Government should heed World Bank warning that economic rebound may be distant  as capital flows into Asia are expected to remain flat this year

Media Statement
by Lim Kit Siang  

(Petaling Jaya, Friday): The Government should heed World Bank warning that economic rebound may be distant, although the worst  of the economic recession has been passed, as capital flows into Asia are expected to remain flat this year.

The World Bank’s  annual Global Development Finance report said last year was a dismal year for world-wide capital flows: Bonds, bank lending  and portfolio equity fell 47% to $72 billion, the lowest level since 1992. Most countries in Asia saw sharp decreases in inflows, although China was an exception: It retained market access, in part because of its low external debts, huge reserves and large current-account surplus.

Mick Riordan, a World Bank economist, in an interview related to the report's release said that combined with a modest increase in foreign direct investment in several countries in East Asia, capital inflows on  average would be flat.

The size and direction of international capital flows are important signals of economic health. The Asian financial crisis of 1997 and the ensuing world financial turmoil is blamed in part on capital outflows from affected regions.

Access to external capital is expected to remain tight in Asia and other emerging markets, said the report, meaning that financial problems would "persist in emerging markets for longer than had been predicted." This is a revision from last year's report, in which the bank forecast that capital flows into emerging markets would increase and exports from the Asian countries hit hardest by the crisis would rise sharply.

"We had thought that the very rapid depreciation of emerging markets' currencies would make these countries extremely competitive and would sharply  increase exports," explained Ashoka Mody, lead specialist for the bank's international-finance unit. "But we learned that lowering prices doesn't work in a situation where everyone is engaged in lowering prices."

Growth in global output, another harbinger of financial health, is also expected to be flat, said the report. Global output is forecast to increase by a tiny 1.8% this year, compared with a rise of 1.9% last year, said the report. Economic growth in developing countries, meanwhile, has been revised downward by one percentage point in 1999 to 1.5%, the lowest rate since 1982.

The World Bank's prognosis is expected to  damp growing optimism that the financial turmoil that hit Asia and other regions may be near an end. Much of that belief has been driven by rising stocks.

I call on the Government to present a Ministerial statement in next week’s Parliament on its forecast of economic prospects for Malaysia in the light of the latest pessimistic World Bank forecast.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong