Update 20 targets (in contrast to exp erience in the previous the attainment of 1996 poverty levels. Nearly 400,000 new administration) which improve the likelihood of meeting the graduates will join the labor force this year while new job end year target of P145 billion; and a more forceful stance creation is on the decline. against hostage taking by terrorist groups. The external trade surplus fell in the first quarter of Unfortunately, these developments have been largely 2001, partly as a result of higher oil prices, depressed prices overshadowed by the deteriorating external environment--in for electronic exports, and non-oil commodity prices like particular the global downturn in the electronics sector rice. However, electronics comprise a smaller share of which account for 60 percent of Philippine exports, exports than in countries like Malaysia and Philippines, and weakening demand in the Philippines' two largest export this together with weakening domestic demand and imports markets (the U.S. and Japan), and the adverse imp act of and a fallback in oil prices later in the year should prevent a crises in Argentina and Turkey on other highly indebted dramatic deterioration in external balance. Despite the emerging markets. This has rendered more difficult the task of overcoming the economic legacy inherited in January, worsening in the trade balance, the external current account, which included: a widening fiscal deficit and growing public helped by the tourism sector, is expected to remain in debt; structural weakness in the banking and corporate surplus in 2001. Foreign exchange reserves have been sectors; financial market weakness; and a deterioration in restored to comfortable levels, increasing as a ratio to short- public governance and accountability. Equity prices, which term debt from 57 percent in 1997 to 137 percent at end- were at a ten month low prior to the terrorist attacks in the March 2001. Total external debt has fallen from 72 percent U.S., had fallen to a ten year low by early October. The peso of GDP in 1997 to a projected 60 percent in 2001. reached a six month low against the US dollar in mid-July The new Government, with a strong electoral though it has recovered somewhat since then, aided by dollar mandate, has introduced a number of pro-poor and pro-rural depreciation in global markets. After falling somewhat programs as part of the fiscal stimulus to support recovery. through the year, spreads of 2008 Philippine eurobonds had These include the village fund, health fund, and debt risen back towards 600 basis points, though this is still suspension for farmers, as well as a fiscal stimulus reserve below the end December 2000 level of 644. fund to be implemented next fiscal year if the expected pick GDP growth in the first half of 2001 averaged 3.3 up in external demand does not materialize. The budget percent ­ higher than predicted by private forecasters - after deficit is expected to be 5.4 percent of GDP this fiscal year, growing 4 percent in calendar 2000. However, merchandise up from 4.6 percent last year, generating a fiscal impulse of exports fell by 9 percent (in US$) in the first semester, and about one percentage point of GDP. Pro-poor expenditures the rate of decline had accelerated by mid year. with high local content have large multiplier effects, and the Manufacturing production can be expected to remain weak impact of this additional spending on economic activity in the second semester, perhaps limiting GDP growth for could be considerable - if delivered effectively and in a 2001 to 2.5 percent. The present uncertain outlook for the timely manner. However, the size, content and role of the world economy in the wake of the terrorist attacks in the stimulus has to be viewed in the context of a medium-term U.S. translates into considerable uncertainty for the open macroeconomic framework. Public debt has increased three- Philippines economy where exports of goods and services fold compared to the pre-crisis levels, mostly due to costs comprise 57 percent of GDP. Medium-term growth arising from financial sector restructuring. Including the prospects would be enhanced by the implementation of liabilities of non-financial public enterprises, public debt is measures to enhance fiscal sustainability, primarily through expected to rise to 60 percent of GDP in 2001. This level of improved tax administration, and better governance public debt is comparable to the other countries in the region standards in the public sector. but is sustainable only if GDP growth remains at 4-5 percent per annum, interest rates remain low and the surplus on the Thailand primary fiscal balance can gradually be increased. The As with other East Asian countries, the Thai recovery recent slowdown in growth places a limit on the size of the of 2000 was led by exports. But in 2001 export growth has fiscal stimulus. slowed significantly, as the world economy has slowed. Progress has also been made on a number of Softening external demand has been accompanied by structural reforms. In particular, the recently established sluggish domestic demand. Private investment remains Thai Asset Management Corporation could help boost the fragile. Sustained recovery in business investment has been speed of financial restructuring. However much will depend held back by the high level of distressed assets in the on implementation, the quality of TAMC's management, banking system, slow progress in corporate restructuring, credibility in deal making, transparency and simplicity in and potential concern regarding consistency of short-term restructuring guidelines for borrowers and guarantors, and policies with medium-term goals. GDP growth is forecast to the degree to which management seeks to maximize come down to 1.6 percent in 2001 compared to 4.3 percent recoveries and minimize the cost to taxpayers. Several growth in 2000. Poverty incidence had increased sharply to measures have also been announced to revive the 16 percent of the population (at the $1.5 a day level) in privatization program. These include (i) government 1999, and the present slowdown will contribute to delaying announcement that 18 state owned enterprises would be privatized by 2003; (ii) creation of a National Holding East Asia Update 21 Company under which commercial state enterprises will be debt remains low at about 14 percent of GDP (60 percent of gathered; (iii) announcement of a schedule of Initial Public exports). Offerings (IPOs) of state enterprises on the Thai stock market; and (iv) inclusion of Employee Share Ownership Structural reform efforts continue to be stimulated by Programs (ESOP) in the IPO transactions. These announced the WTO accession process. Efforts include steps to unify the corporate tax regime between foreign- and domestically - measures, if properly implemented, would speed up privatization of large-scale enterprises, and could funded firms, revoke the requirements for foreign-invested significantly deepen and strengthen the capital markets. A firms regarding local content, export/production benchmarks and foreign exchange balancing, and to amend patent and key implementation challenge is the organization structure, transparency in operations, and the management of the Customs laws. As in the past, the process of corporate and proposed national holding company. financial sector reforms in China both remain relatively difficult to follow, due to the large number of initiatives Transition Countries underway and deficiencies in public information. As regards corporate restructuring and reform, the annual National China People's Congress (NPC) session in March encouraged large Output growth reached a robust 7.9 percent in the first and medium State Owned Enterprises (SOEs) to corporatize half of 2001 despite a sharp deceleration in China's exports, themselves through IPOs, joint ventures and other means. from 29 percent in February, to ­0.6 percent in June, and 6.6 Local governments have been particularly active in percent in July. Since nearly one half of China's imports implementing "corporatization" and ownership are inputs into export processing, imports have declined diversification in SOEs, though the Central Government together with exports, and this has softened the negative itself has taken a more cautious stance, putting greater impact of lower net exports on growth. Instead, the growth emphasis on technological upgrading and the re-grouping of of demand has reflected strong fixed investment and enterprises. Industries such as pharmaceuticals, non-ferrous consumption, underpinned in part by a robust fiscal stimulus metals, steel, refineries, sugar, cement, and coal mining are to offset the export slowdown. A fiscal stimulus package of undergoing significant transformation, including closures, RMB150 billion has targeted infrastructure projects, while regroupings, and other forms of rationalization. AMCs policy investments by state owned enterprises and lending continued their efforts to sell the assets transferred to them by state banks have also been stepped up. Investment is also from the state-owned banks, reportedly recovering supported by a continuing surge in foreign direct investment, RMB8.72bn during the first half of 2001. As regards which has been stimulated by expectations of China's WTO financial sector reform, relevant state agencies are currently entry, and by strong real estate investment, which is riding a engaged in a review of current problems, leading to wave of individual home purchases and is supported by recommendations for the future direction of reform by the housing reform and renewed speculative activities in the end of the year. Among steps to improve bank profitability main urban centers. A 30 percent wage hike for public and portfolio quality this year, taxes on banks were reduced servants in April, after the size of the civil service had been and greater flexibility allowed to encourage adequate scaled down significantly last year. Annualized inflation has provisioning for bad debts. The central bank also undertook been about 1 percent in 2001, mainly reflecting upward a reorganization to strengthen its supervisory capacity. revisions and liberalization of administered prices. Real In social sector developments, official statistics GDP is projected to increase by about 7.1 percent in 2001. suggest that at mid-2001 the urban unemployment rate was Fiscal expenditures grew at just under 21 percent in unchanged at around 3.2 percent, or 6.6 percent if workers the first half of 2001, while revenue growth exceeded 21 laid off from SOEs are included. A far-reaching reform of percent, benefiting from higher industrial profits and China's household registration system (hukou) is underway. improvements in tax administration. The reported or explicit As of October 1, rural inhabitants will be permitted to reside, budget deficit is expected to narrow to 3.2 percent of GDP work, and draw upon social services in smaller cities and from 3.6 percent in 2000, while explicit government debt towns under more liberalized conditions than have existed remains modest at 23 percent of GDP, of which 18 until now. This measure will be important in addressing the percentage points of GDP is domestic. But, increasingly, the problem of disparities in rural-urban income growth. Ministry of Finance recognizes that contingent and other Vietnam hidden liabilities of the government pose a challenge to future fiscal management. These relate to the activities of Overall, the economic outlook for Vietnam is better policy banks, non-recoverable loans left in the financial than over the past three years, but not as good as it was six system, and the future cost of the public pension system. The months ago because the international climate has worsened. balance of payments position has strengthened further. The decision by the Government to adopt a detailed phased Foreign exchange reserves reached $190 billion at end- program of policy reform in April has already had an August. The current account continued in surplus, although important impact in improving business sentiment, putting down to about $8 billion by mid -2001, compared to $12 Vietnam on a much healthier medium term growth billion by mid-2000. FDI increased by 22 percent in the first trajectory. The implementation of the Enterprise Law and seven months of 2001, more than offsetting the somewhat the removal of business licenses have generated an negative trend in the trade balance. The country's external unprecedented number of new business registrations. East Asia Update 22 Nevertheless, with further deterioration of the external enhanced social sector spending. Developments so far have environment over the last six months, export growth has been broadly on track. Garment exports, which comprise fallen and GDP growth is expected to be lower than in 2000 some 80% of the total, grew by 38 percent in nominal dollar i.e. 5%. terms in the first half, down from 79 percent in 2000, but While rising private consumption was an important still healthy. A somewhat slower pace in industrial component of the recovery in 2000 as reflected in the production as a result of slower garment export growth was turnaround in growth of retail sales, this has tapered off this offset by continued strong growth in tourism and a pickup in year. This was probably due to depressed cash crop prices construction. Budget implementation (both revenue and that have eroded farmers' earnings. Restrained fiscal and expenditure) was somewhat lower than target but broadly on monetary policy has not helped so far. Fiscal stance has track. The inflation rate was virtually zero in the first half. been more cautious than planned largely due to a shortfall in The Government has made significant progress in implementation of capital spending. Credit growth has also slowed down in line with plans early in the year. some key structural reform areas, including: reinstating pre- shipment inspection for imports, initiating bank Agriculture is growing steadily with the 2001 winter-spring restructuring; advancing toward improvements in forestry rice crop setting new records despite the floods in Southern concession management; computerizing the civil service and Central regions and drought in the North. Industrial payroll; implementing the pilot military demobilization output growth is lower than 2000, though the non-state program; adopting and disseminating the Governance Action sector continues to be buoyant. In the first seven months of Plan; and introducing Priority Action Programs for key this year, the service sector has expanded, building on the social sectors; as part of moving towards a more rebound in 2000. Trade and tourism has continued to grow comprehensive poverty reduction strategy. However, the rapidly. implementation of some important structural reforms has Improved performance over the next six months will depend been delayed. These include rationalizing fiscal incentives on three things. First, successful and sustained Government for investment; formulating a comprehensive civil service implementation of the reforms in trade policy, private sector reform strategy, implementing a full military demobilization policy, SOE reform, banking reform and public expenditure program; adopting the revised Forest Law; and making management will be critical in maintaining the better progress on legal and judicial reform. While some delays in business sentiment. Second, ratification of the Vietnam US these areas were due to the need for consultations with bilateral trade agreement will be key to raising export NGOs, the private sector, and donors, and to the disruptions growth rates and GDP growth rates. Third, the public resulting from the floods, there may also have been some investment program that is adopted is sufficiently slowdown in reform efforts. complementary to the reforms. Cambodia is now at a critical juncture in making a The Small Economies transition toward broad-based economic growth and significant poverty reduction. The Government needs to Cambodia implement the outstanding reform agenda that has been Cambodia's GDP growth in 2000 was estimated at 5 delayed in recent months, as well as deepening ongoing percent, driven by buoyant activity in the garment and reform efforts in revenue mobilization, expenditure tourism sectors. Despite severe floods in the second half, management, forestry management, and military damage to agricultural production was not as severe as demobilization. In addition, it needs to make substantial expected and was mitigated by timely rehabilitation efforts progress on the more difficult second generation of reforms, by the Government and donors. Inflation decelerated to near in particular reforming the civil service, enhancing zero in 2000, and has largely continued this trend so far in governance, and implementing policies more sharply 2001. The budgetary outturn in 2000 was broadly positive. focused on poverty reduction. Revenue remained at 11.6 percent of GDP in 2000, after a East Timor sharp increase in 1999 thanks to the introduction of the On August 30, 2001, exactly two years after its vote VAT. Despite the need for flood relief outlays, current for independence, voting took place to elect a constituent expenditure was contained at 10 percent of GDP and assembly entrusted with drafting the country's constitution progress was made in re-orientating expenditures toward key and possibly becoming its first parliament. In sharp contrast social sectors. In the external sector, garment exports grew to the August 1999 referendum, the recent election, in which 80 percent in nominal dollar terms in 2000. Imports also 93 percent of eligible voters are thought to have participated, increased, largely led by the garment material and petroleum was marked by an absence of violence. The new constituent imports. The external current account deficit was contained assembly is expected to determine the process of electing a at 10.2 percent of GDP. While foreign direct investment president and the timing of the country's independence. appeared to be stagnant, ODA increased substantially. Following the economy's collapse in 1999, economic For 2001, the Government targets 6 percent GDP growth in 2000 and 2001 has been very strong--boosted by growth, 2 percent inflation, and increased revenue and the aid-financed reconstruction effort and revival of East Asia Update 23 commerce and basic services. But there are concerns about the regional slowdown is likely to have an impact, it is too the sustainability of growth once the large expatriate early to revise these projections. Though an assessment is community begins to depart. The new nation faces the hampered by the lack of monthly data, particularly on challenge of designing a strategy to utilize aid flows and industrial production and external trade, anecdotal evidence solid prospects of offshore oil and gas wealth (by mid - suggests that construction and service activities remains decade) for the benefit of its impoverished population and to relatively strong. Agricultural production is expected to redress longstanding weaknesses in health, education and grow in line with recent trends. For the medium-term, GDP productivity, while at the same time assuming the growth is projected to reach 7 percent by 2003 (interim GDP responsibilities of government. growth rate projection for 2002 is 6.5 percent), with the Fiji. expectation of the initiation of increments in investment (for example, for major hydroelectric projects). National elections were held on August 25 ­ September 1 under the same 1997 constitution and electoral Inflation, after reaching a high of 167 percent in early laws in effect when the now-deposed PM, Mahendra 1999 as a result of lax macroeconomic policies, has declined Chaudhry, was elected. Mr. Laisenia Qarase, whose party to single digits by early 2001 in response to strong won the largest number of seats (31), but did not attain a stabilization measures undertaken starting mid -1999. clear majority, was sworn in as the new PM with support Reflecting continued subdued food prices and the relatively from independents and the party of coup-leader George stable exchange rate through early 2001, the CPI increase Speight. Mr. Chaudhry's party came in second with 27 seats. was 7 percent (12 month basis) in July 2001. It is expected A 20 member cabinet was sworn in, but did not include any to decline further to 5 percent by 2003 with continued fiscal Fijians of Indian origin, despite a term of the Constitution and monetary discipline. providing for inclusion in the cabinet of any party with more than ten percent of the seats in parliament. Mr. Chaudhry The exchange rate for the domestic currency, the kip, says he will mount a legal challenge against the has been relatively stable since the initiation of government's exclusion of his party from the cabinet. macroeconomic restraint. However, with some slippage in budget performance during the first half of 2001 financed by The impact of the last year's coup on growth was increases in liquidity, as well as increased import demand, much smaller than anticipated ­ GDP is now estimated to there was a recent depreciation of the kip against the Thai have fallen by 2.8 percent rather than the earlier estimate of baht and the US dollar. However, with recent measures to 9.3 percent. The forecast for 2001 growth has, however, tighten monetary policy, the exchange rate appears to be been scaled down from 4.8 per cent to 1 per cent. Business rebounding. Fiscal developments will need to be monitored confidence remains depressed by political uncertainty. The closely as the implementation of the decentralization policy garments sector remained weak due both to the uncertain continues. domestic environment and to a decline in international demand, resulting in a number of factory closures. Mining Mongolia has been adversely impacted by lower than expected ore Against a backdrop of severe natural shocks, real quality and subdued gold prices. It is still early to judge the GDP growth in 2001 is estimated at 1.4 percent, compared impact of the government's fiscal stimulus package which to 1.1 percent in 2000. In the first quarter of 2001, over 10 targets a deficit of 4 percent of GDP for 2001. Inflation in percent of the of the country's total herd stock was lost due 2001 is expected to be in the 4-5 per cent range compared to a combination of harsh weather and an outbreak of hoof- with 1.1 per cent in 2000. Reserves currently stand at about and mouth disease. Continued expansion in mining and 5.2 months of imports of goods and services and are industry moderated the impact of weather shocks on the expected to remain at about 5 months of import cover for the economy. Growth is also likely to be curbed by an estimated rest of the year. fall in export growth in 2001 to 3 percent, down from over Lao PDR 17 percent in 2000. Exports were depressed by falling international copper prices and a drop in cashmere exports. Lao PDR's GDP growth in 2000 is estimated to have However, increases in textiles exports offset some of the been 5.7 percent (with agriculture growing at 5 percent, losses. Purchases of capital equipment in the first two industry at 7.6 percent, and services at 6 percent). This quarters of 2001 and the need for Dzud relief have kept growth rate was lower than the official 1999 GDP growth of imports high. The current account deficit, including official 7.3 percent, based on robust agricultural sector growth of 8.2 transfers, is expected to be held at about 7.4 percent of GDP percent resulting from the irrigation investments (although in 2001. International support for Mongolia's development international agencies have questioned this high agricultural, agenda, re-iterated at the Consultative Group meetings held and therefore the overall GDP, growth rates). in May 2001, is reflected in the large increase in official grants. Inflation edged up to 15 percent in the first quarter GDP growth for 2001 was projected at 5.7 percent, of 2001 following large increases in meat prices and the same rate achieved in 2000, with the sect oral increases in energy and fuel tariffs. Tighter monetary policy contributions along the same lines (agriculture at 5 percent, aims to reduce inflation to no more than 8 percent by end industry at 7.6 percent, and services at 6 percent). Although 2001. East Asia Update 24 Significant government efforts are underway to program commenced in 2000 despite a number of obstacles. improve the quality of fiscal data and adopt measures to The state bank has been brought to the point of sale strengthen fiscal transparency. These efforts include a following resolution of a number of legal issues. Civil campaign to develop an inventory of all central government unrest in the middle of the year and opposition to the accounts, a requirement that all central budget entities and privatization program has refocused government efforts on extra-budgetary funds provide detailed monthly accounting an improved outreach and communications strategy. A reports to the treasury, and the adoption of a new Cabinet significant agenda of unfinished reforms remains to be resolution strengthening the role of chief accountants. Fiscal completed in a number of areas including forestry, budget policy in 2001 has been centered around balancing the management, public sector reform and the operating government's desire to increase spending, raise wages and environment for business. salaries, and pensions while containing the deficit at 7.4 percent of GDP. An amended budget was submitted to Solomon Islands. parliament in July 2001. Enhanced revenue mobilization, The National Parliament is to be dissolved in the generated largely from the introduction of temporary excise current session and fresh national elections are to be held in taxes, are projected to lead to an increase in tax revenue by early December 2001. A number of bilateral donors have 1.8 percent of GDP allowing for a 1.7 percent of GDP agreed to provide financial and technical assistance for increase in total expenditures. conducting the elections. Although results from available poverty surveys are Considerable uncertainty and insecurity is likely to not comparable evidence from these suggests that over a prevail in the coming months. After good initial progress, third of the population lives below the poverty line and the Townsville and Marau Peace Agreements to end inequality is rising, indicating a need for better targeting of hostilities between warring groups from different islands public sector expenditures. The government's commitment have not met with the success that was expected. Surrender to improving human development indicators remains strong of arms has been only partial. Government officials continue despite a lack of consensus on the main policy directions to be threatened by ex-militants demanding compensation needed to support this objective. for damages suffered during the hostilities. The government Papua New Guinea. received a loan of US$25 million from the Exim Bank of Taiwan, China to pay for compensation to victims of the Following disappointing performance in 2000 when social unrest. However, irregularities in compensation output increased by only 0.3 percent, the economy has claims and payments led to a suspension of the first phase of slipped into recession in 2001, with overall GDP expected to payments. contract by 2 percent. This result is driven in part by the GDP is likely to continue to decline in 2001, mineral economy where oil production is declining as fields following a 14 per cent contraction in 2000. Key economic are depleted. Non-mineral sector activities such as activities remain suspended. Prospects for the resumption of construction and retail and wholesale trade are also expected the palm oil plantation and the gold mine in the near term to contract sharply. The coffee harvest appears to be lower are bleak. Fishing has recently resumed with the help of a than expected and exports are therefore expected to decline grant from Taiwan, China to the newly-formed government- due to a combination of factors--declining world prices and owned Soltai Fishing. Local businesses remain unconfident deteriorating infrastructure being the chief among them. about the security situation. The government budget is based Budget implementation in the first half of 2001 was slow on an overoptimistic revenue (and grants) picture and an due to a sharp decline in tax revenues, reflecting the unrealistically high expenditure level. Large discretionary underlying economic conditions and difficulties in accessing tax remissions have eroded the revenue base. With revenues external financing. Inflation has fallen below 10 percent in remaining depressed the government has resorted to the first quarter of 2001, and expectations are for further borrowing from the central bank in excess of the statutory declines by year-end. Treasury bill yields which had limit. The government has had great difficulty in meeting its averaged about 15 percent in 2000 eased on the back of this wage bill and provincial grants have become very irregular. development to about 12 percent at mid year. Foreign reserves stand at US$ 20 million providing 1.5 months of import cover. The current account is expected to remain in surplus in 2001 despite a decline in exports, mainly due to import Other Pacific Island Countries. compression from the recessionary economic conditions, In Vanuatu, GDP recovered from a decline of nearly 3 while the capital account is expected to record a large percent in 1999 to grow by 4 percent in 2000 aided by a 13.5 surplus from an expected inflow of nearly US$100 million in percent increase in tourist arrivals. Inflation remained low at extraordinary financing over the second half of the year. At around 1 percent in 2000 and external reserves at around 6 mid-year the external reserve position was comfortable with months of import cover. However, growth weakened in the net international reserves equivalent to 3.4 months of non- first quarter of 2001, inflation rose to 5 percent due in part to mineral imports. Government has continued to implement higher oil prices, and reserves declined to about 5 months of the wide ranging stabilization and structural adjustment import cover. A major task for the government in the coming East Asia Update 25 months is the implementation of the second phase of its reflecting the implementation of a number of infrastructure Comprehensive Reform Program which includes projects, and a strengthening of private sector activity. In infrastructure development in outer islands. the Marshall Islands, the economy has hardly recovered after a sharp contraction of activity during 1995-97. During the Real GDP growth in Tonga slowed to 3 percent in 2000/01 three year period 1997/98 to 1999/00, real GDP growth from 6 percent in the previous year largely due to lower averaged only 0.3 percent. Kiribati's economy contracted agricultural production. Flat exports coupled with rising 1.7 percent in 2000 following growth of 6.6 percent in 1998 imports and declining service receipts resulted in a fall in and 2.1 percent in 1999 reflecting climate induced declines international reserves from US$15.5 million at end 1999/00 in fishery and falling copra prices and output, the latter due to US$12 million (1.8 months of imports) at end 2000/01. to a drought. A sharp rise in construction related imports, To dampen foreign reserve losses, the value of the pa'anga combined with a fall in fishing license fees and external was adjusted downwards by 21 percent against the U.S. grants led to a fall in the current account surplus from 39 dollar during 2000/01. The key challenge for the percent of GDP in 1998 to 11 percent in 2000. External government in the near future is the implementation of a reserves stood at US$ 370 million or seven years of import public sector reform program that is currently in the cover at end-2000. planning stage. The terrorist attacks of September 11 and the likely The Samoan economy has had a strong growth performance slowdown of the global economy are expected to affect the in recent years, with GDP growing 5.6 percent in 1999 and smaller Pacific Island countries in varying degrees 6.8 percent in 2000. Inflation remained low at 1 percent in depending on the nature and extent of trade and tourism 2000, and the current account recorded a surplus of 3.7 links with their development partners. But the impacts are percent of GDP. The main contributions to growth came difficult to assess at this stage. In the South Pacific, Vanuatu from fisheries, tourism, public construction and public and Samoa, and to a lesser extent, Tonga have significant administration. This growth has been facilitated by policies tourism-related activity, though the scale is much smaller aimed at promoting macroeconomic stability as well as relative to Fiji. Although most tourists are from Australia structural reforms aimed at improving the environment for and New Zealand, arrivals from other source markets may private sector development. In the first quarter of 2001, decline due to recent events. A weakening of the global GDP grew 9.6 percent, inflation rose slightly to 1.5 percent, economy could reduce overseas remittances for Samoa and while the current account slipped into deficit due to a fall in Tonga. The Northern Pacific countries are likely to be tourism earnings and private remittances. Reserves stood at adversely affected if the global slowdown is accompanied by 5.8 months of imports at the end of the first quarter of 2001. a decline in fishing activity, given their large dependence on In the North Pacific, the Federated States of Micronesia fishing license fees from foreign vessels. Lower prices for (FSM) economy has rebounded from the recession export commodities could be another channel of negative associated with the downsizing of the dominant public sector impact. in the mid-1990s. The public sector reform program has been aimed at greater self reliance, in response to the programmed reduction of assistance from the United States, under the Compact of Free Association. Real GDP grew at 2.5 percent in 1998/99 and by 3 percent in 1999/00 The Regional Overview was prepared by Milan Brahmb hatt, Lead Economist, East Asia PREM, with the assistance of Antonio Ollero, Il-Seob Soh and Nancy Mensah, drawing on inputs from country economists and sector specialists throughout the East Asia and Pacific Region. The report was prepared under the general guidance of Homi Kharas, Chief Economist, and Jemal-ud-din Kassum, Regional Vice President, East Asia and Pacific Region. East Asia Update 26 East Asia Regional Brief October 2001 Appendix Tables Appendix Table 1: The Global Economic Environment (year on year percent change except for interest rates and oil price in $/bbl) 1980-90 1990-00 1998 1999 2000 2001 2002 2003 GDP Growth - World 2.9 2.6 2.1 2.9 4.0 1.3 1.6 3.9 OECD 3.0 2.4 2.5 2.8 3.3 0.9 1.0 3.4 United States 2.6 3.2 4.3 4.1 4.1 1.1 1.0 3.9 Japan 4.0 1.4 -1.1 0.8 1.5 -0.8 0.1 2.4 Euro Area 2.3 2.1 2.8 2.5 3.5 1.5 1.3 3.6 Growth of Trade Volume 4.0 6.7 4.5 4.9 13.3 1.0 4.0 10.2 Price Indicators, in U.S. dollars G-5 MUV index in U.S. dollars a/ 2.4 -0.3 -3.7 -0.3 -2.2 -4.6 4.0 4.4 Oil price $/bbl (current dollars) 25.3 19.1 13.1 18.1 28.2 25.0 21.0 20.0 Percent Change -4.7 2.1 -31.8 38.3 56.2 -11.3 -16.0 -4.8 Non-oil commodity price (current dollars) b/ -2.2 -1.4 -15.7 -11.2 -1.3 -8.9 1.6 8.1 Interest Rates- U.S.$ LIBOR (percent per year) c/ 10.4 5.6 5.6 5.5 6.7 3.6 2.8 3.0 EURIBOR (DM before 1999.) 6.7 5.4 3.7 3.0 4.5 4.1 3.3 3.3 G-7 inflation (CPI) in local currency 4.4 2.4 1.2 1.2 1.9 1.8 1.4 1.5 Notes: (a) MUV is Manufactured Exports Unit Value. (b) The World Bank index of 33 non-oil commodity prices, weighted by 1987-89 developing countries exports. (c) London interbank offer rates on six-month deposits. Source: World Bank, DECPG Global Forecast, October 10, 2001. Global Economic Prospects 2002 (Preliminary) Appendix Table 2: East Asia: Quarterly Real GDP Growth 1999-2001 (% Change from Year Ago) Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- 1999 1999 1999 2000 2000 2000 2000 2001 2001 Developing East Asia (6) 7.4 8.3 8.3 8.5 7.9 7.5 5.9 5.6 5.2 Crisis Five 7.3 8.9 9.8 8.8 7.6 6.9 4.6 3.3 2.7 Indonesia 3.6 1.4 5.2 3.6 4.5 4.5 5.4 4.0 4.1 Korea 11.2 13.0 13.1 12.5 9.7 9.2 4.7 3.6 2.7 Malaysia 5.1 8.8 11.2 11.7 8.0 7.6 6.3 3.1 0.5 Philippines 3.7 3.8 5.0 3.4 4.3 4.5 3.8 3.2 3.3 Thailand 3.1 8.1 6.7 5.1 6.6 3.2 3.0 1.7 2.0 Transition Economies China 7.6 7.8 6.8 8.1 8.3 8.2 7.3 8.1 7.8 NIEs 4.9 5.0 7.5 10.1 7.3 8.6 6.0 2.0 -1.3 Hong Kong, China 1.2 4.1 9.2 14.1 10.7 10.8 7.0 2.3 0.4 Singapore 6.8 7.4 7.7 9.9 8.3 10.3 11.0 4.7 -0.9 Taiwan, China 6.4 4.7 6.4 7.9 5.1 6.7 3.8 0.9 -2.4 Source: Haver Analytics, national sources. Developing East Asia total includes China and 5 crisis countries. Regional and sub-group totals are averages using weights based on nominal US dollar GDP in 1995-99. East Asia Update 27 Appendix Table 3. East Asia: Real GDP Growth Actual Projection 1995 1996 1997 1998 1999 2000 2001 2002 East Asia 9.5 8.3 6.4 -0.4 6.9 7.3 4.6 5.0 East Asia 5 8.6 7.1 4.2 -8.1 6.8 6.9 2.3 3.4 Indonesia 8.2 7.8 4.7 -13.2 0.8 4.8 3.3 3.5 Korea 8.9 6.8 5.0 -6.7 10.9 8.8 2.4 3.4 Malaysia 9.8 10.0 7.3 -7.4 6.1 8.3 0.9 3.7 Philippines 4.7 5.8 5.2 -0.6 3.4 4.0 2.5 3.5 Thailand 9.3 5.9 -1.4 -10.8 4.2 4.3 1.6 3.0 Transition China 10.5 9.6 8.8 7.8 7.1 7.9 7.1 6.8 Vietnam 1/ 9.5 9.3 8.2 4.0 4.5 5.5 4.9 5.8 Small Economies Cambodia 7.6 7.0 3.7 1.8 5.0 5.0 5.9 5.8 Lao PDR 7.0 6.8 7.0 4.0 7.3 5.7 5.6 6.2 Mongolia 6.3 2.4 4.0 3.5 3.3 1.1 1.4 2.5 Fiji 1.4 3.4 -0.9 1.4 8.0 -2.8 1.0 2.0 Marshall Islands 3.7 -15.2 -5.3 .. .. .. .. .. Micronesia, Fed. Sts. 1.6 0.6 -4.0 -3.1 0.3 .. .. .. Papua New Guinea -3.3 7.7 -3.9 -3.8 5.4 -1.8 -2.0 1.5 Solomon Islands 7.0 3.5 -2.3 1.1 -1.3 -14.0 .. .. Tonga 4.7 -1.4 -4.4 -1.5 .. .. .. .. Vanuatu 3.8 3.5 2.7 2.1 .. .. .. .. East Asia NIEs 5.9 5.9 6.5 0.9 4.8 8.0 -0.6 3.6 Hong Kong (SAR) 3.9 4.5 5.0 -5.3 3.0 10.5 0.8 3.6 Singapore 8.0 7.6 8.5 0.1 5.9 9.9 -0.6 4.7 Taiwan (China) 6.4 6.1 6.7 4.6 5.4 6.0 -1.3 3.3 Japan 1.6 3.5 1.8 -1.1 0.8 1.5 -0.8 -0.1 Memo: East Asia - All 4.1 5.0 3.4 -0.8 2.8 3.6 0.7 1.6 Source: World Bank for EA5, Transition Economies, Small Countries. Consensus Forecasts (9/10/01) for Hong Kong (SAR), Singapore, Taiwan (China). World Bank DEC Prospects Group 10/10/01 for Japan. (Preliminary). Note: 1/ Differs from government data of 5.8 for 1998, 4.8 for 1999, and 6.7 for 2000 East Asia Update 28 Appendix Table 4: Poverty in East Asia $1 ­a-day $2-a-day Mean Headcount Number Mean Headcount Number Population Consump. (%) of Poor Consump. (%) of Poor (`000) (month) ('000) (month) ('000) Cambodia 1990 48.29 48.3 4,412 48.29 83.7 7,656 9,145 1996 57.77 36.7 4,030 57.77 76.9 8,432 10,968 1998 56.69 38.7 4,449 56.69 78.2 8,986 11,498 1999 58.26 36.7 4,311 58.26 77.1 9,060 11,756 2000 60.01 34.0 4,075 60.01 75.9 9,099 11,995 2001 63.01 29.6 3,617 63.01 73.2 8,947 12,227 2002 64.26 28.9 3,594 64.26 72.5 9,022 12,449 China 1990 57.05 31.3 357,781 57.05 69.9 799,496 1,143,330 1996 84.24 17.2 210,068 84.24 50.7 620,100 1,223,890 1998 88.45 17.1 213,504 88.45 50.8 633,460 1,248,100 1999 93.07 17.4 218,801 93.07 49.6 624,782 1,259,392 2000 97.85 16.5 209,547 97.85 48.0 609,046 1,270,119 2001 103.58 15.8 201,791 103.58 46.4 594,492 1,280,280 2002 110.08 15.0 193,866 110.08 45.0 580,242 1,290,522 Indonesia 1984 49.80 36.7 58,730 49.80 80.0 128,119 160,075 1990 61.58 20.6 36,690 61.58 71.1 126,691 178,232 1996 86.62 7.8 15,398 86.62 50.5 99,583 197,156 1999 66.82 12.0 24,726 66.82 65.1 134,038 205,965 2000 73.18 8.0 16,740 73.18 58.4 121,916 208,766 2001 74.47 7.3 15,454 74.47 57.1 120,790 211,689 2002 76.50 6.5 13,861 76.50 54.9 117,865 214,737 Laos 1990 39.16 53.0 2,200 39.16 89.6 3,721 4,152 1997 50.35 38.4 1,928 50.35 81.3 4,083 5,023 1998 51.11 37.4 1,923 51.11 80.7 4,157 5,148 1999 53.58 33.6 1,773 53.58 79.2 4,178 5,274 2000 55.34 31.5 1,703 55.34 77.5 4,187 5,402 2001 57.16 29.3 1,619 57.16 76.2 4,218 5,533 2002 59.52 26.4 1,493 59.52 74.5 4,220 5,664 Malaysia 1984 120.58 8.9 1,362 120.58 39.8 6,071 15,250 1990 149.81 0.5 89 149.81 22.7 4,137 18,202 1992 183.50 0.0 0 183.50 16.2 3,097 19,127 1996 214.83 0.0 0 214.83 11.5 2,432 21,170 1998 227.31 0.0 0 227.31 10.9 2,424 22,180 1999 235.70 0.0 0 235.70 8.2 2,223 22,710 2000 250.81 0.0 0 250.81 6.1 1,400 23,140 2001 249.16 0.0 0 249.16 6.4 1,495 23,546 2002 255.58 0.0 0 255.58 5.6 1,331 23,945 East Asia Update 29 Appendix Table 4: Poverty in East Asia (Continued) $1 ­a-day $2-a-day Mean Headcount Number Mean Headcount Number Population Consump. (%) of Poor Consump. (%) of Poor (`000) (month) ('000) (month) ('000) PNG 1990 96.67 23.7 908 96.67 53.0 2,035 3,839 1996 126.36 11.7 514 126.36 42.1 1,854 4,401 1998 111.43 17.2 793 111.43 47.1 2,166 4,602 1999 114.69 16.2 763 114.69 46.2 2178 4,713 2000 109.87 17.5 844 109.87 48.0 2315 4,830 2001 104.99 19.1 943 104.99 49.9 2464 4,951 2002 104.02 19.4 981 104.02 50.2 2541 5,075 Philippines 1985 74.92 22.8 12,475 74.92 61.3 33,522 54,668 1990 90.32 19.1 11,969 90.32 53.5 33,471 62,598 1996 107.15 14.8 10,648 107.15 46.5 33,411 71,899 1998 106.64 14.6 10,953 106.64 47.7 35,793 75,115 1999 106.82 13.7 10,533 106.82 47.1 36,102 76,723 2000 108.92 12.7 9,940 108.92 45.9 35,931 78,326 2001 109.98 12.2 9,731 109.98 45.2 36,112 79,932 2002 112.32 11.3 9,247 112.32 44.1 35,954 81,554 South Korea 1990 301.09 0.0 0 301.09 0.3 43 42,869 1996 480.46 0.0 0 480.46 0.0 0 45,545 1998 400.86 0.0 0 400.86 0.0 0 46,430 1999 450.06 0.0 0 450.06 0.0 0 46,848 2000 468.01 0.0 0 468.01 0.0 0 47,215 2001 479.66 0.0 0 479.66 0.0 0 47,576 2002 499.62 0.0 0 499.62 0.0 0 47,929 Thailand 1988 90.42 17.9 9,594 90.42 54.1 29,029 53,687 1990 102.88 12.5 6,955 102.88 47.0 26,130 55,595 1996 143.92 2.2 1,314 143.92 28.2 16,939 60,003 1998 128.97 3.9 2,353 128.97 33.2 20,287 60,333 1999 133.06 4.3 2,684 133.06 32.2 19,905 61,812 2000 137.62 3.5 2,164 137.62 30.0 18,730 62,362 2001 139.52 2.9 1,832 139.52 28.7 18,053 62,892 2002 143.73 2.5 1,578 143.73 26.5 16,786 63,408 Vietnam 1990 41.73 50.8 33,597 41.73 87.0 57,607 66,200 1996 63.44 23.1 17,171 63.44 69.5 51,646 74,300 1998 70.48 15.0 11,445 70.48 63.9 48,890 76,520 1999 73.51 12.6 9,781 73.51 61.1 47,468 77,668 2000 81.51 9.1 7,195 81.51 54.1 42,637 78,763 2001 84.48 7.8 6,247 84.48 51.3 40,966 79,803 2002 88.48 6.4 5,197 88.48 48.0 38,758 80,784 East Asia Update 30 Appendix Table 5: Regional Aggregates for Poverty Measures in East Asia $1 ­a-day $2-a-day Mean Headcount Number Mean Headcount Number of Population Consump. (%) of Poor Consump. (%) Poor ('000) (`000) (month) ('000) (month) EAP 1990 67.51 28.7 454,601 67.51 67.0 1,061,077 1,584,161 1996 98.64 15.2 261,167 98.64 48.9 838,223 1,713,937 1999 102.12 15.4 273,376 102.12 49.6 879,575 1,772,861 2000 107.50 14.1 252,279 107.50 47.2 845,447 1,790,919 2001 112.24 13.3 241,250 112.24 45.8 827,577 1,808,427 2002 118.10 12.6 229,818 118.10 44.2 806,725 1,826,067 EAP less China 1990 94.64 22.0 96,821 94.64 59.3 261,581 440,831 1996 134.57 10.4 51,099 134.57 44.5 218,123 490,047 1999 124.33 10.6 54,574 124.33 49.6 254,792 513,469 2000 131.03 8.2 42,731 131.03 45.4 236,402 520,800 2001 133.22 7.5 39,459 133.22 44.1 233,084 528,147 2002 137.41 6.7 35,952 137.41 42.3 226,483 535,545 EA-5 1990 106.25 15.6 55,703 106.25 53.3 190,562 357,496 1996 151.21 6.9 27,360 151.21 38.5 152,366 395,773 1999 136.75 9.2 37,943 136.75 46.3 191,903 414,058 2000 143.57 6.9 28,914 143.57 42.4 178,164 419,809 2001 145.69 6.4 27,044 145.69 41.5 176,492 425,635 2002 150.11 5.7 24,686 150.11 39.9 171,936 431,573 East Asia Update 31 Appendix Table 6: Share of Major Markets in East Asian Exports Japan USA China 1990 1995 2000 1990 1995 2000 1990 1995 2000 Crisis 5 Indonesia 42.5 27.1 23.2 13.1 13.9 13.7 3.2 3.8 4.5 Korea 18.6 13.6 11.0 28.6 19.2 22.4 0.0 7.3 11.7 Malaysia 15.3 12.5 13.0 16.9 20.8 20.5 2.1 2.6 3.1 Philippines 19.8 15.8 14.6 37.9 35.8 29.3 0.8 1.2 2.5 Thailand 17.2 16.6 15.7 22.7 17.6 22.5 1.2 2.9 4.3 Transition Countries China 14.7 19.1 15.8 8.5 16.6 23.5 Vietnam 13.5 26.8 18.3 0.0 3.1 6.1 0.3 6.6 4.8 Small Countries Cambodia 7.6 1.9 2.3 0.0 1.4 38.8 0.4 1.5 2.2 Lao P. D. Rep. 7.1 1.7 3.7 0.1 1.7 2.9 9.1 2.8 1.6 Mongolia 17.6 24.8 2.1 2.0 7.0 26.9 11.4 27.7 47.3 Myanmar 6.9 7.2 5.8 2.3 6.7 23.9 8.1 11.5 6.3 Papua New Guinea 27.8 21.2 11.0 2.4 1.6 1.2 0.2 2.3 5.5 Solomon Islands 43.1 58.2 22.0 3.9 3.0 0.6 0.0 0.5 12.8 Tonga 30.0 47.9 50.5 26.0 25.8 31.4 0.0 0.0 0.0 Vanuatu 20.6 26.1 26.8 3.7 0.0 14.9 0.0 0.0 0.6 NIEs Hong Kong, China 5.7 6.1 5.2 24.1 21.8 22.5 24.8 33.3 35.5 Singapore 8.8 7.8 7.5 21.3 18.3 17.3 1.5 2.3 3.9 Taiwan, China 12.5 11.8 10.9 32.8 23.7 26.0.. 0.3 12.0 East Asia 14.5 13.0 12.0 22.3 19.6 22.0 5.4 8.6 10.2 Source: IMF Directions of Trade East Asia Update 32 Appendix Table 7: East Asian Export Growth 1999 2000 2000 Q3 2000 Q4 2001 Q1 2001 Q2 Apr-01 May-01 Jun-01 Jul-01 Aug-01 US$ Export Value Growth - % Change from year ago East Asia (9) 6.9 22.1 23.8 11.7 4.1 -6.8 -3.9 -6.1 -10.4 -11.7 #N/A Crisis Five 9.4 20.1 22.7 9.0 1.8 -7.7 -8.3 -3.3 -11.5 -16.4 #N/A Indonesia 0.3 28.8 24.8 17.3 4.8 -4.8 -3.9 -0.2 -10.2 -9.5 #N/A Korea 8.8 21.2 26.5 6.4 2.3 -10.1 -9.9 -6.9 -13.4 -20.0 -19.4 Malaysia 15.5 16.8 21.7 6.9 2.4 -8.7 -5.5 -7.2 -13.5 -17.8 #N/A Philippines 18.5 9.3 5.9 8.3 -0.3 -17.2 -15.8 -11.3 -24.4 -19.4 #N/A Thailand 7.0 18.7 20.8 11.0 -2.0 0.6 -9.3 11.4 -0.2 -11.2 #N/A China 5.8 29.5 25.0 15.7 15.2 4.7 11.1 3.5 -0.6 6.6 0.9 NIEs 5.3 20.5 24.2 12.2 1.2 -10.9 -6.7 -12.4 -13.6 -15.7 #N/A Hong Kong -0.2 16.4 17.1 11.9 2.6 -4.9 -2.5 -3.6 -8.5 -0.8 #N/A Singapore 4.4 20.6 25.5 15.2 7.8 -7.3 -2.4 -9.8 -9.8 -18.1 -21.3 Taiwan, China 14.8 26.8 33.8 9.5 -7.8 -23.9 -17.6 -28.6 -25.5 -36.3 -33.4 Latin America (3) 6.2 19.2 20.6 13.7 7.6 2.2 8.3 -1.0 -0.8 -2.8 #N/A US$ Import Value Growth in Major East Asian Markets - % Change from year ago United States 12.3 19.1 18.6 14.1 5.4 -3.5 1.4 -3.9 -8.0 -7.2 #N/A Japan 11.5 22.3 20.2 15.4 6.6 -4.8 -1.7 0.5 -13.1 -4.4 -15.8 Germany -0.2 4.6 3.8 5.0 5.7 1.3 11.6 -4.8 -2.8 -1.5 #N/A East Asia (9) 10.9 27.2 30.6 17.6 5.7 -5.8 -2.2 -5.5 -9.6 -10.3 #N/A Source: Datastream from national sources; World Bank staff estimates. Group totals are averages using 1997 trade weights Appendix Table 8: Commodity Composition of East Asian Exports (Percent Share of Total Merchandise Exports, 1998) Agriculture Minerals, Chemicals Textiles, Transport Electrical, Other Other Forestry Ores, Apparel, Equipment Data Proc. Machinery Manufact. Fuels Footwear Telecom Machinery Crisis Five Indonesia 18.9 25.6 4.0 18.4 0.6 9.7 1.2 20.5 Korea Rep. 3.6 3.6 8.7 12.5 9.3 34.4 5.9 19.0 Malaysia 11.6 6.6 3.0 5.5 0.9 56.3 2.8 12.3 Philippines 9.3 2.4 0.9 9.9 0.8 63.6 1.0 10.1 Thailand 21.1 1.5 3.9 10.7 1.6 36.3 5.4 17.6 Transition Countries China 5.7 2.7 3.4 27.1 1.1 23.4 3.1 33.0 Viet Nam 27.2 17.9 1.0 35.1 0.3 6.6 0.9 10.8 Small Countries Cambodia 21.2 0.2 0.3 68.3 0.2 0.3 0.2 9.1 Fiji 44.8 0.1 0.2 40.9 0.4 0.4 0.2 3.9 Mongolia 23.7 39.7 0.5 13.8 0.1 0.2 0.2 2.6 Papua N.Guin 48.7 38.9 0.2 0.0 0.4 0.0 0.2 0.5 EAP 9.2 5.5 4.2 18.6 2.5 31.5 3.5 23.7 Source: TradeCan, 2000. East Asia Update 33 Appendix Table 9. East Asia: Gross Capital Market Inflows by Type. Loans (Long Term + Short Term) 1997 1998 1999 2000 2000 2001 Jan-Jul. Jan.-Jul China 11,216 6,880 2,017 2,629 168 1,226 Indonesia 13,940 607 769 1,247 730 40 Korea 12,665 515 3,153 9,081 4651 2423 Malaysia 6,972 3,020 3,921 5,008 1,622 1,825 Philippines 3,347 3,266 1,952 3,818 1,577 1,677 Thailand 6,105 3,073 1,075 2,803 1579 263 Total 54,245 17,361 12,888 24,586 10327 7454 International Equity Issues 1997 1998 1999 2000 2000 2001 Jan-Jul. Jan.-Jul China 8,731 885 3,259 21,305 10,758 2,410 Indonesia 935 0 926 28 28 47 Korea 630 495 6,591 785 492 3,367 Malaysia 424 162 0 0 0 15 Philippines 265 268 222 140 56 0 Thailand 28 2,179 156 0 0 0 Total 11,014 3,990 11,153 22,258 11,334 5,839 International Bond Issues 1997 1998 1999 2000 2000 2001 Jan-Jul. Jan.-Jul China 4,896 1,944 1,660 1,549 859 2,836 Indonesia 5,207 500 0 888 778 167 Korea 13,565 4,827 4,861 12,837 5760 11487 Malaysia 3,106 132 2,062 1,540 33 2,533 Philippines 2,987 1,140 5,051 2,467 2,467 400 Thailand 2,358 300 2,239 966 446 844 Total 32,120 8,843 15,873 20,247 10343 18267 Source: World Bank estimates. East Asia Update 34 Appendix Table 10: NPLs of Crisis-Affected Countries (percent of total loans) 1997 1998 1999 2000 2001 Dec. Dec. Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun. Indonesia (a) -- -- -- -- -- 64 62.4 63.5 61.7 57.1 54.4 52.6 Excl. IBRA 7.2 48.6 58.7 39 38.9 32.9 32.1 30 26.9 18.8 18.1 Korea (b) 8 16.1 17 16.4 15.9 20.5 22.7 20.1 18.8 17 16.2 ex.KAMCO & KDIC 5.9 10.4 11.4 11.3 10.1 14.9 15.3 13.6 12.3 10.4 9.6 Malaysia (c ) 6 21.1 24.1 23.3 23.3 23.4 23.5 23.2 23 22.3 23.2 Excl. Danaharta -- 18.6 19.7 18 17.7 16.6 16.4 16.2 16.1 15.3 16.2 Philippines (d) 4.7 10.4 13.2 13.1 13.4 12.5 14.4 14.6 15.3 15.1 16.7 17 Thailand (e) -- 45 47 47.4 44.7 41.5 39.9 34.8 31.6 26.9 26.7 27.4(e) Excl. AMCs -- 45 47 47.4 44.7 38.9 37.3 32 22.6 17.7 17.4 13 (a)First line uses "stringent" definition of NPL; second line excludes transfers to IBRA. (b) NPL figures use BLC. (c)Includes commercial banks, finance companies, merchant banks, and Danaharta. (d) Refers to commercial banks. (e) First line includes commercial banks, finance companies, and estimated NPLs transferred to wholly-owned private AMCs. WB87803 N:\Bi-Annual Report Sept 2001\Regional Brief\Final Version\EAP Brief Main Report - October 15 2001.doc October 16, 2001 10:09 AM Cambodia: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ Year Year Year Year Year Output, Employment and Prices GDP (% change, previous year) 3.7 1.8 5.0 5.0 5.9 Industrial production index (1993=100) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Unemployment rate (%) .. .. .. .. .. Real wage growth (%) .. .. .. .. .. Consumer price index (% change, previous year) 9.2 13.3 -0.5 2.4 .. Public Sector Government balance (% GDP) -4.1 -6.0 -4.4 -4.2 .. Domestic public sector debt (% GDP) .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) -263 -227 -273 -398 .. Exports of goods (US$ million) 786 867 948 1,140 .. (% change, previous year) .. .. .. .. .. Key export (% change, previous year) .. .. .. .. .. Imports of goods (US$ million) 1,050 1,094 1,221 1,538 .. (% change, previous year) .. 4.2 11.6 26.0 .. Current account balance (US$ million) -246 -246 -281 -408 .. (% GDP) -8.5 -8.1 -9.1 -12.4 .. Foreign direct investment (US$ million) 168 121 129 130.00 .. Total external debt (US$ million) 2,050 2,044 2,059 2,132 .. (% GDP) 66.0 72.7 68.4 66.3 .. Short-term debt (US$ million) .. 34 43 .. .. Debt service ratio (% exports of g&s) 17.8 16.1 14.5 .. .. Reserves, including gold ($US million) 262 390 422 490 .. (months of imports of goods and services) 2.4 3.5 3.4 3.1 .. Financial Markets Domestic credit (% change, previous year) .. .. .. .. .. Short-term interest rate .. .. .. .. .. Exchange rate (end-period) 3,452 3,780 3,775 3905 .. Real effective exchange rate (1990=100 and + = appn) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Stock market index (end-period, Aug 88=100) .. .. .. .. .. Memo: GDP (US$ million) 3,105 2,813 3,008 3,217 .. e = estimate p = projection China: Key Indicators 1997 1998 1999 2000 2001 p/ 2000 2001 2001 Year Year Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP ( % change previous year) 8.8 7.8 7.1 7.9 7.1 8.2 8.0 8.1 7.9 .. .. .. .. Industrial production index (value-added) 8.9 8.5 9.9 9.0 12.5 10.7 11.2 10.8 10.2 10.1 8.1 Unemployment rate (%) /1 3.0 3.1 3.1 3.3 3.3 .. .. .. .. .. .. .. .. Real wage growth 1.1 7.2 13.1 11.4 .. .. .. .. .. .. .. .. .. Consumer price index (% change, previous year) 2.8 -0.8 -1.4 0.4 1.5 0.1 0.9 0.8 1.57 1.7 1.4 1.5 .. Public Sector Government balance (% GDP) -1.8 -3.1 -4.1 -3.6 .. .. .. .. .. .. .. .. .. Domestic public sector debt (% GDP)/7 12.3 16.4 20.7 22.6 .. .. .. .. .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance ($US billion) 40.4 43.5 29.2 34.5 19.3 .. .. .. .. .. .. .. .. Exports of goods ($US billion) 182.8 183.5 194.9 249.1 266.1 67.8 66.9 58.9 65.7 20.8 22.1 22.9 .. (% change, previous year)/2 21.0 0.5 6.1 27.8 6.8 25 15.4 13.9 4.5 3.5 -0.6 6.6 .. Key export (% change, previous year) /3 23.0 3.0 7.0 20.0 .. .. .. .. .. .. .. .. .. Imports of goods ($US billion) 135.3 136.9 158.5 214.7 246.8 57.9 58.9 51.8 58.8 17.9 20.2 19.9 .. (% change, previous year)/2 2.5 -1.5 18.2 35.8 15.0 43.1 28.8 17.2 11.3 10.9 4.7 7.5 .. Current account balance ($US billion ) 37.0 31.5 15.7 20.5 19.4 .. .. .. .. .. .. .. .. (% GDP) 4.1 3.1 1.6 1.9 1.7 .. .. .. .. .. .. .. .. Foreign direct investment (US$ billion)/4 45.4 45.6 41.0 42.1 45.0 26.7 40.8 8 20.7 15.1 20.7 24.2 .. Total external debt ($US billion) 174.6 179.6 173.6 164.6 153.5 .. .. .. .. .. .. .. .. (% GDP) 19.4 19.0 17.5 15.2 13.0 .. .. .. .. .. .. .. .. Short-term debt ($US billion) 63.1 58.6 36.2 19.8 17.7 .. .. .. .. .. .. .. .. Debt service ratio (% exports of g&s) 6.1 7.5 9.8 5.0 .. .. .. .. .. .. .. .. Reserves, including gold ($US billion) 146.4 152.8 161.4 171.8 185.7 .. .. .. .. .. .. .. .. (months of imports of goods and services) 10.3 10.8 10.0 8.1 7.9 .. .. .. .. .. .. .. .. Total reserves excl. gold ($US billion) 142.8 149.2 157.7 168.3 185.1 .. .. .. .. .. .. .. .. Financial Markets Domestic credit (% change, previous year) 18.5 20.0 12.1 10.8 .. .. .. .. .. .. .. .. .. Short-term interest rate (less than 20 days)/5 8.9 6.3 3.9 3.2 .. 3.2 .. .. .. .. .. .. .. Exchange rate (end-period) 8.2798 8.2787 8.2795 8.2774 .. 8.2780 8.2774 8.2777 8.2770 8.2777 8.2770 .. .. Real effective exchange rate ( + = appn) 1995=100 112.17 112.35 106.94 107.74 .. 108.12 109.7 110.31 .. .. .. .. .. (% change, previous year) 4.5 0.2 -4.8 1.0 .. .. .. .. .. .. .. .. .. Stock market index (Dec. 19, 1990=100), close/6 1,264.8 1,331.9 1,554.4 2,221.7 .. 2149.7 2221.7 .. .. .. .. .. .. Memo: GDP (US$ billion) 898.2 946.3 991.2 1079.8 1178.9 750.3 1079.8 240.3 518.8 .. .. .. .. p = projection 1/ Official unemployment only, not including laid-off workers 2/ Norminal growth rate 3/ Manufactured exports 4/ Gross FDI 5/ Central Bank loans to financial institutions 6/ Shanghai Stock Exchange High Comprehensive Index (A share, Dec.19, 1990 =100) 7/ Includes treasury bond, policy financial bond and other financial bond (end-period outstanding) Fiji: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ Year Year Year Year Year Output, Employment and Prices GDP (% change, previous year) -0.9 1.4 8.0 -2.8 1.0 Tourist arrivals ('000) 359.4 371.3 410.0 294.0 .. (% change, previous year) 5.9 3.3 10.4 -28.3 .. Unemployment rate (%) .. .. .. .. .. Real wage growth (%) .. .. .. .. .. Consumer price index (% change, previous year) 2.9 8.1 0.2 1.1 .. Public Sector Government balance (% GDP) -6.5 4.6 -0.7 .. .. Domestic public sector debt (% GDP) 38.0 32.6 32.5 .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) -244 -192 -120 .. .. Exports of goods (US$ million) 519 423 535 .. .. (% change, previous year) -21.4 -18.5 26.5 .. .. Key export: Sugar (% change, previous year) -39.8 1.7 53.2 -5.9 .. Imports of goods (US$ million) 763 615 655 .. .. (% change, previous year) -10.5 -19.4 6.5 .. .. Current account balance (US$ million) 32 -6 28 .. .. (% GDP) 1.5 -0.4 1.5 .. .. Foreign direct investment (US$ million) Total external debt (US$ million) 227 225 261 242 .. (% GDP) 10.8 13.7 14.3 .. .. Short-term debt (US$ million) Debt service ratio (% exports of g&s) 2.9 4.1 3.4 .. .. Reserves, including gold ($US million) 360 385 421 411 .. (months of imports of goods and non factor svcs) 3.8 4.8 4.9 .. .. Financial Markets Domestic credit (private, % change, previous yr) -13.0 -4.9 3.4 .. .. Short-term interest rate 1.4 2.0 2.0 .. .. Exchange rate (end-period) 1.55 1.99 1.97 2.2 .. Real effective exchange rate (1995=100 and + = appn) 106.7 88.7 88.9 87.5 .. (% change, previous year) 4.7 -16.9 0.2 -1.6 .. Stock market index (end-period, Aug 88=100) Memo: GDP (US$ million) 2,104 1,640 1,821 .. .. e = estimate p = projection Indonesia: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ 2000 2001 2001 Year Year Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP (% change, previous year) 4.7 -13.2 0.8 4.8 3.3 4.4 5.2 3.2 3.5 .. .. .. .. Industrial production index (1993=100) 157.4 136.4 169.8 99.9 .. 100.7 99.9 101.8 101.9 .. .. .. .. (% change, previous year) 13.2 -13.3 24.5 -7.7 .. -5.2 -7.7 3.2 3.5 .. .. .. .. Unemployment rate (%) 4.7 5.5 6.4 6.1 .. .. .. .. .. .. .. .. .. Real wage growth (%) 4.1 -29.9 2.0 13.6 .. .. .. .. .. .. .. .. .. Consumer price index (% change, previous year) 6.1 58.5 20.5 3.7 10.0 6.6 9.3 10.6 12.1 9.1 9.3 8.3 Public Sector Government balance (% GDP) /1 -0.6 -2.1 -1.5 -2.3 -3.7 .. .. .. .. .. .. .. .. Domestic public sector debt (% GDP) 0.0 10.5 44.7 50.7 .. 47.6 48.4 46.8 44.8 .. .. .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) 10,067 15,682 20,644 25,042 .. 6,168 6,864 6,178 5,616 .. .. .. .. Exports of goods (US$ million) 56,297 50,371 51,242 65,407 62,072 17,829 16,727 15,399 14,920 .. .. .. .. (% change, previous year) 12.2 -10.5 1.7 27.6 -5.1 24.9 21.6 1.9 -5.2 .. .. .. .. Key exports (% change, previous year) /2 -3.7 -36.7 38.2 50.8 -16.0 40.4 28.6 -0.4 -2.3 .. .. .. .. Imports of goods (US$ million) -46,230 -34,689 -30,599 -40,365 -40,111 11,661 9,863 9,221 9,304 .. .. .. .. (% change, previous year) 4.5 -25.0 -11.8 31.9 -0.6 -247.1 -224.0 4.2 -6.9 .. .. .. .. Current account balance (US$ million) -5,001 4,097 5,783 7,992 4,206 2,243 2,497 2,059 1,451 .. .. .. .. (% GDP) -2.3 4.2 4.1 5.3 2.8 6.8 6.9 6.1 4.5 .. .. .. .. Foreign direct investment (US$ million) 4,677 -356 -2,745 -4,556 -5,347 -1,084 -1,550 -2,241 -1,822 .. .. .. .. Total external debt (US$ million) 136,088 150,886 148,097 141,691 .. 140,803 141,691 138,877 138,901 .. .. .. .. (% GDP) 63.1 155.9 104.8 93.5 .. 93.1 98.3 103.4 108.1 .. .. .. .. Short-term debt (US$ million) 35,104 23,702 19,035 .. .. .. .. .. .. .. .. .. .. Debt service ratio (% exports of g&s) .. .. .. .. .. .. .. .. .. .. .. .. .. Reserves, including gold ($US million) 17,396 23,516 27,257 23,314 .. 29,631 23,314 23,110 28,693 .. .. .. .. (months imports of goods and services) 3.3 2.0 1.6 2.1 .. .. .. .. .. .. .. .. .. Financial Markets Domestic credit (% change, previous year) 42.0 36.0 17.3 25.5 .. 23.2 27.0 16.4 8.7 .. .. .. .. Short-term interest rate /3 25.4 41.4 12.2 14.5 .. 13.62 14.53 15.58 16.65 16.3 16.7 17.2 17.7 Exchange rate (end-period) 2,909 9,875 7,855 8,520 .. 8,830 9,379 10,415 11,408 11,080 11,408 9,781 8,842 Real effective exchange rate (1990=100 and + = appn) 96.6 47.3 68.1 .. .. 65.5 62.9 61.6 0.0 .. .. .. .. (% change, previous year) -5.5 -51.0 43.9 .. .. 6.0 -15.5 -12.7 .. .. .. .. .. Stock market index (end-period, Aug 88=100) 402 398 677 421 .. 421 421 381 438 406 438 449 436 Memo: GDP (US$ million) (based on eop exch. rate) 215,747 96,789 141,309 151,489 .. 37,796 36,032 33,585 32,124 .. .. .. .. e = estimate p = projection 1/ Central government budget. Fiscal year data (April-March) for 1997-1999, nine-month data (April-December) for 2000, and calendar year data for 2001. /2 Oil and gas exports /3 One-month Bank Indonesia certificates Korea: Key Indicators 1997 1998 1999 2000 2001 p/ 2000 2001 2001 Year Year Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP (% change, previous year) 5.0 -6.7 10.9 8.8 2.4 9.2 4.6 3.7 2.7 .. .. .. .. Industrial production index (1995=100, seas. adj.) 113.6 106.2 131.9 154.0 .. 160.6 155.4 156.3 153.9 154.9 151.8 149.9 156.7 (% change, previous year) 4.7 -6.5 24.2 16.8 .. 19.8 7.6 5.0 1.6 2.3 -2.8 -5.7 -4.7 Unemployment rate (%) 2.6 6.8 6.3 4.1 .. 3.6 3.7 4.8 3.5 3.5 3.3 3.4 3.4 Real wage growth (% change previous year) 3.0 -9.1 11.0 6.0 .. 5.8 3.6 4.2 -0.6 -0.4 -1.1 Consumer price index (% change, previous year) 4.5 7.5 0.8 2.3 4.4 3.2 2.9 4.2 5.3 5.4 5.2 5.0 4.7 Public Sector Government balance (% GDP) 1/ -1.5 -4.2 -2.7 1.3 -0.2 13.2 4.0 2.2 2.3 .. .. .. .. Consolidated central government debt (% GDP) Excluding financial restructuring bonds .. .. 22.3 23.1 .. .. .. .. .. .. .. .. .. Including financial restructuring bonds 2/ .. .. 35.4 36.3 .. .. .. .. .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance ($US billion) 3/ -8.5 39.0 23.9 11.8 11.3 4.0 3.8 2.1 4.1 1.8 1.3 0.5 0.4 Exports of goods ($US billion) 3/ 136.2 132.3 143.7 172.3 150.7 44.4 45.2 40.1 38.6 13.4 13.1 11.6 11.8 (% change, previous year) 3/ 5.0 -2.8 8.6 19.9 -12.5 26.5 6.1 2.1 -11.1 -8.7 -14.3 -20.0 -19.4 Key export: Electric & electronic parts, (% change, prev 8.0 -6.7 33.6 35.4 .. 49.6 11.8 -5.1 -25.3 -26.1 -28.0 -37.5 Imports of goods ($US billion) 3/ 144.6 93.3 119.8 160.5 139.5 40.4 41.4 38.0 34.5 11.5 11.7 11.1 11.4 (% change, previous year) 3/ -3.8 -35.5 28.4 34.0 -13.1 35.8 16.2 -2.0 -13.4 -13.2 -11.0 -18.9 -15.1 Current account balance ($US billion ) -8.1 40.4 24.5 11.0 10.9 3.7 3.3 3.1 3.7 2.1 1.0 0.5 -0.1 (% GDP) -1.7 12.7 6.0 2.4 2.6 0.8 0.7 0.8 .. .. .. .. .. Foreign direct investment, net (US$ billion) 4/ -1.6 0.7 5.1 3.5 3.7 -0.2 1.3 0.4 0.3 -0.1 0.5 .. .. FDI commitments (US$ billion) 5/ 7.0 8.9 15.5 15.7 .. 4.7 5.3 4.5 2.2 0.6 1.2 0.7 1.2 Total external debt ($US billion) 159.2 148.7 136.4 136.3 124.8 140.5 136.3 129.8 127.0 128.7 127.0 125.4 .. (% GDP) 33.4 46.9 33.8 29.8 29.7 31.3 29.8 32.7 31.1 .. .. .. .. Short-term debt ($US billion) 63.6 30.7 38.1 44.2 42.7 46.8 44.2 42.4 41.1 42.9 41.1 39.1 .. Debt service ratio (% exports of g&s) 8.9 12.9 23.7 12.6 .. .. .. .. .. .. .. .. .. Usable reserves ($US billion) 8.9 48.5 74.1 96.2 103.5 92.5 96.2 94.4 94.3 93.6 94.3 97.1 99.0 (months of imports of goods and services) 0.7 4.4 4.9 6.0 7.5 5.8 6.0 6.2 6.6 6.6 6.6 6.8 .. Financial Markets Domestic credit (% change, previous year) 21.9 9.8 18.2 18.6 .. 19.5 18.6 14.6 .. 17.0 .. .. .. Short-term interest rate 6/ 31.3 6.5 5.0 5.1 .. 5.1 5.3 5.1 5.0 5.0 5.0 4.8 4.4 Exchange rate (end-period) 1695.0 1204.0 1138.0 1264.5 .. 1115.0 1264.5 1327.5 1297.5 1282.7 1297.5 1300.0 1278.0 Real effective exchange rate ( + = appn) 92.9 69.0 78.3 84.7 .. 86.9 85.1 79.0 79.9 80.1 81.4 .. .. (% change, previous year) -6.0 -25.6 13.5 8.1 .. 11.3 8.4 -4.1 -5.3 -5.6 -3.6 .. .. Stock market index (1990=100) 68.1 81.4 1028.7 504.6 .. 613.2 504.6 523.2 595.1 612.2 595.1 541.6 545.1 Memo: GDP (US$ billion) 476.6 317.2 406.0 457.2 419.8 116.5 120.6 99.3 102.0 .. .. .. .. p = projection 1/ Consolidated central government. Excludes privatization proceeds. For 2000, includes the civil service pension fund. 2/ Includes domestic & external debt. Includes bonds issued outside the budget for bank restructuring in 1998-99 & the global bond issue in April 1998. 3/ Trade figures are on a customs-clearance basis. 4/ Foreign direct investment is on a net basis as reported in the BOP. 5/ FDI commitments are reported by the Ministry of Commerce, Industry and Energy. 6/ Overnight repo rate (end-of-period). Malaysia: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ 2000 2001 2001 Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP (% change, previous year) 7.3 -7.4 6.1 8.3 0.9 7.6 6.3 3.1 0.5 .. .. .. .. Industrial production index (1993=100) 156.1 144.9 158.0 188.3 .. 194.1 197.2 182.7 176.5 180.7 168.4 .. .. (% change, previous year) 10.6 -7.2 9.1 19.8 .. 18.3 15.4 4.1 -5.2 -4.0 -9.9 .. .. Unemployment rate (%) 2.5 3.2 3.4 3.1 4.0 3.1 3.0 4.0 .. .. .. .. .. Real wage growth (%) 6.2 0.9 .. .. .. .. .. .. .. .. .. .. .. Consumer price index (% change, previous year) 2.7 5.3 2.8 1.5 1.9 1.5 1.8 1.4 1.6 1.6 1.5 1.4 .. Public Sector Government balance (% GDP) /1 2.6 -1.8 -3.2 -4.0 -5.7 -5.3 -4.3 -2.0 2.2 .. .. .. .. Domestic public sector debt (% GDP) 27.3 31.2 29.5 30.9 .. 30.8 30.8 33.7 33.5 .. .. .. .. Foreign Trade, BOP and External Debt Trade balance ($US billion) -0.3 14.9 19.1 16.0 1.6 3.9 4.5 3.5 3.3 1.2 0.8 1.1 .. Exports of goods ($US billion) 78.7 73.3 84.6 98.3 8.6 26.8 25.2 22.7 21.8 7.3 7.2 7.1 .. (% change, previous year) 0.6 -6.9 15.3 16.2 16.6 21.6 5.7 2.3 -8.8 -7.3 -13.5 -17.8 .. Key export: Electronics (% change, previous year) .. 1.9 20.2 20.5 .. 21.2 7.0 -2.1 -18.4 .. .. .. .. Imports of goods ($US billion) 79.0 58.4 65.5 86.2 7.0 22.8 20.7 19.2 18.5 6.1 6.4 6.0 .. (% change, previous year) 0.8 -26.1 12.1 31.7 19.4 33.8 11.7 6.7 -10.5 -10.6 -10.4 -21.0 .. Current account balance ($US billion) -6.1 9.4 12.6 8.4 5.7 1.9 4.8 4.8 .. .. .. .. .. (% GDP) -5.9 12.9 15.9 7.6 6.2 8.3 20.7 22.1 .. .. .. .. .. Foreign direct investment (US$ billion) 3.8 3.0 2.6 2.7 .. .. .. .. .. .. .. .. .. Total external debt ($US billions) 45.6 42.6 42.3 41.3 42.4 41.3 41.3 41.2 41.7 .. .. .. .. (% GDP) 46.6 59.2 53.5 46.9 45.1 46.9 46.9 47.7 48.2 .. .. .. .. Short-term debt ($US billion) /2 13.9 8.4 6.0 4.6 4.1 4.6 4.6 4.7 4.8 .. .. .. .. Debt service ratio (% exports of g&s) 6.5 6.6 5.1 4.6 4.8 4.7 4.6 .. .. .. .. .. .. Reserves, including gold ($US billion) 20.9 25.7 31.0 29.9 .. 32.3 29.9 .. .. .. .. .. .. (months of imports of goods) 3.2 5.3 5.7 3.6 2.9 4.2 4.3 4.3 4.2 .. .. .. .. Financial Markets Domestic credit (% change, previous year) 29.3 -2.7 0.3 9.6 .. 3.3 9.6 5.4 .. .. .. .. .. Short-term interest rate /3 7.8 9.4 4.1 3.2 .. 3.2 3.2 3.2 3.3 3.3 3.3 3.3 3.3 Exchange rate (end-period) 3.9 3.8 3.8 3.8 .. 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 Real effective exchange rate (1995=100, + = appn) 101.8 81.0 83.3 85.4 .. 85.9 87.9 .. .. .. .. .. .. (% change, previous year) -2.4 -20.5 2.6 2.5 .. 2.8 6.8 .. .. .. .. .. .. Stock market index (Dec 1996=100) 48.0 47.3 65.6 54.9 .. 57.6 54.9 21.6 21.7 .. .. .. .. Memo: GDP (US$ billion) 100.2 72.5 79.0 88.0 94.0 23.0 23.0 21.6 21.7 .. .. .. .. e = estimate p = projection 1/ Federal government. 2/ BIS consolidated international banking statistics, end-December 1998 and previous issues. 3/ 3-month interbank rates. Mongolia: Key Indicators 1997 1998 1999 2000 2001p/ Year Year Year Year Year Output, Employment and Prices GDP (% change, previous year) 4.0 3.5 3.3 1.1 1.4 Industrial production index (1993=100) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Unemployment rate (%) 7.7 5.9 4.7 4.6 .. Real wage growth (%) .. .. .. .. .. Consumer price index (% change, previous year) 20.5 6.0 10.0 9.5 8.0 Public sector Government balance (% GDP) -9.2 -14.3 -11.9 -9.9 -7.3 Domestic public sector debt (% GDP) .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) 31 -120 -113 -145.9 -149.7 Exports of goods (US$ million) 569 462 454 529 550 (% change, previous year) 0.35 -0.19 -0.02 0.17 0.03 Key export (% change, previous year) .. -0.08 -0.04 0.34 0.04 Imports of goods (US$ million) 538 582 567 679.2 699 (% change, previous year) 0.05 0.08 -0.03 0.16 3.00 Current account balance incl. off. transfers (US$ million 75.2 -75.5 -57.1 -70.3 -75 (% GDP) 7.1 -7.8 -6.3 -7.2 -7.4 Foreign direct investment (US$ million) 20 19 34 40 45.3 Total external debt (US$ million) 605 755 847 919 917 (% GDP) 58.0 77.6 93.6 91.9 89.9 Short-term debt (US$ million) 0 0 12 10 10 Debt service ratio (% exports of g&s) 6.3 7.3 9.7 5.5 7.1 Reserves, including gold ($US million) 137 125 157 188 210 (months of imports of goods and services) 3.3 2.8 3.6 3.7 .. Financial Markets Net domestic credit (% change, previous year) .. -0.50 0.20 -0.10 0.06 Short-term interest rate .. 34.2 36.5 25.8 25.0 Exchange rate (end-period) 813 902 1072 1097 1160 Real effective exchange rate (1995=100 and +=appn) 120.4 139.2 136.0 147.0 106.0 (% change, previous year) 0 0.16 -0.02 0.08 -0.27 Stock market index (end-period, Aug 88=100) .. .. .. .. .. Memo: GDP (US$ million) 1043 972 906 970 1020 p = projection Source: Ministry of Finance and Economy, Staff estimates Papua New Guinea: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ Year Year Year Year Year Output, Employment and Prices GDP (% change, previous year) -3.9 -3.8 5.4 -1.8 -2.0 Industrial production index (1993=100) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Unemployment rate (%) .. .. .. .. .. Real wage growth (%) .. .. .. .. .. Consumer price index (% change, previous year) 3.9 13.6 14.9 15.6 10.0 Public Sector Government balance (% GDP) -6.1 -7.7 -8.6 -6.6 -7.7 Domestic public sector debt (% GDP) .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) 213 424 494 713 566 Exports of goods (US$ million) 2186 1849 2019 2214 2033 (% change, previous year) -16.0 -15.4 9.2 9.7 -8.2 Key export (% change, previous year) .. .. .. .. .. Imports of goods (US$ million) 1972 1425 1525 1502 1466 (% change, previous year) -2.3 -27.7 7.0 -1.5 -2.4 Current account balance (US$ million) -261 23 52 290 119 (% GDP) -5.3 0.6 1.4 7.7 3.8 Foreign direct investment (US$ million) -157 15 92 106 29 Total external debt (US$ million) 2,270 2,241 2,303 2,385 2,495 (% GDP) 46.1 60.2 64.2 61.4 57.9 Short-term debt (US$ million) 154 157 234 154 154 Debt service ratio (% exports of g&s) 14.3 8.2 11.1 10.7 10.2 Reserves, including gold ($US million) 380 187 206 296 398 (months of imports of goods and services) 2.3 1.6 1.6 2.4 3.3 Financial Markets Domestic credit (% change, previous year) .. .. .. .. .. Short-term interest rate .. .. .. .. .. Exchange rate (end-period) .. .. .. .. .. Real effective exchange rate (1990=100 and + = appn) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Stock market index (end-period, Aug 88=100) .. .. .. .. .. Memo: GDP in US$ million 4,927 3,821 3,679 3,762 3,132 e = estimate p = projection Philippines: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ 2000 2001 2001.00 Year Year Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP (% change, previous year) 5.2 -0.6 3.4 4.0 2.5 4.6 3.8 3.2 3.3 .. 3.3 .. .. Industrial production index 156.2 138.2 142.8 165.2 .. 177.5 180.0 159.1 163.8 160.6 184.7 .. .. (% change, previous year) 5.0 -11.5 3.4 15.7 .. 18.7 26.4 6.0 6.9 0.8 10.5 .. .. Unemployment rate (%) 8.7 10.1 9.7 11.1 .. 10.1 .. .. .. .. 10.1 .. .. Real wage growth /1 5.2 -2.0 1.4 -0.2 .. .. .. .. .. .. .. .. .. Consumer price index (% change, previous year) 6.0 9.8 6.6 4.3 .. 4.5 5.8 6.7 6.6 6.4 6.7 6.7 6.2 Public Sector Government balance (% GDP) /2 -0.8 -2.7 -3.7 -4.1 .. -4.3 -5.6 -4.6 -4.6 .. -6.7 Domestic public sector debt (% GDP) 65.4 64.2 64.4 .. .. .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance ($US billion) -11.3 -0.03 4.3 6.7 .. 2.0 2.5 1.3 -0.6 -0.1 0.0 .. .. Exports of goods ($US billion) 25.2 29.5 35.0 38.1 .. 10.3 10.2 8.6 7.4 2.6 2.6 2.6 .. (% change, previous year) 22.7 17.0 18.7 8.7 .. 5.1 7.8 -0.4 -17.7 -11.4 -24.7 -19.4 .. Key export: Electronics, semiconductors (% change, pre 41.0 38.0 27.0 15.0 .. 1.8 3.7 .. .. .. .. .. .. Imports of goods ($US billion) 35.9 29.5 30.7 31.4 .. 8.3 7.8 7.3 8.0 2.7 2.6 .. .. (% change, previous year) 11.2 -18.0 4.2 2.2 .. 3.6 1.9 -7.7 7.0 10.0 4.6 .. .. Current account balance ($US billion) -4.3 1.3 7.2 3.6 .. 0.6 1.4 0.2 .. .. .. .. .. (% GDP) -5.2 2.0 9.4 4.4 .. .. .. .. .. .. .. .. .. Foreign direct investment (US$ billion) 1.2 1.7 1.1 1.0 .. 0.4 .. .. .. .. .. .. .. Total external debt ($US billion) 46.7 48.3 52.1 .. .. 51.8 52.1 .. .. .. .. .. .. (% GDP) 56.6 73.7 68.1 .. .. 73.7 80.0 .. .. .. .. .. .. Short-term debt ($US billion) 8.6 9.1 5.7 .. .. 5.6 5.9 .. .. .. .. .. .. Debt service ratio (% exports of g&s) 11.7 11.4 12.7 12.3 .. 11.4 12.1 .. .. .. 16.22 .. .. Reserves, including gold ($US billion) 8.9 10.7 15.0 15.1 .. 14.9 14.9 14.6 14.6 14.4 14.6 14.3 14.2 (months of imports of goods and services) 1.9 3.0 3.8 3.8 .. 4.3 4.3 .. .. .. .. .. .. Financial Markets Net Domestic credit (% change, previous year) 28.1 -3.3 2.7 8.0 .. 10.6 9.3 .. .. .. .. .. .. Short-term interest rate /3 15.8 13.8 10.9 10.9 .. 10.7 14.4 11.6 .. 9.4 .. .. .. Exchange rate (end-period) 40.0 39.2 40.3 50.0 .. 46.3 50.0 49.4 52.4 50.6 52.4 53.8 51.2 Real effective exchange rate (1995=100, + = appn) 108.8 88.7 96.5 89.5 .. 88.4 82.1 84.3 83.0 83.0 82.1 .. .. (% change, previous year) -0.5 -18.4 8.6 -7.2 .. -8.4 -11.7 -10.2 -11.6 -11.7 -12.6 .. .. Stock market index (Dec 1994=100) 67.1 70.7 76.9 53.6 .. 51.5 53.6 51.9 50.6 50.1 50.6 .. .. Memo: GDP (US$ billion) 82.5 65.5 76.5 65.1 .. .. .. .. .. .. .. .. .. e = estimate p = projection 1/ Non-agriculture, National Capital Region 2/ National government 3/ Interbank call rate Solomon Islands: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ Year Year Year Year Year Output, Employment and Prices GDP (% change, previous year) -2.3 1.1 -1.3 -14.0 .. Industrial production index (1993=100) .. .. .. .. .. (% change, previous year) .. .. .. .. .. Unemployment rate (%) .. .. .. .. .. Real wage growth (%) .. .. .. .. .. Consumer price index (% change, previous year) 8.1 12.3 8.3 5.0 .. Public Sector Government balance (% GDP) -4.1 -1.6 -2.7 .. .. Domestic public sector debt (% GDP) 22.0 22.1 21.4 .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) -35.5 -6.1 9.5 .. .. Exports of goods (US$ million) 173.9 140.8 149.6 .. .. (% change, previous year) 7.1 -19.0 6.2 .. .. Key export: Logs (% change, previous year) -15.7 -51.0 13.5 .. .. Imports of goods (US$ million) 209.4 146.9 140.1 .. .. (% change, previous year) 38.5 -29.8 -4.6 .. .. Current account balance (US$ million) -37.9 16.4 35.1 .. .. (% GDP) -8.7 4.6 9.8 .. .. Foreign direct investment (US$ million) 31.4 4.9 3.1 .. .. Total external debt (US$ million) 173.0 166.1 .. .. .. (% GDP) 39.9 46.3 .. .. .. Short-term debt (US$ million) .. .. .. .. .. Debt service ratio (% exports of g&s) 7.9 18.1 .. .. .. Reserves, including gold ($US million) 31.7 47.9 50.6 31.3 .. (months of imports of goods and services) 1.3 2.8 2.7 2.0 .. Financial Markets Domestic credit (% change, previous year) 10.0 25.0 8.0 .. .. Short-term interest rate 13.3 6.0 6.0 .. .. Exchange rate (end-period) 4.7 4.9 5.1 5.1 .. Real effective exchange rate (1995=100 and + = appn) 116.6 108.9 112.1 117.8 .. (% change, previous year) 9.1 -6.6 2.9 5.1 .. Stock market index (end-period, Aug 88=100) .. .. .. .. .. Memo: GDP (US$ million) 433.7 358.8 359.4 .. .. e = estimate p = projection Thailand: Key Indicators 1997 1998 1999 2000 e/ 2001 p/ 2000 2001 2001 Year Year Year Year Year Q3 Q4 Q1 Q2 May Jun Jul Aug Output, Employment and Prices GDP (% change, previous year) -1.4 -10.8 4.2 4.3 1.6 2.8 3.1 1.8 .. .. .. .. .. Industrial production index (1995=100) 107.2 96.5 108.8 111.9 .. 108.3 114.8 117.6 110.0 111.7 110.6 108.4 .. (% change, previous year) -0.5 -10.0 12.7 2.8 .. -0.7 -0.5 1.3 1.5 2.8 1.5 2.0 Unemployment rate (%) 1/ 1.5 4.4 4.2 3.6 4.0 2.4 3.6 4.2 4.2 4.2 .. .. .. Real wage growth (%) 1/ .. 3.3 3.1 2.0 0.0 -0.5 -0.4 .. .. .. .. .. .. Consumer price index (% change, previous year) 5.5 8.1 0.3 1.5 2.3 2.2 1.6 1.4 2.5 2.8 2.3 2.2 Public Sector Government balance (% GDP) 2/ -2.7 -5.8 -6.1 -5.3 -4.7 -2.0 -4.1 .. .. .. .. .. .. Domestic public sector debt (% GDP) 3/ 36.3 45.2 55.9 56.9 57.6 22.1 21.3 .. .. .. .. .. .. Foreign Trade, BOP and External Debt Trade balance (US$ million) -4632 9978 9271 5521 2464 1510 1154 65 402 132 403 -3 .. Exports of goods (US$ million) 56721 52873 56800 67943 66297 18012 17974 16019 15635 5522 5388 5143 .. (% change, previous year) 3.7 -6.8 7.4 19.6 -2.4 22.5 14.4 -1.3 -0.6 6.8 -1.5 -14.2 .. Key exports: Rice and rubber (% change, previous yr) 7.4 16.1 -17.2 7.2 -8.0 1.4 10.5 -5.6 -12.5 11.0 -5.6 -6.5 .. Imports of goods (US$ million) 61353 42895 47529 62422 63833 16502 16820 15954 15233 5390 4985 5146 .. (% change, previous year) -15.7 -30.1 16.9 31.3 2.3 33.8 23.6 11.6 2.9 15.7 -8.2 -3.8 .. Current account balance (US$ million) -1282 14314 12465 9383 4200 2181 2232 1376 1166 368 510 324 .. (% GDP) -0.8 12.8 10.2 7.7 3.7 7.4 7.5 .. .. .. .. .. .. Foreign direct investment, net (US$ million) 3627.0 5143.0 3562.0 2813.0 3300.0 742.0 1081.0 438.0 714.0 353.0 225.0 .. .. Total external debt (US$ million) 109731 104943 96335 83725 68338 83725 80248 75650 73243 74836 73243 .. .. (% GDP) 72.6 93.8 79.0 68.8 59.1 71.5 67.8 .. .. .. .. .. .. Short-term debt (US$ million) 37836 29660 23418 14541 11000 15194 14541 14196 14336 14180 14336 .. .. Debt service ratio (% exports of g&s) 15.3 20.8 19.0 23.0 20.0 16.8 13.4 20.4 15.7 .. .. .. .. Reserves, including gold (US$ million) 26968 29536 34781 32700 31000 32200 32700 32300 31600 32000 31600 31900 .. (months of imports of goods and services) 4.5 7.3 7.2 5.3 4.5 5.2 5.3 5.2 5.3 .. .. .. .. Financial Markets Domestic credit (% change, previous year) 30.1 -3.3 -4.0 -8.2 .. -8.5 -7.7 -9.1 .. -9.7 .. .. .. Short-term interest rate (end-of-period) /4 9.6 5.7 3.8 3.0 2.5 3.0 3.0 2.7 2.5 2.5 2.5 2.5 2.5 Exchange rate (end-of-period) 47.2 36.9 36.8 43.1 44.0 41.9 43.1 43.9 45.2 45.5 45.2 45.6 .. Real effective exchange rate (1994=100) 72.6 90.1 87.5 83.7 83.0 82.0 78.7 80.1 78.9 78.7 79.3 .. .. (% change, previous year) -31.9 24.2 -2.9 -4.4 -0.8 -5.3 -7.1 -8.1 -8.1 -8.9 -6.3 .. .. Stock market index (Dec 1996=100) 575.3 361.7 482.0 269.0 .. 277.0 269.0 290.0 322.6 310.1 322.6 297.7 335.6 Memo: GDP (US$ billion) 151.1 111.9 122.0 121.8 115.7 29.3 29.6 29.4 .. .. .. .. .. e = estimate p = projection 1/ Rates are percent of current labor force and do not include seasonally unemployed. Source: National Statistics Office Labor Force Survey (as of May 2001). Real wage growth is Feb/Feb. 2/ Central government (calendar year basis) augmented for the cost of fiscal sector assistance, except for the quarterly and monthly data. 3/ Includes domestic central government (CG) debt and SOE's domestic debt guaranteed by the CG and financial sector assistance liabilites, except for the quarterly and monthly data. 4/ Average interest rates on time deposits of less than 6 months (percent per annum). Vietnam: Key Indicators 1997 1998 1999 2000 e/ 2001p/ 2000 2001 Year Year Year Year Year Q3 Q4 Q1 Q2 Output, Employment and Prices GDP (% change, previous year) 8.2 4.0 4.5 5.5 4.9 5.5 6.4 .. .. Industrial production index .. .. .. .. .. .. .. .. .. (% change, previous year) 13.8 12.1 10.4 15.7 14.5 16.9 16.7 14.4 14.1 Unemployment rate (%) (urban areas) 6.0 6.9 7.4 6.4 Real wage growth .. .. .. .. .. .. .. .. .. Consumer price index (% change, year-end) 3.6 9.2 0.1 -0.6 2.5 -1.8 -0.6 0.0 -0.7 Public Sector Government balance (% GDP) -1.4 -0.5 -1.6 -1.7 -3.8 .. .. .. .. Domestic public sector debt (accumulated, % GDP) 3.8 3.3 2.3 3.8 6.9 .. .. .. .. Foreign Trade, BOP and External Debt Trade balance ($US million) -2,475 -2,129 -82 -1,187 -1,633 58 -565 -74 -147 Exports of goods ($US million) -9,145 9,365 11,540 14,448 15,419 3,892 4,090 3,578 4,031 (% change, previous year) 26.8 2.4 23.2 25.2 6.7 27.7 22.2 17.1 12.8 Key export: crude oil (% change, previous year) 4.7 -12.5 60 67.5 17.0 80.1 37.8 20.4 22.6 Imports of goods ($US) 11,620 11,494 11,622 15,635 17,052 3,834 4,655 3,652 4,178 (% change, previous year) 4.4 -1.1 1.1 34.4 10.2 31.1 37.1 11.7 7.8 Current account balance ($US million ) -1,800 -1,255 1,153 507 -161 .. .. .. .. (% GDP) -7.3 -4.9 4.2 1.8 -0.6 .. .. .. .. Foreign direct investment (US$ million) 200 800 700 800 1000 200 250 250 300 Total external debt ($US billion)/2 10.1 10.8 11.1 13.9 14.3 .. .. .. .. (% GDP) 40.7 41.7 40.7 43.8 43.8 .. .. .. .. Short-term debt ($US billion ) -0.53 -0.29 -0.6 -1.7 -0.9 .. .. .. .. Debt service ratio (% exports of g&s) 11.5 13.8 13.8 10.4 16.0 .. .. .. .. Reserves, including gold ($US million) 2,085 2,028 2,711 3,030 3,527 .. .. .. .. (weeks of imports) 10.3 6.8 9.1 9.1 11.0 .. .. .. .. Financial Markets Domestic credit (% change, period-end) 22.6 20.5 10.5 38.1 20.0 24.8 38.1 5.5 9.5 Short-term interest rate (3-M deposits, period-end) 8.1 9.7 4.0 4.3 4.5 4.2 4.2 4.0 4.2 Exchange rate (period-end) 12,292 13,896 14,008 14,490 15,250 14,325 14,490 14,525 14,850 Real effective exchange rate ( + = appn) .. .. .. .. .. .. .. .. .. (% change, previous year) 3.4 8.2 0.8 3.4 5.2 1.4 3.4 3.7 4.2 Stock market index (period-end, Dec 2000=100) .. .. .. 100 ... ... ... 130.2 241.9 Memo: GDP (US$ billion) 24.8 25.9 27.4 30.7 .. .. .. .. .. e = estimate p = projection SPECIAL FOCUS: RENEWINGTRADE AS ANENGINE FORGROWTHAND POVERTY REDUCTION Rapid and sustained growth in international trade Recent WTO data also indicate that developing has long been a hallmark of successful growth and Asia's services exports rose from 6 to 11 percent of world development strategies among the East Asian countries. services exports between 1990 and 1997, but that they had During the 1990s new low-income entrants to world markets fallen back to about 9.5 percent of the world market by like Cambodia and Vietnam achieved annual average export 1999.1 Further, the export structures of several high and growth rates of 20-30%, suggesting the continued possibility middle income countries in the region have also become of reproducing the earlier and better known export success more similar over the past decade, with a growing stories of countries such as Korea, Malaysia and China. concentration in similar sectors such as high tech, in part as a result of government policy efforts to promote high tech, Nevertheless, concerns about the region's ability to making countries more vulnerable to sharp cyclical swings continue to exploit the gains from integration with the world in world markets for these products. economy have grown over the last five years, in particular in the wake of the region's financial crisis, and with the present Figure 2. Developing East Asia: Shares of World serious downturn in exports. After rising rapidly for several Merchandise Exports (%) decades, Japan's share of world exports has drifted down 4.0 from the mid 1980s, the point at which the yen began a China sustained and large rise. (Figure 1). The share in world exports of Newly Industrializing Countries (NIEs) like Hong 3.0 Kong (SAR), Singapore and Taiwan, (China) either fell or was broadly flat between 1995 and 2000. The share of Korea developing East Asian countries (including Korea) in 2.0 aggregate continued to rise through the last half of the Malaysia 1990s, however, continuing the rapid increases of the Thailand previous 15 years. Nearly all of the rise in developing 1.0 Asia's world export share after 1995 has however come Indonesia from China, and, to a much lesser extent, the Philippines, Philippines which was becoming established as a base for global 0.0 electronics production during this period. On the other hand, world export shares for other countries, such as Indonesia, 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Korea, Malaysia and Thailand were roughly flat during this Competitive pressures on East Asian firms have period. (The rise in world export shares of some of these increased as rapid policy reforms over the last 10-15 years in countries in 2000 reflects the high proportion of hi-tech in other developing regions ­ principally Latin America and these countries' exports and the extraordinary surge in world the transition economies in Europe - have tended to make demand for high-tech equipment in that year. Given the their policy and institutional frameworks as good as or better plunge in hi-tech trade and in these countries' exports in than those in East Asia. For example, trade policy regimes 2001, that rise in market shares is likely to be reversed). in these regions have on average become as or more open Figure 1. East Asian Shares of World than those in East Asia, whether measured in terms of Merchandise Exports (%) average tariffs, tariff dispersion, non-tariff measures or 12.0 restrictions on trade in services. (Figure 3). East Asian Developing East Asia (incl. Korea) average tariff levels had historically been lowe r than those in 10.0 Latin America through the 1980s, but became significantly higher in the first half of the 1990s, as Latin American Japan countries carried through major trade liberalization efforts, 8.0 and still remained somewhat higher in the second half of the 1990s. 6.0 While the degree of openness in services sectors is NIEs (3) quite difficult to measure empirically, recent research 4.0 suggests that barriers to services trade in East Asia are relatively high in some sectors. Recent work for the World Bank's research program on trade in service (Mattoo, 2.0 Rathindran and Subramanian, 2001), for example, constructs 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 indices of liberalization in the financial services and 1WTO | Trade Statistics - International Trade Statistics, 2000 Renewing Trade as an Engine for Growth and Poverty Reduction 2 telecommunications sectors and finds that East Asia lags reforms and in cementing and making them more behind Latin America in terms of openness in both these irreversible. Even where a country undertakes a unilateral sectors, and indeed behind a number of other regions as well trade liberalization, complementary efforts to strengthen in the case of financial services. (Figure 4; higher index customs, standard-setting and regulatory institutions, values indicate greater openness). The study notes that there financial and corporate sector governance, and are good conceptual reasons to think that the growth communications, logistics and transport infrastructure can be enhancing effect of liberalizing services may be rather critical in the success of the reform. China's forthcoming higher than for trade in goods. In particular in many services entry to the WTO provides an example of an East Asian sectors foreign firms can only compete by making foreign country using a trade reform as an opportunity to undertake direct investments in the host country, and this enhances the a broad, far-reaching program of structural and institutional potential for spillovers of new technology and skills to the reforms. But a prospective new round of global trade talks host. Removal of barriers to entry by both foreign firms and under the auspices of the WTO also offers a major concrete new domestic competitors will also enhance competition and opportunity for the region more widely to renew the impetus the scale of activity in the sector, with further gains in of reform, as does new interest in initiatives to strengthen productivity. The study finds a strong statistical association regional integration. between openness in these sectors and per-capita income growth in the 1990s. The implication is that greater Clearly, governments may face more political difficulties in putting such trade reforms on the table at a liberalization of the services sectors could provide an important source of future productivity gains in East Asia. time of cyclical macroeconomic slowdown such as the present. However, carefully designed trade reforms take Figure 3. Average Unweighted Tariffs time to study, negotiate and implement. By beginning the East Asia & LAC process today countries may be better positioned to make the 40.0 1.60 E Asia - (7 most of the trade opportunities when the next cyclical large) recovery in world growth and trade arrives. 1.50 35.0 LAC - (7 Large) E.Asia/LAC 1.40 Figure 4. Services Liberalization Indices: Telecoms 30.0 Ratio (RHS) & Financial Services 1.30 South Asia (3) EAP (5) %25.0 1.20 Financial Ratio SSA/MNA (17) Services 1.10 ECA (3) 20.0 LAC (18) 1.00 High Income (26) 15.0 0.90 SSA/MNA (42) 10.0 0.80 ECA (3) 1980-85 1986-90 1991-95 1996-1999 South Asia (5) EAP (8) Telecoms In general, then, an important policy imperative for LAC (21) East Asian countries is to accelerate the removal of High Income (21) impediments that hinder firms from seeking out and shifting 0 2 4 6 8 10 resources into their areas of greatest comparative advantage. Source: Mattoo, Rathindran & Subramanian. (2001). Trade liberalization initiatives represent an important means towards this end, but they also need to be viewed as an opportunity to revitalize, build, strengthen or reform China's Entry to the WTO institutions that are important for economic development and poverty reduction more broadly. As Rodrik (2001) China's forthcoming entry to the WTO will observes, trade reform necessarily "goes beyond particular "revolutionize the organization of business activity in China levels of tariffs and QRs; it sets new rules and expectations and the modes and intensity of government regulation." regarding how these policy choices are made and (Bhattasali and Kawai, 2001), as a result of both general implemented, establishes new constraints and opportunities WTO disciplines such as most-favored nation (MFN) for economic policy more broadly [and] results in treatment, as well as specific commitments to reduce trade institutional reform of a major kind... the yardstick that barriers, phase out export subsidies, improve transparency of matters is the degree to which trade reform contributes to the state-owned enterprises, and adopt improved intellectual construction of a high quality institutional environment at property rights. Simple average tariffs on manufactures will home." fall to 7 percent by 2005, from 24 percent in 1998, with elimination of all quotas and other non-tariff barriers. The Membership in the WTO or in a regional changes will further force the pace of corporate restructuring integration agreement like NAFTA or the EU, for example, entails adoption of a whole set of institutional norms, and can be important in both overcoming domestic opposition to Renewing Trade as an Engine for Growth and Poverty Reduction 3 Table 1. Key Impacts of WTO Accession on Chinese Manufacturing Industry (As percent of world output, exports and imports in 2005). Output Exports Imports Without With Without With Without With Accession Accession Accession Accession Accession Accession Beverages & Tobacco 7.0 4.4 1.0 1.0 1.3 16.2 Textiles 13.9 14.2 8.8 10.6 18.0 25.5 Wearing Apparel 8.8 20.1 18.5 47.1 1.1 3.7 Metals 9.0 8.4 5.5 6.5 5.8 6.6 Automobiles 3.8 1.1 0.7 2.2 1.8 4.8 Electronics 4.5 4.8 7.8 9.8 5.3 5.7 Other Manufactures 10.4 9.8 8.1 9.9 5.9 7.5 Source: Ianchovichina and Martin (2001) and retrenchment in the inefficient state-owned enterprise share of world imports of automobiles and other and collective sectors, which have been particularly manufactures. protected by the existing trade regime. On the other hand the Ianchovichina and Martin calculate China's income highly competitive and export-oriented apparel and textile industries will receive an enormous boost from the phase out could rise by about 2 percent as a result of WTO accession. of the WTO Agreement on Textiles and Clothing by 2005. How would other countries be affected? The impact on developed countries would be negligible relative to their Even more dramatic changes are expected in large economies, amounting to income gains of around 0.1 services sectors, many of which are presently stunted by a percent. Among surrounding East Asian countries, the study highly restrictive policy regime. With WTO accession a finds newly industrializing countries (NIEs) like Taiwan substantial opening of China's financial sector will occur as (China), Korea, Hong Kong (SAR) and Singapore to be the foreign banks are allowed to compete for renminbi business largest gainers. These countries' overall exports to China with Chinese firms and, later, retail customers. Foreign are expected to nearly triple as a result of accession, with participation in insurance, the securities business and auto- products such as textiles, petrochemicals, metals, beverages financing will also be substantially increased. Far-reaching and tobacco, and other manufactures experiencing especially opening to foreign participation will occur in large gains. Income in the East Asian NIEs is expected to telecommunications, transport, domestic trade and increase on average about 1 percent as a result of China's distribution. In agriculture the main impact of WTO WTO accession. The gains in exports to China of Indonesia accession will be through reduced uncertainty about and other developing South East Asian countries are agricultural trade policies rather than through sharp expected to be rather smaller than those of the NIEs, while reductions from current protection levels. This may these countries' exports to third markets would tend to be however save China from following the general East Asian adversely affected by heightened competition from China, pattern of rising, costly and inefficient agricultural especially in apparel. In net terms the study finds the South protection. East Asian countries might suffer a minor 0.1 percent decline in income, though, to avoid spurious precision, it Table 1 summarizes some of the main sectoral might be better to say they would be negligibly affected changes in manufacturing that Ianchovichina and Martin overall. (2001) expect to result from China's accession, using a new version of the Global Trade Analysis Project (GTAP) model Multilateral Options: A new WTO Round and Beyond of the world economy tailored to reflect the characteristics of China's export processing system. 2 On the export side, the From a broader institutional perspective, China's most dramatic result of China's accession according to this forthcoming entry into the WTO will strengthen the voice in this international forum of both developing countries in analysis would be a huge increase in its share of the world apparel production and exports. This would result from the general and the East Asia region in particular. A sense that lifting of MFA restrictions on China's apparel exports, as the views and interests of developing countries had not been adequately reflected was one of the factors that contributed well from improvements in competitiveness arising from the ability to import cheaper raw materials. Export gains would to the failure of the attempt to launch a new round of global be balanced on the import side by large increases in China's trade talks at Seattle at the end of 1999. The WTO's Ministerial meeting in November 2001 will attempt to imports of textiles (used as inputs for garments) and beverages and tobacco, as well as smaller increases in its relaunch these talks, offering another opportunity to continue the process of multilateral trade liberalization that, through a series of GATT and WTO Rounds over the course 2 Ianchovichina and Martin (2001) note that trade liberalization of five decades, has helped expand trade, raise incomes and could significantly raise productivity growth in various sectors, but reduce poverty at a pace and on a scale never before do not assume such effects because of the difficulty of finding reliable empirical estimates. Their study therefore represents a experienced in history. Yet many developing countries have lower bound of the effects of WTO accession. doubts about new global trade negotiations. They worry that Renewing Trade as an Engine for Growth and Poverty Reduction 4 the multilateral system has become less fair and less relevant collective action agreements to directly address to their development concerns; that the trade agenda is environmental issues. Similarly, core labor standards are becoming dominated by issues in which the developed likely to be best advanced through a specialized instrument countries have most interest; and that multilateral rules are like the International Labor Organization. increasingly a codification of rules prevalent in developed One consequence of the tragic September 11 countries, which may be inappropriate or unenforceable in developing countries, especially the poorest ones. terrorist attacks may indeed be a greater political seriousness in both rich and poor countries in achieving a WTO As preparations for the November meeting have Development Round, as well as other forms of global gone forward, many countries have therefore expressed a cooperation. One indication of this is the argument of the desire to see a new round of multilateral trade talks U.S. Trade Representative Robert Zoellick that, for his fashioned as one that takes the interests of poor countries country to sustain a new global coalition against terrorism, more directly into account.3 Among key issues for such a "U.S. leadership in promoting the international economic Development Round are those of greater Market Access, and trading system is vital...America's trade leadership can especially reducing trade barriers in areas of greatest interest build a coalition of countries that cherish liberty in all its to developing countries, such as agriculture, apparel, textiles aspects. Open markets are vital for developing nations, and other labor intensive manufactures, as well as trade in many of them fragile democracies that rely on the services, all of which are important to East Asian countries. international economy to overcome poverty and create Also important in a Development Round are Implementation opportunity; we need answers for those who ask for Issues, that is better tailoring implementation of existing and economic hope to counter internal threats to our common new trade agreements to the local capabilities of developing values."4 countries, an issue of special importance to the small, less- developed countries of the East Asia region. For example, Recent studies of the potential economic gains from the administrative costs of implementing Uruguay Round a new multilateral trade round to further liberalize trade in agriculture, manufactures and services suggest substantial agreements on intellectual property rights and on customs procedures can run into tens of millions of dollar and gains for the world in general, and for East Asia in sometimes exceed the benefits of the agreement to small less particular. Recent calculations by World Bank researchers using a computable general equilibrium model of the world or least developed countries. Here consideration needs to be given to allow more flexibility for implementation according economy suggest that complete liberalization of to the development level and capability of countries, and merchandise trade (i.e. including agriculture and industry but excluding services trade) between 2005 and 2010 could also to providing more technical and other assistance for implementation. yield additional global income of over $300 billion per year by 2015. (World Bank, forthcoming. The study It is, however, also important to realize that not all conservatively looks only at the static effects of trade forms of global cooperation related to trade are best handled liberalization. So-called dynamic gains, while less well through the rule based forum of the WTO ­ many trade defined, could increase the total gains several fold). Of the related issues need to be addressed through a broad total gain nearly one quarter is expected to accrue to complementary range of global institutions and forums. One developing East Asia, substantially larger than these example is `aid for trade' ­ that is increasing multilateral and countries' 16-17 percent share of world GDP in purchasing bilateral foreign aid to help least developed countries power parity terms. The gain would represent a 2 percent strengthen institutions that are critical in ensuring that more increase in East Asian annual income, as compared to a open trade policies lead to tangible economic benefits, for 1.2% increase in other developing countries' income, and a example better customs facilities, ports, transport, logistics 0.5% rise in rich country income. The study finds that and trade facilitation. Another example is the need for unskilled wages would rise faster than skilled wages or global cooperation on critical issues such as environmental capital returns, thereby enhancing the poverty reducing protection and improving labor standards. Attempts to effects of a new global trade round. Of course the precise include enforcement of such standards within the purview of results of such studies vary according to the assumptions the WTO are feared by many developing countries as being about economic structure and behavior that are made. But to their competitive disadvantage. Conflict over this issue they do generally agree in estimating large gains in both was an important reason for the breakdown of the Seattle global and ­ where it is specifically studied - East Asian talks. Even apart from these disagreements, however, there welfare. Francois (2000), for example, calculates the is a strong case that these issues could be addressed more ASEAN countries would garner $43 billion, or 11% of effectively through instruments that target them directly global gains of $385 billion from a 50% cut in trade rather than as an adjunct to trade agreements. The restrictions in agriculture, industry and services. spectacular success of the Montreal Protocol on Substances An important aspect of a new multilateral Round that Deplete the Ozone Layer shows the potential for must be real progress in improving market access in rich 3This discussion draws on Global Economic Prospects and the Developing Countries 2002: Making Trade Work for the World's 4 Robert B. Zoellick: "Countering Terror With Trade." Poor. (World Bank, forthcoming). Washington Post. September 20, 2001. Renewing Trade as an Engine for Growth and Poverty Reduction 5 country markets for exports from low income and least LDC status and hence are eligible for the program. The developed countries. Agriculture in many rich countries, in introduction of EBA should benefit these countries' exports, particular, remains subject to high tariffs and high levels of especially Cambodia's garment exports, since the EU is domestic and export subsidies which impose large income Cambodia's second largest export market. The potential losses on farmers in poor countries. Trade restrictions under gains may however be diminished to some extent by the the Uruguay Round Agreement on Textiles and Clothing rules of origin requirement of the program, since Cambodia (ATC) are estimated to cost developing countries around relies on imported textiles for its garment production. The $20 billion a year. Under the ATC all quota restrictions on last year has also seen the renovation of the Integrated textiles and clothing are due to be removed by 2005, but will Framework, a program set up by bilateral donors to improve remain protected by high tariff rates, and could also receive the effectiveness of trade-related technical assistance to the additional contingent protection, for example through anti- least developed countries. Cambodia will be among the first dumping measures. Yet further substantial trade opening in countries under the renovated program to conduct an this labor intensive sector would be of real importance for `integration study' which analyses the role of trade in the rapidly expanding job opportunities for the poor in national development strategy. developing countries. And exports of manufactures from Regional Options developing countries more generally face higher tariff in rich country markets than do exports from other developed Interest in greater regional cooperation and countries. Significant trade liberalization in sectors like integration has grown markedly among the countries of the agriculture and textiles and clothing would be especial broader East Asia region including Japan in the years since significance for the least developed countries in the East the financial crisis of 1997/98. Bergsten (2000) outlines Asia region. Figure 5 shows that countries like Cambodia, several reasons for this development. Among the major Fiji, Lao PDR and Vietnam have very high measures of regions, East Asia has the fewest institutions for regional Revealed Comparative Advantage in both agriculture and cooperation of various kinds. This fact was made painfully textiles and clothing.5 obvious during the financial crisis, when countries were unable to mount a significant regional crisis -response Figure 5. East Asia: Revealed Comparative alongside that led by the IMF. A failure by leading Advantage Indexes 1998 10.0 developed countries to maintain the pace of multilateral trade liberalization after the Uruguay Round in 1994 also 9.0 Cambodia stimulated greater interest in Regional Trading 8.0 Arrangements (RTAs), an interest further sharpened by the 7.0 Lao PDR continuing expansion of RTAs in Europe and North Footwear 6.0 America, the breakdown of the WTO talks at Seattle in 5.0 Fiji 1999, and the possibility of only slow progress or failure in Vietnam Apparel, future multilateral negotiations. 4.0 China 3.0 Indonesia Since the crisis, the greatest progress on regional Textiles, 2.0 Korea Mongolia cooperation has in fact occurred in the financial area. The Philippines Thailand ASEAN Surveillance Process begun in October 1998 1.0 PNG Malaysia provides for an exchange of financial and economic 0.0 information and a peer review process among members. 0.0 1.0 2.0 3.0 4.0 5.0 Agriculture and Forestry The Manila Framework Group formed in November 1997 brings together finance and central bank deputies from the This year has also seen other significant initiatives region and the United States, together with the multilateral to improve market access for the least developed countries financial institutions, to undertake regional surveillance, (LDCs). In March 2001 the European Union introduced the technical cooperation and, potentially, establish a "Everything-But-Arms" (EBA) Initiative into its GSP cooperative financing arrangement. Sakakibara (2001) notes program. The EBA provides duty-free and quota-free market that there is little information on the implementation and access to all products originating from the least developed results of the ASEAN Surveillance Process, while the countries, except for arms and ammunition. Only three Manila Group has evolved primarily as a forum for the sensitive agricultural products are not subject to immediate exchange of views and experience. The most recent regional liberalization: fresh bananas, rice and sugar. Fresh bananas financial initiative, the Chiang Mai Initiative of May 2001, is will be fully liberalized in 2006, while rice and sugar will be more ambitious, however, bringing together ASEAN in 2009. In East Asia only Cambodia and Lao PDR satisfy members, China, Japan and Korea (ASEAN+3) and providing for swap and repurchase arrangements between members to provide short term balance of payments and 5A country's Revealed Comparative Advantage (RCA) index for a liquidity support. Sakakibara notes that this is probably the particular product is calculated as its share of world exports of that most concrete and currently active of the regional financial product, divided by its share of world exports of all products. An initiatives to come out of the financial crisis. index value over 1 suggests the country has a revealed comparative advantage in that product. Renewing Trade as an Engine for Growth and Poverty Reduction 6 Interest in new Regional Trading Arrangements (RTAs) has percent of ASEAN GDP. ASEAN would therefore appear to also increased. In addition to the main already existing RTA have a large incentive to ensure it is part of any move in the region, the ASEAN Free Trade Area (AFTA), a long towards a regional trading arrangement. But, given the list of prospective new RTAs have been suggested or enormous volume of trade between East Asia and North discussed in various venues. Recent proposals include: America, the study also finds that APEC wide MFN Japan-Korea-China; ASEAN-Japan-Korea; ASEA N-Japan- liberalization would generate even larger welfare gains. And Korea-China (ASEAN-3); ASEAN-CER6; ASEAN-CER- even that outcome would be dominated by global Japan-Korea; ASEAN-CER-Japan-Korea-China; and various multilateral liberalization. Two conclusions suggest alternatives for APEC-wide liberalization. A large number themselves. First, there is a clear economic incentive for of bilateral trade pacts such as Korea-Japan and Singapore- leading developed and developing countries to make the US, among others, have also been proposed. political investment in achieving a multilateral global trade round, or, failing that, in an APEC wide liberalization. This is a notable change in a region previously Second, in the absence of these outcomes, other RTA distinguished by a consensus in favor of a non- options should be structured as `stepping stones' towards discriminatory multilateral approach. While RTAs can rather than barriers to wider multilateral liberalization. The provide a means of enhancing competition and efficiency literature on RTAs (for example Findlay and Pangestu, gains under some circumstances, discovering and building 2001) suggests some rules of thumbs for doing this . For consensus for the conditions that lead to a more positive example, the rules of accession should allow any country rather than a more inefficient outcome can pose a that wants to join the RTA to do so on the same rules as significant challenge: much depends on the structural existing members. The sectoral coverage of the RTA should characteristics of the countries that become members, their be as broad as possible, with specially protected `sensitive' policies towards non-members, the breadth of economic sectors kept to a minimum. Tariffs against non-members, activities that are to be liberalized and the depth of including other RTAs, should be kept low, both to minimize integration that is undertaken. In addition, an uncoordinated the costs of trade diversion and to increase incentives for pursuit of many different bilateral and other regional separate RTAs to merge into larger, more efficient arrangements can itself lead to a more inefficient outcome groupings. Efforts should be made to ensure that the rules overall, a `Spaghetti Bowl' of complex criss-crossing other institutional forms used in different RTAs themselves agreements with different standards, rules of origin and other conform to minimum standards, and are consistent with institutions. WTO rules. Among general results suggested by recent research (see for example World Bank, 2000), one of the clearest is that the RIA is more likely to be welfare enhancing the more economically diverse is its membership, and in particular if it includes both developed and developing countries. Thus the most comprehensive recent study of potential East Asian RTAs (Gilbert and Scollay, 2001) find that the size of benefits to members of proposed RTAs increases as the number of members increases, as does the size of losses imposed on non-members. To take one of a number of proposed bilateral trading arrangements, a Korea-Japan arrangement is found to be beneficial to both members, although the benefit to Japan is negligible. (Table 1). There are negative effects both on non-members within East Asia, for example, China and ASEAN, as well as on non-members elsewhere, for exa mple, the United States, although the size of these effects is negligible. A larger North Asian grouping with China, Korea and Japan would generate more significant benefits for its members (about 0.2 percent of GDP in aggregate), but would also inflict aggregate losses of about 0.2 percent of GDP on ASEAN countries. An even larger and diverse grouping that includes the ASEAN countries with China, Korea and Japan (ASEAN+3) would further increase the aggregate benefits to the members, and most of the increase, according to Scollay and Gilbert, would flow to ASEAN, comprising almost one 6 CER refers to Close Economic Relations, a bilateral arrangement between Australia and New Zealand. Renewing Trade as an Engine for Growth and Poverty Reduction 7 Table 2. Economic Effects of Alternative Regional Trading Arrangements (Millions of 1997 US Dollars and as % of GDP) ASEAN China Korea Japan USA Members Non-members World Korea-Japan -202 -271 1349 661 -375 2010 -1492 518 % of GDP 0 0 0.3 0 0 0 0 0 Korea-Japan-China -1291 2558 3191 4734 -1268 10483 -6349 4134 % of GDP -0.2 0.3 0.7 0.1 0 0.2 0 0 ASEAN+3 6572 1924 3237 5887 -2625 17601 -9869 7732 % of GDP 0.9 0.2 0.7 0.1 0 0.3 0 0 APEC Preferential 6055 4863 4018 15596 3511 40283 -11989 28294 % of GDP 0.8 0.6 0.9 0.4 0 0.2 -0.1 0.1 APEC MFN 4879 4119 3255 15065 -2265 29076 15407 44482 % of GDP 0.7 0.5 0.7 0.4 0 0.2 0.1 0.2 Source: Gilbert and Scollay (2001). Note: China includes Hong Kong (SAR). References Ianchovichina, Elena and Will Martin. (2001). Trade Liberalization in China's Accession to the WTO. World Bhattasali, Deepak and Masahiro Kawai. (2001). Bank. Policy Research Paper 2623. June 2001. Implications of China's Entry to the World Trade Mattoo, Aaditya, Randeep Rathindran and Arvind Organization. World Bank. Subramanian. (2001). Measuring Trade Liberalization and Bergsten, C. Fred. (2000). The New Asian Challenge. Its Impact on Economic Growth: An Illustration. World Institute for International Economics. Working Paper 00-4. Bank. Findlay, Christopher and Mari Pangestu. (2001). Regional Rodrik, Dani. (2001). Trade Policy Reform as Institutional Trade Arrangements: Where Are They Taking Us? World Reform. In `Trade Policy for Developing Countries in A Bank workshop on Economic Interdependence Shaping Global Economy: A Handbook." World Bank. Asia-Pacific in the 21st Century. Tokyo. March 2001. (Forthcoming). Francois, Joseph. (2000). The Economic Impact of New Sakakibara, Eisuke. (2001). Regional Integration in Asia: Multilateral Trade Negotiations: Final Report. (May 2000). Challenges and Opportunities. Paper presented at `East Asia's Future Economy' Conference. Bangkok. May 2001. Gilbert and Scollay. (2001). Assessing the Implications for East Asia of New Regional Trading Arrangements in the World Bank. (2000). Trade Blocs. Policy Research Report. Asia-Pacific. Paper presented at `East Asia's Future World Bank, (Forthcoming). Global Economic Prospects Economy' Conference. Bangkok. May 2001. and the Developing Countries 2002. This Special Focus was prepared by Milan Brahmbhatt, Lead Economist, East Asia PREM, with assistance from Elena WB87803 Ianchovichina, Mehvesh Mumtaz and Dhiraj Nayyar. SPECIAL FOCUS: PUBLICFINANCIAL ACCOUNTABILITY INEAST ASIA Introduction and Overview management of inputs, and performance with compliance. The turbulent but essentially peaceful political transitions in · While most countries are discussing reform, progress Indonesia and the Philippines this year suggest that East with implementation is modest. The most promising Asia is in a transition period. This combines growing reforms are resulting in a shift from ex ante to ex post political debate and questioning of traditional governance audit; from micro-management of inputs and processes practices, on the one hand, with a gradual emergence and to strategic management of performance; and from consolidation of more constitutional and democratic bureaucratic to civil society monitoring. institutions, norms and values on the other. In this context, · In the short-to-medium term, the priority for reform in governance and institutional reforms are increasingly many East Asian countries is to achieve a fundamental important for economic and social advance in the region. restructuring of core financial and performance Greater political accountability in general, and public management processes. financial accountability in particular, figure prominently · Computerization of financial management information among the demands for better governance in he region. t systems is a long-term investment to be undertaken only Notably, opposition to public corruption was a major force when the fundamentals are firmly in place. animating civil society engagement and protest in both Indonesia and the Philippines this year. Public financial How Effective is Public Financial Accountability in accountability ­ the subject of this special study ­ can be East Asia? defined as the obligation of those handling public finances to For this Special Focus, we surveyed recent assessments2 of report on the management and use of funds through a public financial accountability in ten East Asian countries: process which enables abuses and under-performance to be corrected1. Cambodia, China, Indonesia, Korea, Lao PDR, Malaysia, Papua New Guinea, the Philippines, Thailand and Vietnam. Better, more accountable fiscal stewardship and Recent guidelines on public financial accountability3 have management of public expenditures, revenues and debts are identified nine elements of a sound public financial critical to curb corruption, reduce waste and improve the accountability system: volume and quality of services yielded by public resources. · quality and openness of the budget process; Such benefits are important to a wide range of stakeholders, · appropriateness of internal financial and performance including taxpayers, recipients of public services, investors, management systems; businesses and citizens in general. Public financial · adequacy of the public procurement regime; accountability contributes to wider political accountability · quality of public sector accounts and management and transparency, to political legitimacy and even stability. information; Public financial accountability and public financial · adequacy of corporate accounting, auditing and management are made more important than ever by the governance; straitened fiscal circumstances of countries in the aftermath · effectiveness of the public external audit and evaluation of the financial crisis of 1997-98, which sharply raised function; public debt to GDP levels, increased interest burdens and · adequacy of legislative scrutiny; reduced the share of discretionary expenditure in total public · right and access of the public to information; and expenditure. · monitoring capacity of NGOs and CBOs. This study reviews public financial accountability in ten East These elements are important at national as well as at sub- Asian countries and reaches the following main conclusions: national levels of government. In addition, good public · Public financial accountability institutions in most East financial accountability in a decentralized system requires Asian countries lag behind international good practice ­ and possibly behind practice in countries at similar levels of development in other regions. In particular, 2 there remains a tendency to confuse control with micro - In particular, the study draws on the Country Financial Accountability Assessments, Public Expenditure Reviews and Country Procurement Assessment Reports which are prepared periodically by World Bank staff in order to assist borrower 1There are strong links between public financial accountability and governments and as part of the Bank's fiduciary responsibilities. financial accountability in the private sector. However, the focus See references. here is on the public sector, including central and local government 3Example include the revised IMF Code for Fiscal Transparency and SOEs. (2001) and the report of the Treadway Commission (1992). Special Focus: Public Financial Accountability in East Asia 2 clarity in the assignment of financial and management In China, for example; the scale of these items means that responsibilities between tiers of government. the true fiscal deficit could be as high as 10 percent of GDP compared to the explicit deficit of around 1 ­ 2 per cent.4 Figure 1 shows that, of the ten East Asian countries There are substantial off-budget operations in Indonesia, surveyed, only Malaysia and the Republic of Korea have Malaysia and Cambodia, and these are also a concern in reasonably strong public financial accountability institutions Thailand, the Philippines, PNG and elsewhere. in terms of these nine elements. They are weaker in Thailand and the Philippines. In Indonesia, China, Vietnam, The second proviso is that aggregate fiscal discipline has too Cambodia, Lao PDR and Papua New Guinea (PNG), they often been achieved at the expense of sectoral efficiency and are extremely weak. None of the nine elements of public operational effectiveness. While some countries such as financial accountability is generally satisfactory across East Thailand maintained reasonable sectoral efficiency during Asia. the crisis, protecting social expenditure and ensuring that cuts fell on lower-priority expenditures, other countries Regarding the quality and openness of the budget process, tended to make cuts in an ad hoc, top down way with little most of the countries surveyed have budget systems which regard for the sectoral implications. are generally effective in ensuring aggregate fiscal discipline. Countries as diverse as Thailand and Vietnam These problems reflect the lack of clear processes for have demonstrated an ability to reduce overall public determining priorities and for linking budgets to policy expenditure in times of austerity. Even Cambodia has been plans. Most countries in the region maintain fiscal discipline remarkably successful at ensuring sound fiscal policy and using an input-driven budgeting process focused almost macroeconomic stability, despite the challenges of solely on fiscal discipline. With the exception of Malaysia, reconstruction. There are two important provisos. First, the and to some extent recently the Philippines, Indonesia and prevalence of off-budget accounts, contingent liabilities and Thailand, budget systems pay little attention to performance, quasi-fiscal operations, by state financial institutions and service delivery, outputs or outcomes. State Owned Enterprises means that aggregate fiscal discipline is sometimes more apparent than real. 4China has been implementing a number of reforms to tackle this problem. These include the establishment of a single treasury account, elimination of many extra-budgetary revenue channels and rationalization of the budget structure. Special Focus: Public Financial Accountability in East Asia 3 Figure 1: Ratings of Public Financial Accountability in Ten East Asian Countries Elements of a sound China Vietnam Indonesia Philippines Thailand Korea, Malaysia Cambodia Lao PNG public financial Rep of PDR system 1. Quality and s s m m s m m s s s openness of the budget process 2. Appropriateness m s s s s m l s s s of internal financial and performance management systems 3. Adequacy of the s s s s s m m s s s public procurement regime 4. Quality of public s s s s s l l s s s sector accounts and management information 5. Adequacy of s s s s m m m s s s corporate accounting, auditing and governance 6. Effectiveness of m s s s s l l s s s public external audit and evaluation function 7. Adequacy of s s s m s m m s s s legislative scrutiny 8. Right and access s s m m l m s s s m of the public to information 9. Monitoring s s m m m m m s s s capacity of NGOs and CBOs OVERALL s s s m m m/l m/l s s s Ratings guide: l = high, m = medium, s = low Source: World Bank staff assessment The majority of countries surveyed maintain "dual budgets" Although most countries still have a "Five Year Plan", this for "recurrent" expenditures and "development" seldom includes rigorous fiscal forecasts or spending plans expenditures, with the finance ministry responsible for the of the type provided by a modern "Medium-Term Fiscal former and a planning agency responsible for the latter. Such Framework" (MTFF) or "Medium-Term Expenditure arrangements blur the trade-offs between recurrent and Framework" (MTEF). A number of countries, including the development expenditure, with the development budget Philippines, Thailand, Lao PDR, PNG and Vietnam, have having a lower hurdle for entry, and the recurrent cost begun developing such frameworks, but these initiatives are implications of capital expenditure often being ignored. generally in their early stages. Recurrent and development budgets tend to be better coordinated in Korea, which has promoted inter-agency The Philippines Governance Forum's "Budget Advocacy coordination through a new, high-level Budget Planning Project" serves as a vehicle for civil society engagement in Office.5 Budget preparation. Vietnam recently conducted a "participatory" Public Expenditure Review, involving 5 Experience suggests that coordination is more important than donors and a few NGOs. However, the region has few functional integration. In some countries with dual budgets, such as similar examples of civil society involvement in budget Malaysia, there has been good coordination between the preparation. development "planning" function and the recurrent "budgeting" function. Conversely, even in countries like Thailand where budget, there has tended to be little coordination of donor-funded recurrent and development expenditures are integrated in a single capital expenditure with the main budget. Special Focus: Public Financial Accountability in East Asia 4 Internal financial and performance management systems Lao PDR, Korea and Malaysia. In the Philippines, internal in the region are characterized by a number of problems, audit functions are required by law in each agency, but few including ex ante control through rationing of cash, and are established in practice. In other countries ­ for example complex verification, approval and authorization procedures, Cambodia ­ internal audit exists only as a centralized rather than ex post control through audit. Such controls are function within the Ministry of Finance. Typically, the encouraged by the need for cash rationing where budgets are internal audit function is under-resourced and staffed with unrealistic. In Thailand, for example, the cash allotment few qualified accountants. The focus is on compliance rather process comes close to a second attempt at budget than on value for money. There is frequently confusion preparation, overriding the budget approved by the about the role of internal audit as against external audit. legislature. In the Philippines, the executive has often The adequacy of the public procurement regime is a overridden the budget approved by the legislature through a concern in many East Asian countries. Weaknesses are often process of cash rationing. due to inadequate legislation (Lao PDR), a multiplicity of Other common problems include micro-management of legal instruments (Indonesia) or lack of experience with new inputs, rather than strategic control using performance rules (China). Procurement manuals are often inadequate information such as output and outcome indicators; and and inconsistently applied. In Thailand, the Philippines, control by the Ministry of Finance, rather than control Cambodia and PNG, cumbersome procurement procedures through management processes and audit arrangements at result in delays and make bidding unattractive. In the the agency level. Philippines a contract can require up to 40 signatures. In some countries ­ for example, Thailand ­ there is Malaysia's "Modified Budgeting System" is generally institutional confusion about the respective roles of the considered to be a relatively sophisticated system of output- central procurement authority, the Ministry of Finance and and outcome-based budgeting and control. By reducing the procurement divisions in agencies. Collusion and corruption number of budget lines and focusing to a greater extent on in procurement are commonplace throughout the region. the delivery of results by each spending unit within a clear However, a few countries do have moderately robust budget envelope, the system is generally believed to have procurement regimes. For example, Malaysia has a promoted better allocation and utilization of resources. reasonably well defined two-step bidding system for federal Beyond Malaysia, output and outcome performance and state procurement, underpinned by legislation and clear indicators are used to only a limited extent in a few countries guidance documents. (the Philippines, Thailand and Indonesia). Service providers in most other countries are required to agree their budgets In terms of the quality of public sector accounts and with the finance department in minute line item detail rather management information, only Malaysia and Korea of the than being subject to strategic controls, and they are then not surveyed countries have solid public accounting and allowed to reallocate spending without formal approval. financial reporting systems, with internationally compatible accounting standards and adequate information systems. As a control regime, this is both inefficient and ineffective. Countries lacking integrated financial management It creates over-rigidity in the allocation of resources, and information systems include China, Indonesia, the encourages an approach to public service delivery that is Philippines and Vietnam (although the last two have plans to focused on compliance with rules and red tape, rather than develop more integrated systems). This results in duplication on responsiveness and quality of service delivery. It assumes of monitoring between agencies, with inconsistent results. In that finance department officials know better how to allocate Indonesia, the Directorate of Treasury, the Directorate of resources than frontline service providers. It takes away Budget Administration and the Government Accounting service providers' incentives to find savings, because such Office are all responsible for budget monitoring and record savings cannot be redeployed but must be forfeited. keeping, doing so in a poorly coordinated way. Above all, such micro-management blurs the lines of Public accounting associations are generally weak. Their accountability for results between the finance department lack of independence from government is a major issue in and local service providers. It becomes hard to know most countries. Few countries use public accounting whether failures in service delivery are due to poor standards fully consistent with international standards. management by the line agency or inappropriate Countries yet fully to adopt the IMF's internationally interventions by the finance function. Despite the restrictive recognized GFS ("Government Finance Statistics") control mechanisms in place, many of the countries are not classifications include Vietnam, China, Indonesia and good at keeping sectoral spending within budget. Fiscal Cambodia. marksmanship has been poor in Indonesia, Cambodia and China, with some departments under-spending and others The adequacy of corporate accounting, auditing and over-spending by significant margins. governance is relevant to public financial accountability because State Owned Enterprises form a significant part of Some kind of internal audit or inspection function at the line the public sector in many East Asian countries. Korea has a ministry level or below exists in Vietnam, China, Indonesia, relatively sophisticated system giving greater manageria l Special Focus: Public Financial Accountability in East Asia 5 discretion to SOEs, which are governed by "performance Vietnam and Lao PDR released almost no budget data to the contracts" with the Department of Finance. However, in public. Even now, in Vietnam only 70 per cent of the most countries SOEs are not accountable for service budgeted funds ­ possibly as little as half of total public standards or financial performance. Boards of Directors are expenditure including off-budget funds ­ are disclosed. weak, often comprised of political appointees who are Many other countries exclude a proportion of expenditure as subject to political interference. In Lao PDR, many Boards "classified information" and few make the data readily of Directors have not even been appointed. In the accessible on a website or present it in easily digestible Philippines, the true costs of public support for loss-making form. SOEs is obscured by transfers in the form of tax The Philippines Commission on Audit now puts its audit expenditures. In Vietnam, SOEs are not required to be reports on the web; and in China audited public accounts are independently audited. In Cambodia, accounts are frequently made available to the public. But in some of the surveyed not prepared at all. Accounting and audit standards and countries ­ for example, Indonesia ­ audit reports are not practices are generally poor and not up to international available to the public at all. In certain countries, the standards, although China and Korea have recently taken ownership or regulation of the media is a constraint on steps to move towards international best practice. financial accountability: for example, in Vietnam the press is In many countries the effectiveness of the public external largely state owned; in Malaysia the Press Censorship Act audit and evaluation function is undermined by lack of constrains the freedom of the press. Of the ten countries we independence, limited powers of investigation and sanction, surveyed, Freedom House rates only Thailand, the and conflicts of interest (particularly, where the auditor is Philippines, Korea and PNG as "free media" countries; and also responsible for accounting). In Cambodia and Lao PDR only Indonesia as "partly free". Auditor-General's Offices have only recently been set up. Limited effort has been made to develop the monitoring The Auditor General is sometimes appointed by the capacity of NGOs and CBOs in the region. In Vietnam, President, rather than by the legislature, and is frequently communes have been requested by the Government to post hampered by inadequate staffing. For example, the Auditor budgets outside commune offices, in the hope that this will General in Vietnam has only 600 staff, and is unable to allow better monitoring of expenditures by CBOs. In the cover all provinces and central government agencies. Philippines, the Local Government Code stipulates Auditors are frequently under-qualified. Of 2,800 staff in the allocation to NGOs and CBOs of reserved seats in certain Supreme Audit Agency in Indonesia only 150 are qualified local bodies, including the local development council, the auditors. Modern methods such as scientific sample-based local health board and the local school board; and at national audits, performance audits or value for money audits are level, there has been some involvement of civil society in the often not possible due to such deficiencies. monitoring of capital projects. Indonesia has been Regarding the adequacy of legislative scrutiny, a growing experimenting with community-led approaches to local number of countries require the Supreme Audit Institution to financial management and accountability. But in other report directly to the legislature. The Chinese National Audit countries, civil society monitoring mechanisms are limited Office reported directly to the National People's Congress to donor-funded projects. for the first time in 1996. In Thailand, the Audit Act was Fiscal decentralization is an important trend in many recently amended so that the Auditor General reports countries, including in Indonesia (decentralizing with a big directly to the legislature rather than to the Prime Minister. bang), the Philippines (where decentralization has been A Public Accounts Committee or other mechanism for underway for over a decade), Thailand (which is legislative scrutiny is not formally established in some decentralizing cautiously), China (which is however countries, including Vietnam and Indonesia, although in considering re-centralization) and Vietnam. Indonesia the Parliament is becoming increasingly assertive in overseeing public finances. However, accounts and audit This trend presents both opportunities and threats. Local reports in Indonesia and other countries are submitted many governments may be better placed to incorporate feedback years late, making follow-up difficult. In any event, in some from service users and to help local people participate in countries ­ for example, Indonesia and Papua New Guinea ­ financial and performance management. In this regard, the there is no legal basis for ensuring follow-up where a proposal to encourage communes in Vietnam to disseminate complaint is made. their budgets more widely is encouraging. Regarding the right and access of the public to information, However, unless public financial accountability a few countries have embarked on reforms. For example, arrangements are strengthened at lower-tiers of government, Thailand passed an Official Information Act in 1997 to decentralization can have negative effects ­ including less ensure greater access to information; the 1997 Constitution efficient service delivery and macro-economic instability. In provides for enhanced transparency; and the budget is now the Philippines, where decentralization is relatively far available on the Bureau of the Budget's website. However, advanced, financial accountability continues to be as a whole the region does not perform well. Until recently, undermined by a lack of local audit capacity. If fiscal Special Focus: Public Financial Accountability in East Asia 6 decentralization does not go hand in hand with a clear shows the relative performance of selected East Asian functional assignment of responsibilities and financial countries, drawing on the work of Kaufmann, Kraay and relationships between different tiers of government, there is Zoido-Lobaton (1999), who derived their index aggregating likely to be overlapping service provision in some sectors available indicators measuring subjective perceptions of and under-funding in others. The rapid decentralizations "voice" and "accountability" (rather wider concepts than planned in countries like Indonesia and Thailand will need to public financial accountability). The figure shows that East be carefully phased and managed if they are not to have Asian countries such as China, Vietnam, Indonesia, perverse results. Malaysia, Myanmar and Singapore fall behind countries at similar levels of per capita GDP in terms of these measures Overall, it is clear that the countries surveyed lag well of voice and accountability. Similarly, Transparency behind international good practice in public financial International's "Corruption Perceptions Index" ranks most accountability. In the absence of established international East Asian countries next to African countries: the 2001 metrics for measuring public financial accountability, it is index ranks Indonesia next to Uganda, Vietnam next to difficult to say with certainty whether East Asian countries Zambia, the Philippines next to Senegal and China next to lag behind countries in other regions at similar levels of Ghana. development. However, this seems quite plausible. Figure 2 Figure 2: Relative Performance of East Asian Countries in Indicators of Voice and Accountability A U S K O R P H L T H A Accountability M Y S S G P and Voice C H N I D N V N M M M R l n ( P e r C a p i t a G D P a t P P P ) Source: Kaufmann, Kraay and Zoido-Lobaton (1999) Strategies for Strengthening Public Financial governments receiving budget support are capable of using it Accountability in East Asia wisely) and as technical assistance to client countries. The Bank has also provided loans and credits to countries in the Although public financial accountability institutions are region for projects focused on strengthening aspects of currently weak in the countries surveyed, most governments countries' public financial accountability. are now implementing reform programs of one kind or another, although progress remains spotty and slow. Governments' first instincts are often to attempt to tackle weaknesses in public financial accountability by investing in The World Bank is partnering with many governments in computerization of financial management information these reform efforts, undertaking Public Expenditure systems. However, in most East Asian contexts the World Reviews, Country Financial Accountability Assessments, Bank advises countries that reforms need to start not from Country Procurement Assessment Reports and other the technical hardware of IT but from an effectively analytical and advisory work. This work is undertaken both implemented reform of the foundations of public financial as part of the Bank's own fiduciary responsibility in accountability, starting with budget management processes borrowing countries (in particular, to ensure that and the control regime. Special Focus: Public Financial Accountability in East Asia 7 Immediate priority steps include: Countries such as Thailand, Vietnam, Indonesia and the · reforming the budget process to improve policy Philippines are working with the World Bank to modernize prioritization and fiscal discipline, including integration public financial accountability institutions. Early progress of off-budget accounts into the main budget; includes the following key shifts of emphasis: · better coordination of planning and budgeting; · From ex ante to ex post audit: countries are beginning · better coordination of current and capital expenditure; to experiment with public financial accountability · more rigorous medium-term fiscal and expenditure regimes that rely less heavily on external pre-audit of planning; expenditure and more on the combination of ex post · greater ownership of budgets by line departments and external audit and stronger self-regulation by the frontline service providers; spending unit. In Thailand an innovative series of pilots · the integration of performance information into the supported by the World Bank involve the Bureau of the budget formulation process; and Budget giving greater autonomy to line agencies once it · streamlining both internal and external management is satisfied that internal control processes pass certain control systems. "hurdle standards" (Box 1). Box 1: The Thai "Hurdle" Approach to Budget Reform Thailand is widely regarded as a bastion of centralized budget control. This has enabled highly effective management of the overall budget balance, but is increasingly incompatible with value for money at the level of individual programs. Better results require the replacement of ex ante external controls on program agencies with ex post audit and improved internal control in each agency. The Thai "hurdle" approach, part of the Government's broader Public Sector Reform Program, is one strategy for handling this problem. The approach identifies pockets of `reform energy' in the Thai bureaucracy and offers them reduced external control and increased financial freedom when the agency can demonstrate achievement of "hurdle standards" in seven areas: budget planning; output costing; procurement management; budget/funds control; financial and performance reporting; asset management; and internal audit. These seven areas cover the financial and performance management competencies needed by program agencies before external controls can safely be withdrawn. The approach provides an incentive for change in reform minded agencies, by offering an escape route from the web of external controls. However, by making `decontrol' conditional on meeting hurdle standards of financial and performance management, it also provides a formula more likely to be acceptable to budget offices. Source: Geoff Dixon and Associates, April 2001: The Hurdle Approach to Budget Reform­ The Thai Experience Box 2: Pilot "Running Costs" Regime in Ho Chi Minh City, Vietnam Public expenditure management in Vietnam is characterized by a control regi me that is both inefficient and ineffective. However, a recent pilot public expenditure management reform in Ho Chi Minh City (HCMC) Province may well provide grounds for a different approach. As in other provinces, the HCMC People's Committee and Department of Finance are given considerable autonomy over allocation of the province's total expenditure envelope. However, the control regime involves much micro-management of local service providers by the provincial Department of Finance. Service providers have to agree their budgets with the Department of Finance in minute detail and are not allowed to reallocate spending without formal approval. A pilot project in HCMC gives selected front line service providers a lump sum for their "running costs" (payroll and administrative costs). Agencies are set running cost limits for three to five years. Efficiency increased substantially in the first year of the experiment. The ten service providers closed down 27 offices and cut their headcount by 152. Some service providers used the savings to increase the wages of remaining employees to more competitive levels. Others used them to increase operation and maintenance expenditure. The incentive of being able to retain any savings, rather than having to forfeit them, appears to have resulted in more efficient resource use. It may also have resulted in more effective service delivery. At the moment, few measures of service outputs and outcomes are produced in Vietnam. Over time, however, more sophisticated measures of performance could be introduced as part of a shift from micro-management of inputs to strategic management by results. Source: World Bank staff Special Focus: Public Financial Accountability in East Asia 8 · From micro-management of inputs to performance Vietnam in the Province of Ho Chi Minh City (Box 2). management: Financial accountability regimes are · From bureaucratic to civil society monitoring: moving away from detailed line-item budgeting, Governments in East Asia increasingly recognize that restrictive rules on transfer of funds between budget civil society monitoring of financial management and lines and subsequent assessment of compliance, and service delivery can be a valuable supplement to formal instead are placing greater emphasis on budgeting at the accountability institutions ­ both at the national and level of strategic aggregates and on monitoring and local levels. Examples include the Bank- management of performance measured in terms of funded Kecamatan Development Project in Indonesia outputs and outcomes. An example is the "running and the Budget Advocacy Project in the Philippines (see costs" system being piloted by the Government of Box 3). Box 3: Civil Society Monitoring of Budget Management and Service Delivery in the Philippines and Indonesia The Budget Advocacy Project in the Philippines is an attempt to promote greater transparency, accountability and responsiveness in the budget process by developing the capability of civil society to participate. Currently in the Philippines, the budget undergoes only limited civil society scrutiny, despite its importance in financing service delivery and shaping national development. The Budget Advocacy Project's objectives include developing the capability of policy advocates and activists to analyze the budget and intervene in the budget process, undertaking independent analysis of the Philippines budget and fiscal issues, and raising public awareness on the impact of the budget on national development. To this end, the project maintains a database of relevant economic and fiscal information; conducts public briefings and publishes articles and papers on budget and fiscal issues; designs and delivers training programs on budget literacy; and provides technical advice to government on budget management and service delivery. A more radical initiative at local level is the Kecamatan Development Project in Indonesia. This ambitious and innovative experiment in community-driven development involves engaging the community in overseeing financial management and service delivery so as to improve the capacity, transparency, responsiveness and accountability of local government. A lump sum budget is made available to all villages within a selection of poor sub-districts (kecamatans). As part of a strategy for strengthening local government, communities are empowered to manage increased funding and become accountable for it. Using their budgets, communities are able to decide the projects they wish to deliver from a menu of options, and are responsible for overseeing the project finances and ensuring service delivery. In order to ensure transparency, project performance indicators and information on financial disbursements are posted on notice boards in each community. The project has found that community capacity is higher than official agencies initially believe. Most Indonesian communities have been able to manage simple administration, procurement and book-keeping, with community-based accountability mechanisms working as an effective supplement to more formal approaches. Source: World Bank staff · ensuring that appropriate committees are established by Issues for the longer term include: · the legislature, with the powers and capacity for follow- moving to adopt international accounting standards; · up in the event of abuse or misuse of public money; enhancing the capabilities of public accountants; · · making budgets, accounts and audit reports freely streamlining and making more transparent the available and accessible; and procurement regime: already, procurement reforms as · enabling NGOs and CBOs to participate in the part of the World Bank financed Third Elementary monitoring and scrutiny of public finances and public Education Project in the Philippines have reduced the service delivery. costs of textbook procurement by some 40 per cent (and a later phase is likely to include internet-enabled Successful reform of public financial accountability in East procurement); Asia needs to go much further much faster. More rapid and · making supreme audit institutions statutorily and thoroughgoing reform will require the development of financially independent, allowing them to report directly change management strategies which address the lack of to the legislature and relieving them of internal audit capability for implementing such systems and which responsibilities; overcome the opposition to change from those benefiting from the status quo. Special Focus: Public Financial Accountability in East Asia 9 References World Bank (1999): Cambodia: Public Expenditure Review ­ Enhancing the Effectiveness of Public i. Published documents: Expenditures Asian Development Bank/OECD (1999): Combating Corruption in Asian and Pacific Countries, ADB World Bank (1999): Malaysia: Structural Policy Review ­ Path to Recovery Campos, Ed and Sanjay Pradhan (1996): Budgetary Institutions and Expenditure Outcomes, World Bank Policy World Bank (1999): Papua New Guinea: Improving Research Working Paper Governance and Performance Freedom House (2001): How Free? The Annual Survey of Press Freedom World Bank (2000): Combating Corruption in the Philippines Hashim, Ali and Bill Allan (2001): Treasury Reference Model, World Bank Technical Paper World Bank (2000): Malaysia Public Expenditures: International Monetary Fund and World Bank (1999): Managing the Crisis; Challenging the Future Toward Fiscal Transparency World Bank (2000): Indonesia ­ Public Spending in a Time International Monetary Fund (2001): Code of Good of Change Practices on Fiscal Transparency (Updated Version) International Monetary Fund (2001): Revised Manual on World Bank (2000): Vietnam ­ Managing Public Resources Fiscal Transparency Better Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobaton World Bank (2000): Thailand ­ Public Finance in (1999): Governance Matters, World Bank Policy Research Transition Working Paper Philippines Governance Forum: Budget Advocacy Project World Bank (2001): Indonesia Country Financial Accountability Assessment Premchand, Arigapudi (1999): Public Financial Management ­ Getting the Basics Right, in Schiavo- World Bank (2001): Indonesia Country Procurement Campo (ed.): Governance, Corruption and Public Assessment Report Financial Management, Asian Development Bank Sagal, Vinod and Deepa Chakrapani (2000): Clean ii. Internal World Bank documents: Government and Public Financial Accountability, World Bank OED Working Paper No 17 Dixon, Geoff (2001): The Hurdle Approach to Budget Reform ­ The Thai Experience, World Bank internal Schiavo-Campo, Salvatore and Pachampet Sundaram paper (2001): To Serve and Preserve: Improving Public Administration in a Competitive World (Asian World Bank (1993): Papua New Guinea: Country Development Bank) Procurement Assessment Report Transparency International (2001): 2001 Corruption Perceptions Index World Bank (1994): Lao PDR: Country Procurement Assessment Report Treadway Commission (1992): Report of the Committee of Sponsoring Organizations World Bank (1994): Malaysia: Country Procurement World Bank (1993): Philippines: Fiscal Decentralization Assessment Report Study World Bank (1997): China: Country Procurement World Bank (1995): Philippines: Public Expenditure Assessment Report Management for Sustained and Equitable Growth World Bank (1997): Lao PDR: Public Expenditure Review World Bank (1997): Cambodia: Country Procurement ­ Improving Efficiency and Equity in Spending Priorities Assessment Report World Bank (1998): Philippines: Social Expenditure World Bank (1997): Philippines: Country Procurement Priorities Assessment Report World Bank (1998): Indonesia: Public Expenditure Review ­ The Budget, Off-Budget Items, State-Owned Enterprises World Bank (1997): China ­ Country Profile of Financial Accountability Special Focus: Public Financial Accountability in East Asia 10 World Bank (1997): A Review of Financial and Fiscal World Bank (2001): Vietnam Country Financial Management Systems in the Government of Papua New Accountability Assessment (draft) Guinea World Bank (1998): Indonesia: Project Appraisal World Bank (2001): Vietnam: Second Country Document: Kecamatan Development Project Procurement Assessment Report (draft) World Bank (1999): Transparency and Financial World Bank (2001): Indonesia: Project Appraisal Accountability Assessment in Korea Document: Second Kecamatan Development Project World Bank (1999): Operational Procurement Review: World Bank: Cambodia Accountability Profile Thailand World Bank (2000): China ­ Managing Public Expenditures for Better Results This Special Focus was prepared by Ed Mountfield with valuable comments and inputs from Milan Brahmbhatt, Hana Polackova Brixi, Nancy Chen, Geoff Dixon, Ejaz Ghani, Shan Gooptu, Ronald Hood, Homi Kharas, Kathie Krumm, Behdad Nowroozi, Thang Chien Nguyen, Barbara Nunberg, Ronald Points, Joseph Reyes, Denis Robitaille, David Shand, Cyrus Talati and Dana Weist.