Asia Times: A tale of three economies



	July 07, 1999	atimes.com

Southeast Asia

A tale of three economies
By Ron Corben

BANGKOK - Even as the first signs of recovery in Thailand become apparent, neighboring Indochinese states remain engulfed by recession, with only Cambodia confident of rebuilding. Both Laos and Vietnam remain plagued by falling investment and struggling trade as Asia's two-year recession still casts its long shadow over their economies.

Laos, hit hard by Asia's regional contagion, is focusing on links with Vietnam and China to carry it through the tough economic times. Vientiane-based diplomats say there are signs of disillusionment over hoped for benefits from its membership in the Association of Southeast Asian Nations (ASEAN). Recent government pronouncements suggest that the Communist Party in Laos is questioning what ASEAN has to offer, and in general where support for Laos lies. Politically, both China and Vietnam are viewed as more reliable partners. ''ASEAN does not offer the benefits anticipated earlier on,'' a senior diplomat said. At least in the short term, the Lao government is set to ''focus more on Vietnam and China than previously,'' she said.

Some disappointment might be considered inevitable. After all, Laos joined the 10-member ASEAN in 1997, just as the region - led by neighboring Thailand, long the key source of trade and investment for Laos - fell into recession. Having moved to open its economy in the mid-1980s, Vientiane hoped for further economic gains from ASEAN membership. But the economy is still suffering severe recession, hitting those in the capital the hardest. ''Foreign investment in the country fell to just $45 million in 1998, from $142 million in 1997,'' the Asian Development Bank (ADB) said in a recent assessment.

While the government has moved to increase state employees' salaries, inflation in Vientiane has risen more than twice as fast. ''Inflation is threatening social safety nets and pensions,'' the ADB said. Concerns have also arisen over rising corruption as civil servants look to alternatives to boost their flagging incomes. The local currency, the kip, has continued to depreciate. ''Officially, the government is trying to keep the official rate in line with the black market,'' one diplomat said.

The economic outlook seems brighter in Cambodia. A recent fresh coat of paint on public buildings in Phnom Penh, while symbolic, is at least some sign the country's bad years may now be in the past. The country's reputation of political uncertainty has been replaced by greater stability since last year's general elections, allowing Cambodia to start to inch its way back to normality. Phnom Penh Post editor-in-chief Michael Hayes says there are signs of improvement. ''The city is spruced up and business is picking up a little,'' Hayes said. ''Economic growth is at 4 percent, which is better than zero growth last year.'' Advertisers are looking to spend again as well. ''Ads are picking up since the formation of the new government and aid money is picking up,'' he explained.

Donor nations are pledging $470 million to Cambodia in 1999 amid a range of promises from the government to eliminate illegal logging, cuts in military spending and civil servicereform. Cambodia's Finance Minister, Keat Chhon, under pressure from the international community to have tighter fiscal discipline, has promised to cut military spending to 3 percent of gross domestic product (GDP) from 4.16 percent of GDP in 1998. Plans have been drawn up to cut the 148,000-strong army by half within five years. ''There are positive signs,'' Hayes said. ''It is not going to change overnight, and it requires a sustained commitment, but I am cautiously optimistic.'' Cambodia's GDP growth slowed to zero in 1998, but projections now are for 4 percent growth this year.

Meanwhile, the signs of progress continue in neighboring Vietnam, but growth is edging lower. ADB projections estimate GDP growth to reach 3.7 percent in 1999, slightly slower than last year's 4 percent and clearly below the robust 8.2 percent the year before that. Vietnam has been hard hit by Asia's crisis, not least because more than two-thirds of its foreign direct investments come from the region. Likewise, exports to Japan and ASEAN fell by 30 percent in 1998, showing the extent of the economic damage from the regional crisis. ''Unless the regional and global macroeconomic situation improves rapidly, Vietnam will have to continue exercising fiscal and monetary restraint if it is to counter the recession without recourse to significant macroeconomic balances,'' the ADB said in this year's economic outlook for the region.

Foreign investment also slowed in the wake of perceptions of slower reforms. Recently, Germany's ambassador to Vietnam, Wolfgang Erck, said Hanoi risked jeopardizing European Union aid unless economic and other reforms were pushed forward. ''The volume of developing cooperation between Vietnam and the EU [European Union] members and the EC [European Community] is very substantial,'' Erck said, but added its growth depended on Vietnam's will to reform the economy. The main concerns for the EU remain the issue of human rights and freedom of the press. ''We feel the internal situation gives us reason for worry. We see less tolerance, more limitations for the press and for religious communities,'' he added.

(Inter Press Service)

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