46996 east asia pacific update december 2008 east asia : navigating the perfect storm a WORLd BaNK ecONOMic update fOR tHe east asia aNd pacific ReGiON 2 eap update december 2008 3 c O N t e N t s Executive Summary 4 East Asia: Navigating the Perfect Storm 7 The Financial Crisis and the External Environment 7 Resilience Built Over the Last Decade is Tested 11 More resilient going into the crisis 11 Capital flows receding 12 Equity prices have fallen sharply 14 Currencies have weakened 15 Liquidity management and bond spreads 15 Financing for international trade transactions has tightened 17 Fiscal easing 17 Economic growth is slowing, risks are rising 19 Banks entered the current crisis strong, but risks have increased 20 Progress in reducing poverty 20 Policy coordination is important 22 The Outlook for EastAsia 23 Country Sections 26 Larger Economies 26 China 26 Indonesia 27 Malaysia 28 Philippines 29 Thailand 30 Vietnam 31 Smaller Economies 33 Cambodia 33 Fiji 34 Lao People's Democratic Republic 34 Mongolia 35 Papua New Guinea 36 Solomon Islands 37 Timor-Leste 38 Appendix Tables & Charts 40 Key Indicators 59 The East Asia and Pacific Update is the output of the collective efforts by PREM and PFSD staff from the East Asia Region and is coordinated by Ivailo Izvorski (Lead Economist) with Antonio Ollero under the guidance of Vikram Nehru (Director, Department for Poverty Reduction, Economic Management, Private and Financial Sector Development, andActing Chief Economist). Emerging East Asia as used in this report includes Developing East Asia and the Newly Industrialized Economies (NIEs). Developing East Asia includes China, Indonesia, Philippines, Thailand, Vietnam, Cambodia, Lao PDR, Mongolia, Papua New Guinea, Timor-Leste and the island economies in the Pacific. The NIEs include Hong Kong (SAR), Korea, Singapore and Taiwan, China. The ASEAN member countries are Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. east asia: NaviGatiNG tHe peRfect stORM 4 executive suMMaRy e x e c u t i v e s u M M a R y as the global economy finds itself in the worst financial crisis sector. Nevertheless, the sudden withdrawal of liquid assets since the Great depression, the east asia and pacific Region has by nonresident investors, combined with capital flight by not been spared the full fury of the economic storm. The surge residents in some places, has pushed these economies back and subsequent drop in food and fuel prices was followed by into the danger zone from which they had exited only a few the intensification in the financial crisis that began in mid- years ago. For no fault of their own, the countries of the 2007 in the U.S., deepened through the first half of 2008, and region have found the cost of capital in international markets took a sharp turn for the worse after September 15. Even as to skyrocket, threatening their ability to finance development East Asian policymakers were battling the previous crisis in programs and hurting their poverty reduction efforts. late 2007 and early 2008 - the rise in inflation following the steep increases in food and fuel prices - they were confronted to contain the immediate impact of the crisis on domestic by sudden falls in equity prices and exchange rates, liquidity, the authorities in virtually every east asian country sharp increases in short-term interest rates, and an abrupt have aggressively eased monetary policy through a variety of deceleration in export growth. instruments and injected large amounts of funds into the banking system. Whilethankstothisquickactiontheimmediatethreat the epicenter of the storm was in the developed countries, but its to these economies was thwarted, the banks and corporates in reach spread quickly across the globe. The failure of important the region face considerable financial stress. This stress can financial institutions in the major financial systems froze only get worse as economic activity slows and the balance interbank and credit markets around the world and revised the sheets of banks deteriorate further. price of risk upward, triggering a global liquidity shortage. The ensuing search for liquidity worldwide prompted, among to compensate for the slowdown in export growth that has already other things, the sale of equity and debt securities and the begun, authorities in several east asian countries (notably china, withdrawal of capital from emerging markets, destabilizing Korea, Malaysia and thailand) have proposed large fiscal stimulus banking systems far from the center of the crisis. Boosts to packages for 2009. Of these, China's fiscal expansion plans liquidity and injections of capital in financial institutions by have made the biggest headlines. The authorities there have developedcountryauthoritiesmayavertasystemicmeltdown announced a $586 billion stimulus package, only a quarter of of financial markets, but heightened risk aversion and an which is reportedly to be financed by the central government ongoing deleveraging across the world is causing capital to and the rest by other sources, notably bank lending. The plan retreat from developing countries and the cost of financing underlies the authorities' effort to reduce reliance on external to rise. The loss of trust, breakdown in financial markets, and demand. While the plan emphasizes infrastructure and curtailment of bank loans have hit investment, production, investment, this is of a different nature than during the Asian and trade, causing global growth to slow rapidly. Japan and crisis, with an important role now for public transport, public Europe are already in recession, and the US is expected to housing, and environmental investment. Other countries followsoon.Allthreeareexpectedtocontractfurtherin2009, with less fiscal space have refrained thus far from launching dampening import demand and resulting in the first decline in ambitious fiscal stimulus programs. But in all instances, the world trade volumes in a quarter century. authorities will be constrained by the market's continuously shifting assessment of how these countries can finance such the east asian countries entered the current crisis substantially programs and the closely related impact of fiscal relaxation better prepared than they were for the 1997 asian financial on medium-term debt sustainability. To ensure they achieve crisis. Public finances, external balances, and balance sheets their objective of generating demand and jobs in the domestic of banks and companies were strengthened in the last decade economy, such fiscal stimulus packages will need to be well- as a result of improvements in macroeconomic and structural targeted toward programs and investments that employ the policies, stricter bank supervision, and improved corporate most people, alleviate supply constraints, and are focused in governance and risk management efforts in the private areas that are likely to be hardest hit by the slowdown. Such eap update december 2008 executive suMMaRy 5 Table 1. sLOWeR GROWtH, cONtRactiON Of WORLd tRade aNd WeaKeR cOMMOdity pRices (percent change y-y unless indicated otherwise) East Asia's improving competitiveness could blunt some of 2007 2008f 2009f this impact. Prospects for weaker exports, together with a east asia 9.0 7.0 5.3 projected decline in capital inflows (especially foreign direct developing east asia 10.5 8.5 6.7 investment), will constrain investment spending. Private Of which: consumption is likely to be hit by more sluggish earnings, cambodia 10.2 6.7 4.9 higher levels of unemployment and underemployment, the china 11.9 9.4 7.5 reductioninhouseholdandcorporatewealth,andanincreased indonesia 6.3 6.0 4.4 desire to save in uncertain times. Remittance flows to East Lao pdR 7.9 7.0 6.0 Asia are also projected to slow substantially, but will likely Malaysia 6.3 5.5 3.7 remain more resilient than capital flows. The recent decline Mongolia 9.9 10.0 7.5 in commodity prices should benefit net commodity importers philippines 7.2 4.0 3.0 such as China, but will have a negative impact on net thailand 4.9 4.6 3.6 commodity exporters, including Indonesia, Malaysia, Timor- vietnam 8.5 6.5 6.5 Leste and Papua New Guinea. All in all, real GDP growth in Nies 5.6 3.7 2.0 developing East Asia is likely to slow to 6.7 percent in 2009 Korea 5.0 3.9 2.0 from 8.5 percent in 2008 and a record 10.5 percent in 2007. Other Nies 1/ 6.2 3.5 2.0 Memoranda: in the short term, the slower pace of economic growth will developed economies rub some of the shine off east asia's earlier record in poverty u.s. 2.0 1.7 -0.5 reduction. Whilethenumberofpoorintheregionwillcontinue eurozone 2.6 1.3 -0.6 to decline, the expected slowdown in GDP growth will mean Japan 2.1 0.5 -0.1 thatabout114millionpeoplearenowlikelytoescapepoverty from 2005 through 2009, compared to 119.6 million we had World trade 7.4 5.9 -2.1 projected in our previous economic update, or 5.6 million Source: the World Bank; f=forecast fewer. This number could have been considerably higher 1/ Hong Kong (saR), singapore and taiwan (china) had it not been for the ameliorative effects of the decline in food and energy prices on the real incomes of the poor. Given the diversity of circumstances and income disparities across and within the countries of the East Asia region, policies to mitigatetheimpactofthecrisisonaffectedgroupswillneedto countercyclical fiscal policies could start perhaps with the be tailored to local circumstances. In several countries, social protection of infrastructure programs and the expansion of transfer schemes established since the Asian financial crisis targeted social safety nets that can also serve as an automatic provide a foundation on which conditional cash transfers or stabilizer. other targeted safety nets can be expanded to help mitigate the worst effects of the slowdown. Addressing issues related Growth in all east asian countries except Malaysia and indonesia to the regional distribution of poverty and lagging regions was already slowing before the crisis reached a new level of will also be important, especially as the slowdown in growth intensity in the middle of september. Notwithstanding efforts will be felt more keenly in some parts than others. to boost domestic demand in many of these countries, the pace of economic expansion is set to weaken further in 2009, in the near term, downside risks are substantial. The contraction reflecting slower projected growth in exports, investment and of output in the developed economies may be deeper and last consumption. Export activity will inevitably be affected by longer than currently expected, delaying significantly both declining demand in developed country markets, although the recovery of growth in East Asia and the pace of poverty east asia: NaviGatiNG tHe peRfect stORM 6 executive suMMaRy reduction observed in recent years. Capital flows are at risk advantages to manage the dangers posed by the crisis while of remaining weaker and even more selective than at present, seizing its opportunities that will emerge better positioned to increasing the challenges to countries judged by markets as resume rapid growth and a larger presence in world markets. unable or unwilling to make the appropriate domestic and external adjustments needed for macroeconomic stability. the recent meeting of the G-20 in Washington provides new Commodity prices, moreover, may slump further should hope for improved policy coordination and consultation across global growth weaken more substantially, raising the countries. Given strong links between financial markets, the possibility of deflation and its attendant challenges.Although resulting speed with which financial difficulties can spread, the likelihood of deflation is modest at present, its negative andthespillovereffectsofpolicyactionsonothercountries,it consequences make it important that countries devise plans iscriticalthatregionalorganizationsinEastAsiacomplement to deal with the possibility of such an outcome. such global initiatives. One such organization, ASEAN (including in its expanded forms,ASEAN+3 andASEAN+6) the countries in the region will be better positioned to deal with the is already pursuing the possibility of multilateralizing the crisis to the extent that they are able to maintain macroeconomic ASEAN+3ChiangMaiInitiative­anarrangementofbilateral stability, shift exports to faster growing regions in the world, swap arrangements currently totaling $824 billion. It can also substitute external with domestic demand, and continue with act as a useful common forum to reconfirm the importance their structural reforms to strengthen competitiveness. This is all its members attach to maintaining trade openness and a tall order, given the turbulence in international markets and avoiding beggar-thy-neighbor policies. In addition,ASEAN's the tensions that it will inevitably emerge between economic periodic high-level meetings can serve to share information and social stability. Countries that entered this crisis in better and consult one another on key policy actions until the crisis macroeconomic conditions - low debt burdens, surpluses in has abated and normal functioning of financial systems has their fiscal and external current accounts, and large foreign resumed. The World Bank and the Asian Development Bank exchange reserves - will obviously have greater room to can also help in these efforts. maneuver. And it will be those that are able to use such eap update december 2008 tHe fiNaNciaL cRisis aNd tHe exteRNaL eNviRONMeNt 7 e a s t a s i a : N a v i G a t i N G t H e p e R f e c t s t O R M The East Asia and Pacific Region is not being spared the full The Financial crisis and The exTernal fury of the economic storm started by the worst financial environmenT crisis since the Great Depression ­ a crisis that began in the major financial markets of the world far from East Asia. The The financial turbulence that began in the U.S. sub-prime breakdowninthemajorfinancialmarkets,thelossoftrustand mortgage market in August 2007 has intensified and evolved confidence that inhibits financial transactions worldwide, and into a global financial crisis of unusual severity. Earlier the consequent retrenchment in credit and capital availability tensions in interbank and credit markets have been amplified have hit investment, production, and trade, causing global by the failure of large financial institutions. The collapse of growth to slow rapidly. Japan and Europe are already in Lehman Brothers on September 15 ratcheted up the crisis to recession, and the US is expected to follow soon. All three a new level. Interbank and credit markets froze in the United are expected to contract further in 2009, dampening import States and Europe, stopping and, in many cases, reversing demand and resulting in the first decline in world trade capital flows to emerging and developing countries, leading volumes in a quarter century. to plummeting equity prices, currencies and confidence and higher market interest rates. Already reeling from sharp Although the developing countries of East Asia and the increases in commodity prices in 2007 and early 2008, Pacific entered the current crisis substantially better prepared developing East Asia suddenly found itself dealing with an than they were for the 1997 Asian financial crisis, the early altogetherdifferentthreatofasubstantiallygreatermagnitude. shock of capital withdrawals by nonresident investors and the Virtually all EastAsian countries ­ especially those with open sudden increase in risk premiums and the cost of international capital accounts ­ took immediate monetary measures to capital have pushed many of these economies back into the counteract the sudden loss in liquidity. And as the financial danger zone from which they exited only a few years ago. shock impacted export growth and the real economy, many For no fault of their own, the developing countries of East took fiscal measures to stimulate domestic demand.As of this Asia have found themselves unable to borrow internationally writing, however, there remain huge uncertainties about the despitebeingeminentlycreditworthy,threateningtheirability expected length and severity of the recession in the developed to finance development programs and to continue with their countries. Reflecting this uncertainty, stock markets remain poverty reduction efforts. volatile, credit markets have yet to return to normality, the US housing sector continues to deteriorate, private investment is in a tailspin, and consumer confidence continues to decline. The global reach of the crisis is not surprising, given the opening of capital accounts, large global imbalances in the external accounts of major countries with accompanying capital flows, and the breadth and depth of financial innovation in preceding decades. What was surprising was the profound effect of the crisis on countries that had pursued prudent macroeconomic, financial and structural policies and appeared well positioned to deal with external shocks. While nocountryintheworldhasbeenimmunetotheturmoil,those with cushions from good policies and economic performance are likely to fare better. The price of risk surged as the crisis intensified in the major financial markets, leading to tensions in equity, credit, and east asia: NaviGatiNG tHe peRfect stORM 8 tHe fiNaNciaL cRisis aNd tHe exteRNaL eNviRONMeNt Figure 1. equity pRices Have cOLLapsed afteR peaKiNG iN Figure 2. iNteRBaNK Rates Have cLiMBed, RefLectiNG Late 2007 WORRies aBOut Liquidity, cOuNteRpaRty RisKs, aNd tHe (Jan 2007=1) ecONOMy (three-month us LiBOR rate less yield on 3-month us treasury bill, in bps) Source: datastream. Source: datastream. interbank, markets worldwide. Equity prices have fallen abroad to boost their liquidity positions at home. Similarly, sharply, with declines ranging from about 45 percent in the the sharp appreciation of the Japanese yen against the dollar U.S. and Japan, to 53 percent in the eurozone, and to 75 reflects to some extent the unwinding of the yen carry trade percent in Russia (FIGURE 1). Funding pressures in interbank (transactions in which investors borrowed in yen to invest markets raised spreads between interbank rates and yields abroad in higher yielding financial instruments). As of this on short-term government securities, as investors worried writing, investors still have substantial holdings in relatively about liquidity and counterparty risk (FIGURE 2). Credit to liquid investments in emerging market economies, including developing countries has virtually stopped and international EastAsia, and their unwinding will likely put further pressure creditors stopped rolling over short-term debt. Emerging on asset prices and exchange rates. market economies with the largest perceived vulnerabilities saw their spreads on government bonds surge to an average The authorities in the U.S. and Europe initially responded of 740 basis points (bps) by the middle of November from to the financial crisis with a range of measures designed to 240 bps at the start of 2008 and the record low of 150 bps ease liquidity shortages. They cut interest rates on several in June 2007.1 Spreads also surged on corporate bonds from occasions in concert with central banks around the world. emerging markets, rising to 950 bps in mid-November from The U.S. Federal Reserve began paying interest on bank 300 bps at the start of the year, leading companies to delay reserves and introduced several central bank and government bond issuance. Together with a contraction in initial public facilities, including those to lend to primary dealers and buy offerings, the crisis is hampering companies from gaining commercial paper. The U.S. has also temporarily raised the access to external financing. limit for insuring bank deposits to $250,000 from $100,000. The Federal Reserve extended credit to banks and other The rise in the price of risk was accompanied by a sharp entities of about $1.1 trillion from September through the end increase in exchange rate volatility. The shortage of liquidity, of October, or 7.7 percent of annual GDP. In late November, a key feature of the financial crisis, drove exchange rate the Federal Reserve announced it is planning to inject an movements.Afterweakeningtoarecordlowagainsttheeuro, additional $800 billion (5.6 percent of GDP) by buying the U.S. dollar surged some 25 percent from June through mortgagesandotherbankloans.InEurope,centralbankshave mid-November 2008, as investors sold liquid investments also injected large amounts of liquidity, and began offering dollar liquidity, in unlimited amounts in the case of the ECB 1 As measured by JPMorgan's EMBIG. and some other banks, based on swap arrangements with the eap update december 2008 tHe fiNaNciaL cRisis aNd tHe exteRNaL eNviRONMeNt 9 Federal Reserve.2 The ECB, for example, injected liquidity financial assets. The government has bought stakes in 30 and provided credit that amounted to 5.8 percent of annual banks worth $179 billion, including the mid-November eurozone GDP from September through the end of October. injection into Citibank, and additional amounts are pending. The UK government announced in mid-October a package Several EU countries have begun implementing equity for both liquidity support and bank recapitalization of £500 injections (packaged together with liquidity enhancement billion (equivalent to $875 billion or 35 percent of annual measures referred above). The UK authorities, for example, GDP), of which £50 billion was for bank recapitalization have injected £50 billion into UK banks ($88 billion). (see below), £250 billion to guarantee banks' medium-term Germany is also implementing a plan to inject 80 billion borrowing over the next several years and £200 billion for into its banks ($110 billion), but only a fourth of the amount centralbankinjectionsintomoneymarketstohelpbanksswap has been injected at the time of this writing. mortgages for Treasury securities. Germany also announced a $544 billion package in mid-October, consisting of equity In developed countries, as the liquidity situation of the injections (see below) and loan guarantees for banks. The banking system is gradually being brought under control, the EU countries have agreed to increase the minimum level of emphasis is increasingly shifting from liquidity injections insured bank deposits to 50,000 from 20,000, a measure and recapitalization of financial institutions to measures to that all countries have implemented, while some member stimulate the real economy. The recent meeting of the G-20 states have moved to protect all bank deposits (including in Washington agreed that in addition to vigorous efforts to Austria, Germany, Greece and Ireland) stabilize the financial system and provide monetary support, as appropriate, fiscal measures to stimulate domestic demand These actions proved insufficient to repulse the forces of are needed within a policy framework conducive to fiscal deleveraging that had been set in motion, and the first victims sustainability. The fiscal stimulus implemented thus far in of the financial crisis were soon claimed. At the time of 2008 in the U.S. amounted to $152 billion (1 percent of GDP) writing, two of the largest commercial banks in the U.S. have and further fiscal stimulus ­ perhaps substantially larger ­ is been taken over by rivals, another one required a bailout by under consideration. the U.S. government to prevent collapse, and twenty-two commercial banks have failed. All seven U.S. investment But continued declines in housing prices and rising banks ceased to exist. Some were bought by commercial foreclosures in the U.S., the UK and some other developed banks (one at the point of failing), one failed, and others countries suggest that economic recovery is unlikely any time transformed into commercial banks. Fannie Mae and Freddie soon. Housing remains a key source of weakness in the U.S. Mac, two gigantic U.S. government-sponsored financial economy and the original cause of the current financial crisis. enterprises that underwrite about half of U.S. mortgages were In late 2008, housing prices in the U.S. are about 22 percent placed under conservatorship. lower compared with their peak in July 2006, as measured by the Case-Shiller housing price index. With foreclosures In addition, the U.S. is implementing a $700 billion bank jumping 25 percent from a year earlier in October in the U.S. bailout package that, in contrast to initial government andhouseholdincomesunderincreasingpressure,indications intentions, will focus on recapitalization of banks and other are for further housing price declines and, correspondingly, financial institutions rather than the purchase of troubled additional losses on mortgage-related instruments and sustained pressure on banks to raise new capital. 2 The Fed currently has swap lines for unlimited amounts with the ECB, Bank of England, the Swiss National Bank and the Bank of Japan. Swap lines with limited Globalgrowthwasalreadyslowingin2007andearly2008,as amounts and limited duration have been set up with the central banks inAustralia, New Zealand, Canada, Norway, Sweden and Denmark. More than a month after extending theworldeconomieswerecopingwithsharpincreasesinfood contingent credit lines (swaps) to central banks in several developed economies, at the and fuel prices. The financial crisis has accelerated this trend. end of October the U.S. Federal Reserve set up swaps of $30 billion each with Korea, Singapore, Brazil and Mexico. The EU and Japan led the slowdown and have now entered east asia: NaviGatiNG tHe peRfect stORM 10 tHe fiNaNciaL cRisis aNd tHe exteRNaL eNviRONMeNt into a recession, as defined by two consecutive quarters of percent in October alone, the largest monthly decline since negative growth. Real GDPcontracted in the U.S. in the third 1960. The earlier surge in prices for energy and food had quarter by 0.3 percent and purchasing managers' surveys, favorable terms of trade impact for oil and food exporters in retail sales, unemployment claims, industrial production developing East Asia, including Indonesia, Malaysia, Papua numbers, and other high frequency economic indicators all New Guinea, Thailand and Vietnam, but terms of trade losses point to further declines in output in the final quarter of 2008 for China and some of the island economies in the Pacific (FIGURE 3). It appears likely that the U.S., Europe and Japan were large. But in all cases, declining oil and food prices will will be in a synchronized recession by the end of 2008, a help lower inflation, and reverse some of the adverse effects rare event, and most observers agree that the recession will on living standards that occurred in 2007 and early 2008. continue through most of 2009 even if the current measures to tackle the financial crisis prove effective. This sobering prospect has serious implications for developing East Asia, given the region's export orientation and its focus on OECD markets. The prospect of a sharp slowdown in global growth has been a key reason for the rapid decline in commodity prices since mid-2008, following a rapid increase earlier. Commodity prices fell 65 percent from midyear through October, returning to levels last seen in late 2006.The decline in prices also reflects reduced speculative pressures and a boost to production(fromahikeinoiloutputinearly2008,onlypartly offset by a recent OPEC production cut, and a bumper grain harvest during the summer of 2008). The sharp appreciation of the dollar since midyear has also been a factor, as some investors had earlier moved aggressively into commodities to hedge against dollar weakness (FIGURE 4). Prices fell 18 Figure 3. tHe G3 aRe set tO faLL iNtO a RecessiON Figure 4. cOMMOdity pRices Have faLLeN afteR suRGiNG (real Gdp, % change, y-y) * eaRLieR ($ per barrel and ¢/bushel) Source: decpG, World Bank. Source: datastream. eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested 11 resilience builT over The lasT decade is markets, have pushed the EastAsian economies back into the TesTed danger zone from which they had exited only a few years ago. Countries that have more open capital accounts and The recent financial crisis has come hard on the heels of are more integrated into global financial markets have been the rapid increase in food and fuel prices. Yet developing hit harder by the crisis and are at greater risk. For no fault countries in East Asia and the Pacific have remained stable of their own, these countries have found the cost of capital from a macroeconomic perspective, thanks in large part to in international markets skyrocket, threatening their ability robust buffers built over the last decade since the end of to finance development programs and hurting their poverty the Asian financial crisis. The lessons of that crisis were reduction efforts. taken to heart as public finances, external balances, and balance sheets of banks and companies were strengthened, more resilient going into the crisis due to improvements in macroeconomic and structural External and banking indicators of developing East Asia policies, stricter bank supervision, and improved corporate have improved over the last decade, while fiscal indicators governance and risk management efforts in the private sector. are mixed. These indicators should be interpreted with care, But these buffers are now being tested. The equity and debt however,asnoindicatorcangiveasenseofsecurity,giventhe selloffs by nonresident investors, lower capital inflows, and tensions in international financial markets and the heightened the still large strains that remain in international financial sense of uncertainty. Table 2. east asia eNteRed tHe cuRReNt cRisis BetteR pRepaRed tHaN it did tHe 1997 asiaN fiNaNciaL cRisis (in percent of Gdp unless indicated otherwise) indonesia Korea Thailand china 1996 2007 1996 2007 1996 2007 1996 2007 external current account balance (in % of Gdp) -3.1 1.3 -4.1 6.0 -7.9 5.7 0.8 11.4 foreign exchange reserves foreign exchange reserves (in $ billion) 19.3 56.9 33.2 262.1 37.8 85.2 107.0 1.886 (in months of imports) 5.4 5.1 2.7 8.1 6.3 7.5 9.3 23.7 (in percent of short-term ext. debt) 60 160 33 131 79 405 422 813 external debt (% of Gdp) 48.2 31.7 32.5 39.4 59.7 25.2 14.4 11.6 Of which: short-term external debt 12.8 7.0 18.0 16.5 20.7 8.8 2.8 6.2 Fiscal fiscal balance (% of Gdp) 1/ 1.4 -1.4 0.0 3.8 2.4 -1.7 -0.7 0.8 Government debt (% of Gdp) 1/ 45.1 35.0 12.7 32.1 36.3 37.5 7.0 16.9 money and banking domestic credit (percent change) 22.2 15.3 19.4 9.4 14.1 3.0 24.6 17.6 Loan-to-deposit ratio (in percent) 2/ 104.0 95.2 80.1 89.5 131.7 94.0 94.6 65.1 capital adequacy (in percent of assets) 12.2 18.3 8.2 10.8 10.3 13.9 ... 11.6 Non-perform. loans (percent of total) 22.8 4.7 8.3 1.0 35.9 7.0 22.4 5.5 Sources: Haver analytics, national authorities, credit suisse, Goldman sachs, iMf, and World Bank. 1/ data for indonesia and thailand are for 1995/96. 2/ data for china are for January 1997 and for October 2008. deposits for Korea include cds and debentures. if restricted to deposits, the ratio would be 97.5 percent and 141.1 percent, respectively. east asia: NaviGatiNG tHe peRfect stORM 12 ResiLieNce BuiLt OveR tHe Last decade is tested In China and in three of the countries worst hit by the Asian capital flows receding financial crisis (Indonesia, Korea and Thailand), foreign Large and rising capital inflows in recent years weakened exchange reserves have climbed sharply over the last decade, substantially in the first quarter of 2008 and then shifted to in dollar terms and relative to imports or external liabilities net outflows in the second quarter in most countries. In large (TABLE 2). As a result, the coverage ratio of short-term debt part, this reversal in capital flows reflected sales of debt and has risen in all East Asian developing countries, reflecting equity securities by nonresidents, selective withdrawals of in part the large increase in reserves over the last decade.3 bank deposits held with domestic banks and more sluggish Reserveaccumulationhasbeenfacilitatedbyimprovedcurrent inflows of foreign direct investment. Most vulnerable have account balances, with deficits a decade ago in Indonesia, been countries with more open capital accounts, and in Korea and Thailand shifting to surpluses, and China's surplus particular those with large nonresident holdings of equities widening further. Korea's current account registered a modest and debt securities denominated in local currencies, large deficit in the first nine months of 2008, but returned to surplus foreign ownership of domestic banks, and high loan-deposit once the oil price fell. Relative to GDP, however, short-term ratios suggesting reliance on foreign funding for domestic debt has remained broadly unchanged in Korea at a level that lending (FIGURE 5, FIGURE 6AND FIGURE 7). stands out across the region. WiththeexceptionofChinaandIndonesia,themiddle-income The debt burden of most countries in developing East Asia andnewlyindustrializedeconomiesintheregionexperienced hasdeclinedanddebtsustainabilityindicatorshaveimproved. net capital outflows during the second quarter of 2008. Net Although government debt is higher than a decade ago in capital flows to China remained positive, but inflows eased to China and Korea as a share of GDP or fiscal revenues, it is in $89 billion during the first half of 2008 from $103 billion a general lower than in many other emerging economies and is year earlier. Continued equity and bond sales by nonresidents below its peaks during the Asian financial crisis. Moreover, since midyear across the region suggest that net capital flows all measures of debt sustainability suggest that the risks of are likely to have receded further since mid-2008. debt distress remain low among the middle-income countries. The high spreads in the secondary debt market and the sharp With the notable exceptions of China and Malaysia, the increase in premiums on credit default swaps are less a current account balances of most countries deteriorated reflection of the creditworthiness of these countries and more during the first half of 2008 due to slower growth in exports a manifestation of the global liquidity shortage and the sharp and the surge in commodity prices. In China, slowing growth increase in the price of risk. in imports more than offset weakening export expansion, as a resultofwhichthecurrentaccountsurpluswidenedduringthe The balance sheets of most East Asian banks appeared firsthalfof2008fromayearbeforeandthemerchandisetrade robust before the crisis and have so far withstood the surplus climbed to record highs in dollar terms since midyear. impact of sharply depreciated exchange rates and a decline In Malaysia, the surge in oil prices and strong demand for in the rollover ratio.4 The share of nonperforming loans in electronicsboostedthecurrentaccountsurplusinthefirsthalf total assets remains low to modest and improved banking of 2008, a performance that is unlikely to be repeated in the supervision over the last decade helped ensure that prudent second half of the year. In Korea, meanwhile, a small current liquidity ratios and lending guidelines have been enforced account deficit emerged in the first three quarters of 2008, (see below for more details). Should financial tensions persist mainly reflecting higher prices for imported oil; the balance for longer or economic growth weakens more than expected, turned to surplus in October, once the oil price declined. banks could come under renewed pressure. Thus far this year, the slowdown in developing East Asia's 3 The coverage ratio is defined as the ratio of reserves to short-term debt. exports reflects weakening demand in the U.S. and Europe. 4 In Korea, the government's prompt action in late October to guarantee the external liabilities of domestic banks significantly helped calm markets. Growth in exports to the U.S. eased to about 3 percent year- eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested13 Figure 5. NONResideNts' sHaRe Of dOMestic equities Was Figure 6. ...WHiLe HOLdiNGs Of LOcaL cuRReNcy tHe LaRGest iN iNdONesia aNd KORea (in percent of total)... deNOMiNated BONds WeRe tHe LaRGest iN vietNaM aNd KORea (in percent of total) Source: National data sources and datastream. Source: National data sources and Bloomberg. Figure 7. fOReiGN OWNeRsHip Of BaNKs is tHe HiGHest iN Figure 8. expORt GROWtH Has BeeN WeaKeNiNG siNce KORea aNd iNdONesia MidyeaR acROss tHe ReGiON (in percent of assets) (percent change year-on-year three-month moving average) Source: National data sources. Source: datastream, eurostat, and World Bank staff calculations. Figure 9. cHiNa's iMpORts fROM tHe ReGiON Have faLLeN Figure 10. cOuNtRies MORe depeNdeNt ON expORts WiLL sHaRpLy siNce MidyeaR LiKeLy Be MORe vuLNeRaBLe tO tHe sLOWdOWN (percent change year-on-year three-month moving average) (in percent of Gdp) Source: Haver analytics. Source: Haver analytics. east asia: NaviGatiNG tHe peRfect stORM 14 ResiLieNce BuiLt OveR tHe Last decade is tested Figure 11. equity pRices Have faLLeN sHaRpLy siNce OctOBeR 2007 (index, Jan 2004=100) Source: Haver analytics. on-year in U.S. dollar terms during January-August 2008 in China, Hong Kong (SAR) and Singapore slowed during from 7 percent in 2007 and 21 percent in 2006. This, coupled the third quarter ­ in China despite a record trade surplus with rising imports from the U.S., reflects weakening U.S. --- while reserves fell in Indonesia, Korea, Malaysia and demand and the weakness of the US dollar through July Thailand. Reserves in almost all countries but China fell in (FIGURE 8). Growth in developing East Asia's exports to October, with declines particularly large in Korea, Malaysia the EU has also eased, but the decline has been slower than and Singapore. The decline in reserves in Korea has reflected in exports to the U.S. (Since late 2007, the EU has been the exchange market interventions and the implementation of a largest buyer of the region's exports, with monthly exports $131 billion package of loans and guarantees to commercial to the EU averaging $46 billion in the first half of 2008 banks. Efforts to limit currency depreciation have also compared with $41 billion to the U.S., further diversifying included the introduction by the Indonesian central bank in EastAsia's export pattern.) Exports from the region to China mid-November of a monthly limit of $100,000 on the amount (about 17 percent of their shipments abroad in 2007) slowed that can be purchased from commercial banks without an more sharply than exports to the U.S. and Europe, reflecting underlying transaction (broadly defined). While the rupiah reduced demand for components or intermediate inputs for weakened after the introduction of the restriction, as investors further processing before export to other markets (FIGURE interpreted this as a sign that shortages are not abating, the 9). In contrast to these developments, growth in developing measure may well help contain further currency weakness in East Asia's exports to Japan tripled to 15 percent year-on- the longer term, provided other policies are supportive. year in January-August from 2007, largely because of the strengthening yen, but this trend is unlikely to continue once equity prices have fallen sharply Japanesegrowthslows.Allinall,withthethreelargesttrading Triggered by the surge in risk aversion and a massive increase partners of developing East Asia falling into a recession in in the global demand for liquidity, nonresident sales of equity 2008, export growth from the region is likely to decelerate securities, together with growing concerns about weaker further and faster, and countries more dependent on exports growth in output and in corporate profits, caused equity will be hit hardest (FIGURE 10). prices to fall sharply this year. The decline was especially pronounced since the middle of September. Equity prices The combination of lower capital flows, deteriorating current fell 75 percent in China from the start of 2008 and by more account balances, and interventions in exchange market, has than half in Indonesia, Korea and Philippines, building on a meantthatdevelopingEastAsia'scombinedforeignexchange downward adjustment that began in October 2007 because of reserves grew at a slower pace during the summer before investor worries about elevated equity valuations (FIGURE fallinginSeptemberandOctober2008.Reserveaccumulation 11). In addition to the intensification of the financial crisis, eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested15 the rout in equity prices is starting to reflect growing concerns currencies have weakened about corporate profits and rising bankruptcies. In China, Theoutflowofportfolioinvestmentshasledtothedepreciation the increase in profits among industrial companies fell to 19 of several EastAsian currencies -- the renminbi being the key percent year-on-year during January-August 2008, only half exception (FIGURE 12). The pace of depreciation of many its pace a year before, and there are anecdotal reports of more of these currencies was moderated through exchange market frequent bankruptcies among manufacturers. interventions by monetary authorities, and some respite was offered to Korea and Singapore following the announcement Some governments took steps to limit the slide in equity of Federal Reserve swap lines. Amid nonresident sales of prices, especially following chaotic trading in late September equity holdings, and pressure from the small current account and early October. Several countries introduced circuit deficit that emerged during the first three quarters of 2008, breakers during the current financial crisis, including the Korea's won has weakened by almost 60 percent against the Philippines, following the adoption of these measures early dollar from the start of the year, reaching is weakest level this decade in most other middle-income countries and NIEs. in a decade. The rupiah remained broadly unchanged against Other measures implemented in recent months include the the dollar through September before depreciating sharply, widening of trading bands in several markets to avoid trading leaving the currency about 26 percent weaker against the stops after several stock exchanges, including the one in dollar in mid-November compared with the start of the year. Indonesia, halted trading sessions several times in October. The renminbi (RMB) continued to strengthen in 2008, but China and Taiwan (China) authorized their sovereign wealth the pace of appreciation against the dollar slowed after July funds and some state-owned enterprises to engage in share largely in response to the dollar strengthening against other buybacks and purchases of bank equities in the market. currencies.Innominaleffectiveterms,however,theRMBhas Malaysia also doubled the capital of Valuecap, the state asset continued to firm, and is 13.3 percent stronger since the start management company to $2.9 billion, with the view that the of 2008, double the pace of appreciation against the dollar. company invest in domestic "undervalued" equities. liquidity management and bond spreads In response to the outflow of portfolio investment, weakening economic activity and concerns about damage to the financial system from the international financial crisis, central Figure 12. tHe RMB Has appReciated steadiLy, WHiLe tHe banks have cut rates and employed other measures to ease WON, tHe RupiaH aNd tHe pesO, aMONG OtHeRs, Have liquidity pressures and ensure the continued availability WeaKeNed of credit (APPENDIx TABLE 12). These expansionary (us dollars per local currency; Jan 2007=100) measures were facilitated by the sharp decline in commodity prices and inflation, and moderating growth in domestic demand (FIGURE 13 AND FIGURE 14). China was the first country in the region to cut policy interest rates and ease reserve requirements in the middle of September. Others have followed, with actions in the region so far including reductions in key central bank policy rates (China, Hong Kong (SAR), Taiwan (China), Indonesia, Korea, Thailand and Vietnam), cuts in rates of minimum required reserves (China, Philippines, Taiwan (China) and Vietnam), increases in rates paid on required reserves (Indonesia and Vietnam) and extensions of the coverage and maturity of central bank Source: datastream. operations. The Korean financial regulator, meanwhile, has east asia: NaviGatiNG tHe peRfect stORM 16 ResiLieNce BuiLt OveR tHe Last decade is tested Figure 13. iNfLatiON peaKed iN feBRuaRy iN cHiNa aNd OveR Figure 14. iNfLatiON is ReacHiNG a peaK iN iNdONesia, tHe suMMeR iN KORea aNd tHaiLaNd pHiLippiNes aNd vietNaM (percent change, y-o-y) (percent change, y-o-y) Source: Haver analytics and World Bank staff calculations. Source: Haver analytics and World Bank staff calculations. Figure 15. GOveRNMeNt BONd spReads suRGed aNd eased denominated government securities, spreads on 10-year suBsequeNtLy, except iN vietNaM government local currency bonds reached 1230 bps over U.S. (eMBiG spreads to u.s. treasuries, in bps) Treasuries,doublethelevelatthestartoftheyear.Itisdifficult to say why Indonesia has been singled out for such treatment by investors, but some have expressed concern about the high level of gross government borrowing requirements and elevated inflation. Spreads in Philippines have also increased from the start of the year, but are nearly 650 bps lower than in Indonesia. Nonresident sales of local currency bonds in Korea appear to have intensified since October, boosting spreads on won-denominated government bonds to 250 bps by mid-November. In Thailand, by contrast, spreads have narrowed during 2008 amid ample liquidity and relatively low government borrowing requirements, despite concerns Source: Jp Morgan and Bloomberg. about political uncertainty. decided to delay the adoption of the Basel II framework until Spreads on foreign currency denominated bonds have also thestartof2010fromJanuary2009,thusenablingcommercial risen across the region, reflecting the global increase in the bankstodelaythetighteningoflendingrequirements.Several price of risk and the relative risk of investing in individual countries have extended deposit guarantees to cover most or emerging markets. In Indonesia, spreads surged from all deposits. record lows reached in mid-2007 to about 1100 bps by mid- November,orabout500bpshigherthanforPhilippines,again Efforts by monetary authorities to limit pressure on bond illustrating the rough treatment foreign investors have given spreads for local currency denominated securities have Indonesia (FIGURE 15).5 Spreads have risen to about 1050 met with mixed success for varied reasons. These include bps in Vietnam amid heightened investor concerns about, the amount of nonresident holdings of government and inter alia, the large current account deficit and relatively high corporate securities denominated in local currency, prospects inflation, both of which are among the highest in East Asia. for inflation, and market assessment of debt repayment At the other end of the spectrum, spreads on China's foreign profiles, government policies and economic developments. In Indonesia, a country with large foreign holdings of rupiah- 5 As measured by JP Morgan's EMBIG. eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested17 currency denominated government bonds are the lowest The IFC has boosted support to its Global Trade Finance among emerging markets, given the country's large foreign Program to $3 billion, and that program will be used to offer exchange reserves that exceed its external debt by several banks partial or full guarantees covering the payment risk mutliples.Asinpreviousfinancialcrises,spreadsoncorporate associated with trade transactions. Export credit agencies debt denominated in foreign currency increased more sharply from developed countries can also help ease the terms for than on government debt, since investors add concerns of a short-terminsuranceforbilateraltradecredits.Suchmeasures slowdown in corporate earnings to transfer risk. may well help exporters secure short-term financing for trade transactions,butthepooroutlookforglobaldemandforgoods Financing for international trade transactions has and services will remain an important constraint to trade. tightened The shortage of liquidity and breakdown in confidence is Fiscal easing inhibiting the capacity of banks to finance international trade Some countries implemented selective tax cuts or spending transactions, as banks are reducing or stopping lending for increases in 2008, but a shift toward more systematic policies trade, while the risk premium for letters of credit is rising. In to boost domestic demand is now taking place. In China, the Korea, for example, net trade credits fell by almost a fourth government increased VAT rebates for exporters of certain from a year earlier to $8.9 billion during January-September goods, cut the transfer tax for real estate sales to 1 percent of according to balance of payments data, and in Singapore the value of the property and suspended the stamp duty. In anecdotal evidence suggests that the number of letters of Korea, the government cut fuel tax rates and some customs credit extended fell by a third over the same period. And tariff rates inApril, granted targeted tax rebates to 80 percent there are initial reports that Indonesian exporters are finding of wage earners and 87 percent of the self-employed, and it difficult to access trade finance. Looking back, during the introducedoilsubsidiestocertainbusinesses.InThailand,the 1997Asian financial crisis ­ when global demand was strong, government amended the 2008 budget to boost both current unlikethecurrentcircumstances­bank-financedtradecredits and capital spending, but the deficit narrowed both relative to fell to half their pre-crisis level in Korea and to one-fifth in 2007 and compared with the original 2008 budget plan. Indonesia. Tocomplementtheseearlierselectivemeasures,theauthorities It is still too early to tell how serious and how widespread the inChina,Korea,MalaysiaandThailandhaveintroducedmore decline in trade finance is, let alone the reasons behind it. It systematic fiscal stimulus packages for 2009, and a package could be that the demand for post-shipment trade finance has is being considered in Indonesia. With financial markets declined given lower levels of commodity trade (as a result unforgiving now and in the near term, other countries have of lower prices) and, in some cases, lower export orders. But refrainedthusfarfrommoreambitiousfiscaleasingbecauseof there could also be supply-side reasons for such a decline ­ concerns about fiscal space and debt sustainability. In China, banks in East Asian exporting countries could be unwilling the government has announced a RMB4 trillion package to extend pre-shipment finance on account of increased risk to be implemented between the fourth quarter of 2008 and aversion or lower levels of liquidity or, as some observers 2010 ($586 billion, equivalent to 12 percent of 2009 GDP) have suggested, post-shipment letters of credit drawn on in areas including a comprehensive reform of value-added some U.S. and European banks may no longer be considered taxes, infrastructure investment, construction of low-income adequate collateral for extending pre-shipment finance as a housing and earthquake reconstruction (APPENDIx TABLE result of increased counterparty risk. 13). With regard to infrastructure spending, the package has secured and in many cases speeded up execution. Based It is understood that the authorities in Indonesia and Korea on the government's policy stance, including this package, are considering ways to help alleviate the shortage of trade we expect government-influenced spending (government financing, including through possible official credit line. influenced investment and direct government consumption) east asia: NaviGatiNG tHe peRfect stORM 18 ResiLieNce BuiLt OveR tHe Last decade is tested to contribute over 4 percentage points to GDP growth in of scarce foreign capital, governments will need to turn 2009, up significantly from previous years. It is reported that increasingly to domestic financing to finance their fiscal only one-fourth of the overall outlays will be financed by the deficits. Since domestic borrowing by the private sector is central government, and the rest by local authorities, state- likely to decline in the current slowdown, there is little danger owned enterprises, state-owned banks or other off-budget that additional fiscal financing from domestic capital markets entities.Takingintoaccounttheestimatedimplicationsforthe will crowd out the private sector. Such concerns will clearly budgets of central and local governments from the stimulus reemerge in the medium term, however. spending, as well as the VAT reform and cyclical effects, we expect the general government deficit to reach 2.6 percent in Fiscal stimulus packages also need to be timely and delivered 2009, up from a modest deficit in 2008. The plan provides an through the right instruments to be effective in boosting opportunity for the authorities to reduce reliance on external economic activity. Often the impact of fiscal stimulus demand and rebalance growth toward less capital-intensive measures tends to be pro-cyclical, coming only when a and more energy-efficient investments, and to reduce the recovery is underway. So it is important that these measures economic distance between the lagging interior regions with are implemented immediately and the impact of the fiscal the advanced coastal areas. stimulus is timed when it is needed the most. In terms of specific instruments, tax cuts in general support consumer The fiscal stimulus packages being introduced elsewhere in spending over a longer horizon, but there is a concern that the region are more moderate. In Korea, the government has consumers in the current circumstances are more likely to prepared an $11 billion fiscal stimulus package to supplement save the extra money than spend it (as they did save in Japan plans to cut taxes by the equivalent of $7.9 billion, together during the 1990s and largely in the U.S. over the summer of resulting in a planned boost to domestic demand of about 1.8 2008). Direct government spending at this point, therefore, percent of GDP. In Thailand, the government has prepared is likely to be a superior option to boost economic activity. a fiscal stimulus package comprising of wage hikes for New infrastructure spending, however, has long lags before government officials, higher outlays for road repairs and making an impact on the economy, unless the authorities are other spending equivalent to 1 percent of GDP. The package accelerating projects already under implementation. Social comes in addition to the 2009 budget that targets the fiscal transfers have typically been most effective in stimulating deficit to widen to 2.5 percent of GDP in 2009 from the 0.8 spending, and would also serve the dual purpose of protecting percent likely in 2008 (and compared to 1.8 percent planned the poor from the worst effects of the crisis. originallyfor2008).InMalaysia,theproposed fiscalstimulus package of about 1 percent of GDPwill keep the fiscal deficit The decline in international fuel prices presents an opportunity little changed in 2009, compared with earlier government to many countries in the region to lower fuel subsidies and plans to advance fiscal adjustment. encourage long-term fuel efficiency. Indonesia and Malaysia are two countries that reduced government subsidies for fuel The scope for providing fiscal stimulus depends on prices in the first half of 2008, at a time when international the availability of fiscal space and medium-term fiscal oil prices were on an upward trend. With international fuel sustainability. A number of countries in East Asia have some prices sharply lower since midyear, reducing subsidies is room to loosen policy, as fiscal positions have generally likely to be more palatable. Such reductions will help provide improved in recent years, thanks in part to buoyant revenues governments with some fiscal space to support targeted and better fiscal management. In addition to the countries social transfers or buttress other priority spending during discussedabove,Indonesiaisconsideringastimuluspackage, the ongoing downturn. By encouraging energy efficiency although thus far the authorities have focused on delivering and rationalizing the energy dependency of the economies on their planned deficit reduction plan for 2009 following a in the region, such measures will also help improve external smaller than planned fiscal deficit in 2008. In an environment competitiveness. eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested19 economic growth is slowing, risks are rising and required reserves and selectively boosting VAT rebates Notwithstanding fiscal easing and other measures taken for exporters. A large fiscal stimulus package for 2009-2010 by developing East Asia, the slowdown in the advanced has also been introduced (see previous section). economies and the ongoing tightening of global financial conditions slowed the region's economic expansion during Economicexpansionstrengthenedinthefirsthalfoftheyearin 2008. Real GDP growth in developing East Asia appears to Indonesia and Malaysia, although expansion is slowing after be easing to 8.5 percent in 2008 from a record 10.5 percent midyear in Malaysia, while growth has already weakened in in 2007 (FIGURE 16). Growth in the NIEs is also slowing, the Philippines and Thailand. Growth in Indonesia remained declining to 3.9 percent in 2008 from 5.6 percent in 2007. near a ten-year high during the first half of 2008, easing Nonetheless, East Asia's contribution to global growth is only modestly in the third quarter, thanks to strong private projected to be about one-fourth in 2008, rising to one-third consumption and investment. In Malaysia, stronger exports in 2009, underlying the relative resilience of the region in and consumption in the first half more than offset weaker difficult times. expansion in investment to cause real GDP to accelerate to Figure 16. Output GROWtH iN east asia peaKed a yeaR Figure 17. tHe sLOWdOWN iN GROWtH is suBstaNtiaL aNd afteR HiGH iNcOMe cOuNtRies Has NOW Lasted seveRaL quaRteRs (in percent, year-on-year) (in percent, year-on-year) 13.0 10.0 7.0 4.0 1.0 Source: Haver analytics and World Bank staff calculations. Source: Haver analytics and World Bank staff calculations. Economic growth has been trending lower in China this year, 6.7 percent year-on-year from 6.3 percent in 2007 as a whole. with the pace of expansion slowing to 9 percent year-on-year Growthslowedto4.7percentyear-on-yearinthethirdquarter, in the third quarter from 12 percent in 2007 (FIGURE 17). however. Economic growth slowed in the first half of 2008 in The slowdown reflected a weakening of external demand and Philippines and Thailand on the back of sluggish exports and an easing of the pace of investment, the latter responding to slower investment spending. Political concerns also weighed government efforts that started in 2007 to cool the economy on activity, primarily in Thailand. while reorienting economic activity to the domestic market. Highfrequencyindicatorssuggestgrowthwillweakenfurther, Economic expansion in the NIEs has slowed, reflecting with increases in industrial exports, electricity consumption their dependence on international trade and weakening or and freight volumes at five-year lows. Concerns about a contracting fixed investment. In seasonally adjusted terms, weaker expansion have prompted the government to loosen output contracted in Hong Kong (SAR) and Singapore during policy in recent months, including by increasing and then the second and third quarters because of a sharp drop in abandoning loan quotas, cutting central bank interest rates production and exports of manufactured products. Growth in east asia: NaviGatiNG tHe peRfect stORM 20 ResiLieNce BuiLt OveR tHe Last decade is tested Taiwan (China) has continued to ease after peaking at nearly ensure that during good times the additional revenues related 7 percent in the third quarter of 2007, pulled down by weaker to booming commodity prices are saved and during lean times exports of computer components and other manufactured they are spent carefully to support priority public investments products, and a contraction of fixed investment. in infrastructure and human development. ThelowincomecountriesinthePacifichavenotbeenimmune banks entered the current crisis strong, but risks to the financial crisis, but their relative isolation from global have increased markets and substantially lower integration with international Slower growth, depreciated exchange rates, and the shortage financialmarketshashelpedcushionthemfromtheturbulence of liquidity place banks at substantial risk. Slowing economic thus far.6 The surge in oil and food prices over the last several expansion is likely to increase business failures, stress years had impacted the economies hard, with the exception households and result in higher nonperforming loans and a of Timor Leste, an oil producer and exporter, and Papua New drain on bank capital. Several banks in the region have started Guinea (PNG), a major exporter of gold, copper and oil. The coming under pressure, and one was recently rescued from subsequent decline in commodity prices has provided some the brink of failure. welcome relief, given the oversized share of fuel and food importsintheoverallimportbill.(Thesharereachesashighas Banking supervisors have begun to undertake a number 63 percent in Kiribati). Nonetheless, the ongoing weakening of immediate policy actions to prepare for any potential in global growth is beginning to hurt tourism and remittances, emergence of bad debts. Such immediate steps include while tight global financial conditions will dampen inflows of conducting of special evaluation of the financial conditions foreign direct investment and complicate financing of large and long term viability of systemically important banks current account deficits that characterize many of the island with particular emphasis on exposures to companies in the economies. real estate, construction, and export sectors. In October, the Chinese banking authorities began carrying out special For Timor-Leste and PNG, the challenge is to use their surveys and analysis of loan concentrations and monitoring of accumulated savings from the commodity price boom in particular sector exposures, such as to real estate.The Korean 2007 and early 2008 for long term sustainable development. Financial Services Commission conducted analysis of the In this challenge, they face greater similarities with foreign currency liquidity of the banking system, as well as Mongolia ­ and to a lesser extent Lao PDR and Cambodia the overall financial soundness of the banks in October. The -- than they do with their Pacific Island neighbors.All benefit financial regulators in Indonesia took actions on accounting substantially in the short term from commodity price booms treatment of certain types of assets and in November the ­ but as the recent boom and all the others before it have central bank expeditiously dealt with a troubled bank. The shown, these tend to be temporary. The uncertain pattern of supervisory authorities could also develop plans for crisis commodity prices, the usually capital-intensive technologies management and liquidity support mechanisms for banks in needed for commodities production, and their consequent the event of further problems, and improve the coordination inelastic supply make it notoriously difficult for commodity- and communication among all financial regulators. dependent economies to manage sustained rapid growth over long periods. This time around, however, the policy response Progress in reducing poverty of these commodity dependent economies in East Asia has Battered by the earlier shocks to food and energy prices, been more encouraging. The authorities in these countries the poor will find it harder to escape poverty during the have adopted ­ or are considering adopting ­ fiscal rules that economic slowdown. Several channels of impact from the recent macroeconomic and financial developments need to be emphasized. Slower growth will likely dampen demand 6 The Pacific islands referred here are: Fiji, Federated States of Micronesia, Kiribati, Marshall Islands, Palau, Samoa, Solomon Islands, Tonga and Vanuatu. for labor, including for lower-skilled workers, and curb wage eap update december 2008 ResiLieNce BuiLt OveR tHe Last decade is tested21 box 1. tHe iMpact Of tHe cRisis Mongolia: The Banking Dzud growth. Earnings for those in rural areas will also slump, Winter is fast approaching for the thousands of nomadic especially for those producing food, after the relapse of food families calling the Gobi desert home, one of the harshest prices of late. Growth in remittances from abroad is projected grazing climates in the world. In Tsogt, a soum 1200km to slow, affecting consumption and investment among the south-west of the capital Ulaanbaatar, a herder explains that his family is finding it increasingly difficult to stay poor in several countries in the region including, notably afloat. "Life is extremely difficult," he said. "Last year Philippines and the Pacific islands. (Remittances are likely we used to take herder loans from the commercial banks. to remain more resilient compared to capital flows, however.) Almost 80 per cent of herders in our soum took a loan, Tighter financial conditions will probably raise the cost of mostly for one year.And we do pay our loans back, capital and the limit the availability of financing for small and mainly in June orAugust when we earn money by selling our cashmere and other raw materials from livestock. micro-enterprises, among others, hurting small entrepreneurs But the price of cashmere and animal skins went down and the workers they would employ. by 30-40 percent and banks stopped lending since June." With many herders behind on their bank loans, banks The pace of reducing poverty in most countries in the region have moved to seize livestock as collateral.Ahead of the will slow as a result of the financial and economic crisis. harsh winters called dzuds, families without opportunities Simulations suggest that poverty rates are likely to fall further to borrow are at the brink of falling into poverty. "Our livestock is the only property what we have and the main in 2009, declining to 10.68 percent for developing East Asia source for our income generation so I would call this as a whole (under the assumption of real GDP growth of 6.7 situation a banking `dzud'as it's the same as a natural percent), compared with the 10.36 percent projected earlier one during which we lose a lot of our animals." this year with real GDP growth for 2009 of 8.5 percent. As a result, about 5.6 million people in the region, who would have escaped poverty had growth not slumped, will remain Indonesia: The Sour Fruits of Crisis below the poverty line (BOx 1). Perhaps more importantly, Just about a year ago, oil-palm farmers on the island of the financial crisis could have significant poverty effects on Sumatra were living well. By March 2008, the world those working in affected sectors and regions. Moreover, a average price of Crude Palm Oil (CPO) had doubled to deeper or more protracted slowdown in economic activity $1,250 per tonne from a year earlier. That level of CPO price provided local oil palm farmers with monthly salary would likely slow the pace of poverty reduction further or of Rp 5- 6 million, six times higher than the province's even result in an increase in poverty rates relative to 2008. average salary of civil servants with college degree.Alex These developments will require careful monitoring in Sinaga, an oil palm farmer from Jambi province, found improving the appropriate policy responses. he was wealthier and went into a spending spree. Mrs. Sutikno, a leading official of oil palm farmers association Short-term policy options to contain the impact of the crisis on in Pakanbaru province also confirmed that oil palm farmers were taking on debt to purchase automobiles and the poor include targeted cash transfers to vulnerable groups, houses, believing that CPO price would remain for the temporary support for employment and wage earnings, foreseeable future. and reduction in fees on private transfers. In countries Now the situation has gone sour as the world price of contemplating or implementing stimulus packages, measures CPO collapsed. The price of fresh palm oil dropped supporting the most vulnerable will be part of the measures almost sevenfold in few months time. The situation is intended to boost domestic demand. Different kinds of cash aggravated as some buyers are cancelling their purchase transfer programs have been used in China and Indonesia contracts in favor of a new contract at a lower price. and several of the countries in the region have some social Unavoidably, many farmers are finding hard to repay their debt and are depleting their savings to make ends safety net in place that could be used to transfer resources meet. to the poor. Temporary public works programs in both urban and rural areas could help support employment and earnings. In urban settings, temporary payroll tax holidays may also east asia: NaviGatiNG tHe peRfect stORM 22 ResiLieNce BuiLt OveR tHe Last decade is tested box 2. MuLtiLateRaL sWap aRRaNGeMeNts aNd tHe cHiaNG Mai iNitiative be useful. In addition to measures to alleviate the short-term TheASEAN+3 countries (ASEAN plus China, Japan impact of the economic slowdown on the poor, a longer-term and Korea) agreed in May 2008 in Madrid to convert view will see the current economic crisis as an opportunity to the bilateral swap arrangements (BSA) set up under establish or strengthen social safety nets and related targeting the Chiang Mai Initiative into a multilateral swap arrangement to help countries with balance of payments mechanisms. Governments in the region are finding that needs. The idea has gained increased urgency during designing targeted social safety nets fit well into measures 2008, as the global financial crisis has intensified. to improve the counter-cyclical response of fiscal policy in Under the current proposal, China, Japan and Korea are the future. to contribute 80 percent of the funds and theASEAN countries the rest. Policy coordination is important The first swap arrangement set up among countries in Policy coordination and increased consultation are EastAsia was multilateral. The monetary authorities of important to ensure a more effective response to the crisis the then fiveASEAN member states agreed inAugust 1977 to set up theASEAN SwapArrangement (ASA) to and its aftermaths. The recent G-20 meeting in Washington provide liquidity support to members. The amount and underscored the need for comprehensive reform of the Bretton coverage of theASAhas expanded substantially since its Woods institutions to more adequately reflect the increased establishment. The initial amount of $100 million was economic weights of the emerging and developing countries extended to $1 billion, covering all tenASEAN members and be more responsive to future challenges. It is important during the 2000 Chiang Mai meeting and subsequently to $2 billion in May 2005 during the 8thASEAN+3 Finance that this global initiative is complemented by regional efforts Ministers'meeting. at coordination and cooperation. One regional organization, ASEAN (including in its expanded forms, ASEAN+3 In addition to strengthening theASA, in May 2000 the ASEAN+3 countries set up a system of bilateral swap and ASEAN+6) is already pursuing the possibility of arrangements (the Chiang Mai Initiative, CMI).At multilateralizing the ASEAN+3 Chiang Mai Initiative ­ an present, there are 16 BSAs amounting to $82 billion arrangementofbilateralswaparrangementscurrentlytotaling between China, Japan, Korea and five of theASEAN $82 billion (BOx 2). It can also act as a useful common member countries (Indonesia, Malaysia, Philippines, forum to reconfirm the importance all its members attach to Singapore and Thailand). There are no bilateral swap arrangements between theASEAN countries. Countries maintaining trade openness (perhaps even deepening it) and need an IMF program to draw more than 20 percent of avoiding beggar-thy-neighbor policies. In additionASEAN's the swap arrangements they are parties to. In addition periodic high-level meetings can serve to share information to the BSAs under the CMI, Japan and Malaysia have and consult one another on key policy actions until the crisis entered into a $2.5 billion swap under the New Myazawa has abated and normal functioning of financial systems has Initiative. (The initiative is named after the former resumed. The World Bank and the Asian Development Bank Japanese Finance Minister Kiichi Myazawa.) can also help in these efforts. eap update december 2008 tHe OutLOOK fOR east asia23 The ouTlooK For easT asia global financial markets or dependent on foreign capital to sustain investment and growth are likely to be affected more Challenges facing the East Asian economies have multiplied by tighter conditions in international capital markets. duringthecourseof2008,spellinghardtimesin2009.Output in the U.S., the eurozone and Japan is already contracting Aggressive monetary easing appears to have cushioned the in late 2008 and is set to fall further in 2009, dampening impact of the crisis on domestic liquidity, but difficulties lie import demand and resulting in the first decline in world ahead. The authorities need to be mindful that companies trade volumes in several decades. Commodity prices have and commercial banks will remain under financial stress that declined sharply since mid-2008, bringing in the (albeit low will probably get worse as economic activity slows, defaults probability) specter of deflation barely months after inflation accelerateandbalancesheetsdeteriorate.Short-termmeasures surged to multiyear highs. The East Asian economies will to boost liquidity and ward off pressure on balance sheets will also be affected negatively by the ongoing reassessment need to be complemented by medium term efforts to further of risks of investing in emerging economies, even as their improve banking and financial supervision and safeguard efforts to prevent a systemic financial collapse appear to financial systems, both at the national and the international be bearing fruit. Countries that that are better integrated in level. Table 3. GROWtH is pROJected tO sLOW iN east asia Concerns about liquidity in most countries are to be contrasted (percent change y-y unless indicated otherwise) by worries about still high inflation in others. Although inflation rates have fallen since mid-2008 throughout the 2007 2009f difference, region, with declining food and fuel prices offering further 2009-2007 respite, inflation remains elevated in Cambodia, Mongolia east asia 9.0 5.3 -3.7 and Vietnam, limiting scope for expansionary monetary or developing east asia 10.5 6.7 -3.8 fiscal policies. If countries with high inflation have limited Of which: room for fiscal stimulus, the economic slowdown may prove cambodia 10.2 4.9 -5.3 particularly painful given the dearth of policy instruments china 11.9 7.5 -4.4 to alleviate its impact. This is particularly the case for indonesia 6.3 4.4 -1.9 Cambodia, which is the country expected to have the sharpest Lao pdR 7.9 6.0 -1.9 decline in growth in the East Asia region between 2007 and Malaysia 6.3 3.7 -2.6 2009 (TABLE 3). The country is being hit by lower foreign Mongolia 9.9 7.5 -2.4 exchange earnings from both tourism and garments exports. philippines 7.2 3.0 -4.2 At the same time, Cambodia has been suffering from weak vietnam 8.5 6.5 -2.0 domestic investment (public and private), and this is likely Nies 5.6 2.0 -3.6 to slow with weaker inflows of foreign direct investment. Of which: Moreover, relatively high inflation constrains options for Korea 5.0 2.0 -3.0 fiscal expansion which, given the small size of the public Memoranda: sector, would in any event have little impact on economic developed economies growth. u.s. 2.0 -0.5 -2.5 eurozone 2.6 -0.6 -3.2 Several countries, however, have adequate fiscal space, Japan 2.0 -0.1 -2.1 thanks to prudent policies pursued earlier. They are now in the process of introducing large fiscal stimulus packages Source: the World Bank; f=forecast 1/ Hong Kong (saR), singapore and taiwan (china) for 2009 to help offset the impact of slower export growth (TABLE 4). In all instances, the authorities will be east asia: NaviGatiNG tHe peRfect stORM 24 tHe OutLOOK fOR east asia Table 4. GOveRNMeNt aNd exteRNaL deBt, seLected cOuNtRies, 2006-2009 (in percent of Gdp) government debt 2006 2007 2008f 2009f external debt 2006 2007 2008f 2009f indonesia 39.0 35.0 31.2 29.4 indonesia 39.2 35.0 30.9 29.4 Malaysia 42.2 41.6 42.5 43.0 Malaysia 32.2 29.2 34.0 32.7 philippines 63.8 55.8 53.4 51.5 philippines 51.4 43.3 40.3 39.2 thailand 34.4 33.2 38.2 38.5 thailand 28.9 25.2 22.7 23.2 vietnam 41.0 42.3 37.6 33.0 vietnam 30.0 31.3 29.0 28.7 Source: National authorities, Haver analytics and World Bank staff estimates and forecasts. f = forecast. constrained by the market's continuously shifting assessment Table 5. tHe sLOWdOWN iN GROWtH iN deveLOpiNG east asia of how these countries can finance fiscal stimulus programs is sMaLLeR tHaN iN eMeRGiNG euROpe without endangering fiscal sustainability. It is likely that this (percent change y-y) assessment will be increasingly restrictive given the current environment, placing a premium on government flexibility 2007 2008f 2009f to adjust policies and spending plans. Moreover, to ensure east asia 9.0 7.0 5.3 fiscal stimulus packages achieve their objective of generating developing east asia 10.5 8.5 6.7 demand and jobs in the domestic economy, such packages europe and central asia 7.1 5.3 2.7 will need to be well-targeted and temporary in duration. Latin america and caribbean 5.7 4.4 2.1 Middle east and N. africa 5.8 5.8 3.9 Withtheglobaleconomyintheworstfinancialcrisissincethe south asia 8.4 6.3 5.4 Great Depression, economic growth in developing East Asia sub-saharan africa 6.3 5.4 4.6 is likely to weaken to 6.7 percent in 2009 from 8.5 percent in Source: the World Bank, decpG; f=forecast 2008,despiteeffortstoboostdomesticdemand.Theprojected slowdown for the region in 2009 is substantially smaller investment and other government spending will only partly than in Europe and Central Asia and Latin America, regions offset a slower increase in private expenditures and weaker similarly exposed to international trade and finance (TABLE export growth. Given abundant liquidity, underpinned by 5). In 2009 in developing East Asia, most major expenditure huge and growing foreign exchange reserves, China is components, except government spending in several unlikely to have a funding squeeze compared with other countries, will be under pressure, slowing the expansion in countries in the region. The government, moreover, holds output. Export growth will likely slow further because of deposits with the central bank equivalent to about 10 percent weaker demand in key global markets, with the contribution of GDP, providing it with a substantial cushion to supplement fromnetexportstogrowthprojectedtoturnnegativeinChina potential borrowing to finance fiscal expansion. This should after several years of significantly positive boosts to output. enable the government to boost public spending without Investment looks likely to be constrained by receding capital major crowding out of private investment. inflows and poor prospects for exports. Private consumption will be under pressure from more sluggish earnings, weaker Among the low income countries, Vietnam will experience employment, and an increased desire to save in hard times. the impact of the crisis through slower export growth and Flows of remittances will likely slow as well, but may well reduced inflows of foreign direct investment. Starting from remain more resilient than other capital flows. slower growth in 2008 ­ a pace that reflects the authorities' determined efforts to cool investment and economic activity, The 2009 outcome expected for the region mirrors as annual inflation surged to 28 percent ­ activity will developments in China, where growth is likely to ease to 7.5 probably weaken further in 2009. The authorities eased percent in 2009 from 9.4 percent in 2008. The boost to public monetary policy substantially in October, indicating a shift eap update december 2008 tHe OutLOOK fOR east asia25 from combating inflation to sustaining economic activity, but Downside risks weigh heavily on these projections. The it is unclear what other steps may be in train. The other low contraction of output in the developed economies may well income countries of the region are virtually all dependent on last longer and run deeper, delaying a recovery in growth commoditiesandwillbeaffectedbylowercommodityprices. in East Asia and a resumption of faster poverty reduction. Cambodia, which also relies heavily on tourism revenues and Capital flows are at risk of remaining weak for a prolonged garment exports, is expected to be hit, as signs are already period and turn more selective, increasing the challenge becoming evident of a decline in advanced tourist bookings to countries unable or unwilling to make the appropriate and garment export orders. domestic and external adjustments. Commodity prices, moreover, may slump further should global growth weaken In the medium term, slower growth will damage prospects for more substantially, bringing in challenges related to deflation. poverty reduction, even with the ameliorative effects of lower Countries entering the crisis with stronger macroeconomic food and energy prices.The number of poor in the region will conditions have greater room for maneuver. And those that continue to decline, but about 5.6 million people who would are better able to use these advantages to meet the dangers haveotherwiseescapedpoverty,willbebelowthepovertyline posed by the crisis while exploiting the opportunities it offers in 2009. Given the diversity of the countries and the regional will emerge the stronger. disparities within larger countries, policies to mitigate these outcomes will need to be tailored to country circumstances. The November meeting of the G-20 in Washington has Cash transfer systems set up a decade ago can be expanded. heightened expectations for improved policy coordination These efforts could potentially be supplemented by temporary and consultation across countries. Given strong links support to employment and efforts to protect during the crisis between financial markets, the resulting speed with which investment in human capital.Addressing issues related to the financial difficulties can spread, and the spillover effects of regional distribution of poverty and lagging regions will also policy actions on other countries, it is critical that East Asian be important. All of these measures, moreover, will take on countries also regularly share information and consult each even greater urgency if economic activity slows more than otheronkeypolicychanges.RegionalbodiessuchasASEAN currently expected. can play a critical role by facilitating such efforts. The World Bank and theAsian Development Bank can also help. east asia: NaviGatiNG tHe peRfect stORM 26 cOuNtRy sectiONs - LaRGeR ecONOMies c O u N t R y s e c t i O N s larger economies and surged to a record $35 billion in October, after easing in the first half of 2008. Capital inflows slowed in the first half china of the year and appear to have eased further since midyear, China's economic growth slowed considerably during 2008. reflecting, inter alia, somewhat smaller inflows of foreign After two years of real GDP growth at almost 12 percent, the direct and other investment. The pace of increase in foreign pace of expansion fell to 9 percent year-on-year in the third exchange reserves has slowed, as a result. Foreign exchanges quarter of 2008. reserves are likely to increase to more than $2 trillion by the end of 2008, remaining the largest in the world. The large The slowdown reflected a smaller contribution from domestic reserves, together with China's limited exposure to troubled demand, as the expansion in investment weakened because of U.S. financial assets and the presence of capital controls tighterpoliciesintroducedinlate2007tocontaininflationand should help cushion the direct impact of the financial crisis. coolofftheeconomy.Realestateinvestment,thekeytargetof thegovernmenttighteningpolicies,beganslowinginlate2007 The pace of appreciation of the RMB against the US dollar and decelerated significantly after mid-2008. The weakness has slowed since July, leaving the currency 6 percent stronger in real estate construction has contributed to a substantial against the dollar from the start of 2008, and almost twice slowdown in several "upstream" industries, including steel as much in nominal effective terms. These developments and cement. In contrast to these developments, retail sales occurred against the backdrop of a strong external payments showed remarkable strength, as consumer confidence has position and the sharp strengthening of the dollar since mid- held up well so far. 2008. The rise of the currency notwithstanding, China's underlying competitiveness position remains strong, as Export growth continued to slow from its very rapid pace evidenced by the increase in China's market share in external in previous years, and despite remaining robust in recent markets. months as measured in real terms, is likely to weaken further. Exports grew 13 percent in real terms year-on-year in the Macroeconomic policies have shifted to stimulating domestic third quarter, despite a significant slowdown of shipments demand.Inrecentyears,withgrowthsignificantlyhigherthan to the U.S. and more recently to Europe. The government potential,fiscalpolicywasprudentlytightened.In2007,when has enacted measures to help support exports, including by inflation began picking up, the authorities moved to tighten selectively increasing the VAT rebate for exporters of certain monetary policy. The decline in inflation since February, products. combined with the slowing economic expansion, has led the authorities to change policy focus. Monetary policy has been Inflation has eased with the drop in food and fuel prices. eased, including by reducing the key policy interest rate in Twelve-month consumer price inflation slowed to 4 percent several steps, cutting required reserves, and by reversing the in October after peaking at 8.7 percent peak in February. authorities' window guidance on bank credit and abolishing In the face of the large increase in prices for food and fuel loanquotas.Thegovernmenthasalsoannounceda$586billion that pushed headline inflation since 2007, core inflation has stimulus package to be implemented through 2010, with an been remarkably stable at around 1-2 percent. In the near emphasis on infrastructure projects, combined with social term, headline inflation will likely ease further, reflecting the sector reforms and revamping of the VAT system. decline in prices for primary commodities and the absence of evidence that the relatively high inflation in China over the All in all, economic growth prospects have weakened last year has fed into wage demands or other cost pressures. considerably, and real GDP growth is projected to slow to about 7.5 percent in 2009 from about 9.4 percent in 2008 China's external position remains very strong. With oil prices despite the fiscal stimulus package. Risks appear relatively fallingsharply,thetradesurplusstartedrisingagaininmidyear evenly balanced. There are significant downside risks to eap update december 2008 cOuNtRy sectiONs - LaRGeR ecONOMies27 growth, including from rapidly slowing global expansion from the 2.1 percent targeted under the 2008 budget. The and from a larger impact on domestic spending from the sharp decline in oil prices since midyear is helping reduce international turbulence than currently envisaged. There are subsidies for fuel and may well limit the 2008 deficit even also upward risks to the extent that business spending and further. The government's proposed budget for fiscal year exports turn better than expected. 2009 targets a deficit of 1 percent of GDP, even as real GDP growth is projected to slow, reflecting government concerns indonesia that jittery investors worry about government borrowing Real GDP growth climbed to 6.4 percent year-on-year in the needs.Whilelimingthefiscaldeficit,thegovernmentisintent first half of 2008 from a ten-year high of 6.3 percent in 2007 on maintaining infrastructure spending and scaling up social as a whole, before easing modestly to 6.1 percent in the third outlays, in particular, funding for the flagship community- quarter of 2008. Private investment was the main driver of based poverty alleviation program. Debt servicing costs growth, although the other components of domestic demand rose sharply in 2007 and 2008, and are projected to remain and net exports were also robust. While still below levels last elevated through 2011. Indonesia successfully raised more seen before the 1997Asian financial crisis, investment rose to than $12 billion from domestic and international markets in 26 percent of GDP in the first half. both 2007 and 2008 and the authorities plan to borrow the equivalent of about $10.6 billion from the markets in 2009. Inflation,themainconcernofeconomicpolicymakersthrough The costs of borrowing, however, rose substantially in 2008. midyear, appears to have peaked in the third quarter of 2008, with 12-month inflation at 11.8 percent in October. The The improvements in recent years of Indonesia's public slowdown in inflation and indications that economic activity finances reflect strengthened fiscal discipline, efforts to is weakening prompted the central bank to cut its key policy improve tax collection and measures to cut energy subsidies. rate in early December by 25 bps to 9.25 percent. Earlier in Tax revenues rose 50 percent in the first eight months of the year, rising prices for fuel and food -- which accounts for 2008 from a year earlier, with the increase broad-based. On more than 40 percent of Indonesia's consumer price basket -- the energy subsidies, in May 2008 the government raised boosted inflation, prompting the central bank to increase its subsidized fuel prices by an average of 29 percent. Part of the key policy rate six times by 25 bps each to 9.5 percent. The resulting savings was used to fund a cash transfer program slowdown in inflation and indications that economic activity to help offset higher fuel and food costs for 70 million of is weakening prompted the central bank to cut its key policy the country's poor and near-poor. In the draft 2009 budget, rate in early December by 25 bps to 9.25 percent. While this the government took a further innovative step to contain the year's inflation rate will exceed the central bank target, the budgetary costs of energy subsidies. The proposal, awaiting bank has indicated that it remains focused on the longer-term parliamentary approval, commits the government to reduce inflation target of 3.5 percent to be achieved by 2013. the effective base for regional transfers by the total amount of energy subsidies being provided. The measure will Indonesia's balance of payments continues to be strong, effectively reduce the central government's energy subsidies although the current account surplus narrowed in the first half by 26 percent. of 2008. A combination of a smaller current account surplus and net capital outflows (as nonresidents sold off equity and The financial crisis ratcheted up to a new level of intensity debt positions) caused foreign exchange reserves to fall to after September 15, adversely affecting Indonesian financial $57 billion by the end of September from $60.6 billion in marketsandtheeconomicoutlook.Indonesia'svulnerabilities midyear. haveincludeditsrelativelyopencapitalaccount,thesignificant foreign holdings of equities and debt, the relatively large The government intends to keep the fiscal deficit little foreign ownership of Indonesia's banks, and the memories of changed from last year at 1.3 percent of GDP in 2008, down the 1997 Asian financial crisis that left Indonesian investors east asia: NaviGatiNG tHe peRfect stORM 28 cOuNtRy sectiONs - LaRGeR ecONOMies sensitive to exchange rate movements. As nonresident through midyear was driven by larger shipments to countries investors moved to sell equity and debt positions, equity in the region. The pace of export growth has been slowing in prices fell substantially, much like in other countries in the late 2008 including to countries in the region, however, much region, while yields on government debt surged by more. The like it did to the U.S. earlier in the year. exchange rate also weakened substantially since September, after remaining little changed against the U.S. dollar earlier The surplus on the financial account was also strong in in the year. the first half of 2008, thanks to buoyant inflows in the first quarter. Net capital inflows have shifted to outflows from the Economic prospects have weakened, and Indonesia's real secondquarter,however,reflectingnonresidentsalesofequity GDP growth is projected to fall from 6 percent in 2008 to and repatriation of other liquid capital. Foreign exchange about 4.4 percent in 2009. The uncertainty about the global reserves, as a result, have fallen by about $25 billion since outlook and its local impact make these projections far more June, offsetting the increase of similar size in the first half uncertain than usual. Downside risks reflect the possibility of 2008. Reserves amounted to a still large $99 billion at the of a deeper and more protracted contraction in output in end of October, equivalent to 8.3 months' import cover and developed countries or world trade volumes. 3.7 times larger than short-term external debt. malaysia Cuts in tax rates and tariffs, together with increased spending, The economy performed well through midyear, with real are likely to expand the fiscal deficit to 5 percent in 2008 as a GDP growth accelerating to 6.7 percent year-on-year during whole from 3.2 percent in 2007. This year's fiscal stimulus is the first half from 6.3 percent in 2007 as a whole, before oneofthekeyfactorsthathavesupportedeconomicexpansion easing to 4.7 percent in the third quarter. Growth was driven in 2008. The government targets the fiscal deficit to remain by stronger expansion in exports and private consumption little changed at 4.8 percent in 2009, including the recently that more than offset slower increase in investment spending. announced fiscal stimulus package equivalent to 1 percent of Private consumption continued to be supported by the pay GDP.Atthesametime,thegovernmenthaspostponedseveral hike for public servants implemented in mid-2007 and the large projects proposed under the Ninth Malaysia Plan worth steady nominal lending rates despite the increase in inflation. in total several billions of ringgit amid concerns about foreign Government measures have also helped support growth, demand and financing costs. including via cuts in tax rates, increases in tax rebates, provision of free electricity for small users, and cancellation After peaking in July and August, 12-month consumer price or reduction of import tariffs for several consumer durables, inflation slowed to 8.2 percent in September. As in other food items, fertilizers and pesticides. Investment growth countries in the region, inflation rose because of higher prices slowed in the first half of 2008, as planned investments did for food and fuel, with the latter passed to transport prices not materialize because of political worries and concerns after a large cut in fuel price subsidies in June 2008. Despite about the strength of global demand. thepickupininflation,thecentralbankkeptitskeypolicyrate unchanged at 3.5 percent from April 2006 until November, The surge in the export price for oil helped widen the when it cut it by 25 bps amid slowing inflation and weakening current account surplus this year, putting it on track to reach economic expansion. Average lending rates have decreased 17 percent of GDP for 2008 as a whole from 15.6 percent in steadily in the past several quarters, but as average deposit 2007. Exports grew 16 percent from a year earlier through rate have remained steady since the start of the year, banks' the first nine months of this year, up from 2.7 percent in interest margins have declined. 2007. In addition to oil, recent export growth has benefited from robust shipments of manufactured goods, agricultural Commercial banks remain healthy despite the pressure from and mining products. By trading partners, the export surge reduced interest margins, but financial markets have been eap update december 2008 cOuNtRy sectiONs - LaRGeR ecONOMies29 impacted by the turmoil. The direct impact of the crisis breached the central bank's 4-5 percent target, as prices for appears to be limited, with domestic banks reporting no food and oil surged. Higher food and fuel prices were initially exposure to troubled banks in developed countries and over muted by the strong peso, which appreciated by a fifth over 90 percent of all assets are ringgit-denominated. The share of the last two years. Inflation eventually peaked at 12.5 percent non-performing loans has been decreasing since 2002, falling inAugust.Whileheadlineinflationhasrecededsince,without to 2.4 percent of all loans in September 2008. The impact of respite from rising prices of basic consumer goods, prices of the crisis is more evident in the stock market, with equity other goods have also risen rapidly, causing core inflation to prices down nearly 40 percent from the start of the year until morethandoublefromthestartoftheyearto7.9percentyear- late November as a result of nonresident equity sales. on-year in November 2008. Higher inflation prompted the central bank to hike interest rates by a cumulative 100 basis Looking forward, real GDP growth is likely to ease to points in three steps during mid-2008. 3.7 percent in 2009 from 5.5 percent in 2008. The slowdown reflects weaker external demand and further declines in the The financial crisis is taking a toll on the balance of payments growth of private investment because of political uncertainty, but is projected to remain in surplus. The current account weak export orders, and a shift to more sluggish consumer surplus narrowed to 2 percent of GDPin the first half of 2008 spending. On the positive side, there appears to be room for from 4.4 percent in 2007, as the widening merchandise trade monetary easing, given falling inflation and sharply declining deficit offset robust growth in remittances. The trade deficit commodity prices. Room for sustained large fiscal deficits surgedto6.9percentofGDPinthefirsthalf,reflectingslower appears to be limited, with federal government debt of about export growth and a jump in imports because of higher prices 42 percent of GDP. Whether there is room for a temporary for imported food and energy. Remittances grew 17 percent fiscalboostontopoftheoneannouncedfor2009willdepend, year-on-year in the first nine months of the year, reaching a in Malaysia and in other countries, on investors' reactions to record monthly inflow of $1.5 billion in June alone. Positive government plans and borrowing. net capital inflows in the first quarter more than offset modest outflows in the second quarter, but outflows are likely to have Philippines intensified since midyear. Economicgrowthslowedin2008followingthestrongestpace of economic expansion in three decades in 2007. Real GDP Domestic financial markets have been relatively resilient in growth slowed to 4.6 percent in the first nine months of 2008 thefaceoftheglobalfinancialturmoil.Whilethedirectimpact from 7.2 percent in 2007 as a whole. Higher prices for food on the banking system from the turmoil has been marginal, as and fuel hurt real household incomes, reducing the pace of overall exposure to structured products is estimated at about expansion in private consumption. Government consumption 2 percent of banking assets, banks are nonetheless affected and investment, meanwhile, contracted in the first half of through their large holding of Philippine sovereign paper the year before improving significantly in the third quarter. whose price has fallen substantially because of the global The recent global slowdown has also taken a toll on export turmoil (spreads on ten-year peso-denominated government growth and has put downward pressure on foreign investment bonds have climbed to 600 bps from 200 bps in late 2007). inflows. Despite these challenges, the economy is expected Equity prices have fallen by more than 40 percent in 2008, to remain resilient, although growth is projected to slow and the currency weakened by 18 percent against the dollar substantially. In the long term, the sustainability of growth since the start of the year. will dependent critically on improvements in the investment and governance climate. Improved tax collection and moderate spending limited the fiscal deficit to 0.7 percent of GDP in the first nine months of After a period of falling inflation in the last three years, prices 2008. The tax-to-GDP ratio improved noticeably in the first started rising rapidly in early 2008. In early 2008, inflation halfof2008,inpartreflectingthegovernment'srenewedfocus east asia: NaviGatiNG tHe peRfect stORM 30 cOuNtRy sectiONs - LaRGeR ecONOMies on tax administration reforms that began in late 2007 but also Exportgrowthhasremainedstrongindollarterms,butappears higher domestic and import (especially commodities) prices. to have eased substantially after midyear and, combined with Tax collection has slowed in recent months, however, in part an oil-led import surge, shifted the current account to deficit reflecting slower economic growth, decreased commodity in 2008. In dollar terms, exports rose 23 percent year-on- prices, the introduction of tax cuts, and the non-indexation of year in the first ten months of the year, up from 17 percent specific excises amid high inflation. in 2007. Imports have surged, largely due to higher prices for imported oil in the first half of the year, with oil imports Higher inflation and slower economic growth have accounting for a fifth of total imports. The current account significantly increased the hardships faced by the poor surplus of 5.7 percent in 2007 is likely to have shifted to a despite robust remittance inflows. Given the large share of deficit of 0.9 percent in 2008. food in the poor's consumption basket, there are indications that the inflation faced by the poor rose faster and remains Through most of 2008, the impact of the global financial higher than the headline inflation reported by the statistics crisiswassomewhatcontainedandlimitedlargelytofinancial office. The government has responded by postponing its markets, but circumstances have changed since the Lehman goal to balance the budget in 2008 to allow for increases in Brothersbankruptcy.Thankstocentralbankeffortsinassuring infrastructure and social protection spending and subsidies abundant liquidity and given modest government borrowing to the poor. Moreover, to mitigate the rise in fuel prices, the requirements, spreads on baht-denominated government government gradually reduced the tariff on imported oil and have fallen both since mid-September and since the start of asked oil companies to cross-subsidize diesel oil. With the the year and are now the lowest by a large margin relative decline in oil prices, the tariff was resumed in November. to the other middle-income countries in the region. The very The ameliorative effect of the decline in price of food and oil low foreign ownership of baht-denominated government since midyear notwithstanding, the pace in poverty reduction securities has also fended pressure on bond prices. In contrast will slow in Philippines, as in other countries, as real GDP tobondprices,pricesforequities­whereinvestorsholdmuch growth is expected to slip to about 3-4 percent in 2009 from larger stakes ­have moved lower, similarly to other countries 4-4.5 percent in 2008. in the region. Equity prices have fallen by 53 percent from the start of the year through late November, as nonresident Thailand purchases of equities equivalent to $2 billion in the first two Economic expansion is slowing in Thailand, with real GDP months of 2008 shifted to net sales of $6.5 billion since then. growth likely to fall to 4.5 percent in 2008 from 4.8 percent in Nonresident sales of equities, together with the impact of 2007. The slowdown in 2008 reflected a smaller contribution the political turmoil, caused the baht to weaken from a ten- from net exports amid surging import growth and a weaker year high against the dollar reached in mid-January and fall increase in public consumption and investment. 18 percent through late November. After surging to 9.3 percent in the 12-months through July, The impact of the crisis on commercial banks has been inflation slowed sharply to 2.2 percent by November, the limited so far, but banks are becoming more cautious and lowest among the middle-income countries in the region. will likely curb credit growth in 2009. The limited impact At 2 percent year-on-year in November, core inflation is on banks thus far has reflected the absence of exposure to now well below the central bank's 3.5 percent target. With "toxic" assets (similarly to most countries in the region), the inflationlessofaconcernandactivityeasing,thecentralbank low level of foreign ownership of Thai banks and the banks' cut its key policy rate by 100 basis points in early December reliance on domestic deposits to fund domestic lending. to 2.75 percent, following two hikes in the key policy rate in Banks appear well capitalized, with a capital adequacy ratio both July andAugust to 3.75 percent. of 15 percent, NPLs accounting for just 3.3 percent of bank assets and a loans-to-deposits ratio of 90 percent. Looking eap update december 2008 cOuNtRy sectiONs - LaRGeR ecONOMies31 forward, following a slowdown in credit growth to 11 percent vietnam year-on-year in September, commercial banks have signaled Vietnam'sperformancein2008demonstratedtheresilienceof that they will focus more on risk management than on loan its economy. In response to surging inflation and overheating growth in 2009. pressures, the authorities began implementing a stabilization package announced in March 2008 that reflected the switch The budget for the current fiscal year (October 2008- in strategy from emphasizing rapid growth. The central bank September 2009) targets a fiscal deficit of 2.5 percent of hiked its key policy rate to 14 percent earlier in the year, GDP, but the government recently proposed a 1 percent of and because of the tightly regulated structure of lending GDP fiscal stimulus because of concerns about the impact rates, banks curtailed lending. Fiscal policy was tightened, of the financial crisis and the global slowdown. The stimulus including through the cancellation or delay in low-priority package covers ten areas and is expecting parliamentary capital expenditures, reportedly amounting to 1.2 percent approval to begin implementation in April 2009.7 The speed of GDP. Thanks to the implementation of a stabilization of disbursement will vary across activities and it is unclear package starting in March 2008, month-on-month inflation whether the whole package will be disbursed during the began falling, the current account deficit stopped rising and current fiscal year. Observers compare current budget plans depreciation pressures on the exchange rate eased. As the with last fiscal year, when the realized fiscal deficit amounted financial crisis intensified after mid-September and inflation to just 0.8 percent of GDP compared with 1.8 percent deficit began falling, the central bank shifted track again, cutting targeted under the budget, due the delays in the completion its key interest rate in three steps by a cumulative 400 basis of investment projects amid political uncertainty and high points after late October and reducing minimum reserve commodity prices. In addition to the fiscal stimulus, the requirements. The central bank also supported banks facing government recently announced its intention to speed up liquidity difficulties through its refinancing window in the disbursement of the original 2009 budget to the start of the first half of 2008. calendar 2009 to have a maximum impact on job creation and economic activity. After three years of real GDP growth above 8 percent, the pace of economic expansion slowed in the first 10 months The fiscal stimulus notwithstanding, the global slowdown of 2008, largely reflecting the impact of the authorities' and political uncertainty is likely to weigh on economic stabilization package. The increase in investment spending developments in 2009. Slowing growth in exports and slowed ­- accounted primarily by easing in construction ­as limited scope for investment to recover should cause real tighter credit conditions added to fiscal constraints. Private GDP growth to weaken to 3.6 percent. The current account consumption was hit, reflecting the impact of higher inflation will probably remain in deficit in 2009 reflecting slower and more difficult access to credit. Retail sales rose 6 percent export expansion and fewer tourist arrivals. Looking further year-on-year during January-August as a result, only half the ahead after the current crisis is tackled, sustaining growth of pace in 2007 as a whole. 5-5.5 percent over the next 5-10 years will require efforts to increase private investment and improve productivity of the The earlier tight monetary policy to fight inflation had put industrial and service sectors. significantpressureonbanks.Commercialbankshikeddeposit interest rates, but with lending rates capped at 150 percent of the base rate set by the central bank, profit margins were 7 A preliminary announcement by the government indicates that the fiscal stimulus under pressure. The corporate sector also suffered from the will finance: an increase in government salaries (0.24 percent of GDP), rural road pavement (0.34 percent), rural investment projects (0.15 percent), development of water large increase in interest rates in the first half of 2008 and sources and agricultural productivity (0.09 percent), cash transfer to the low-income elderly (0.06 percent), recapitalization of the Bank for Agriculture and Agricultural from the downward adjustment in real estate prices. Lower Cooperatives (0.7 percent) and SME Bank (0.2 percent), royal initiative projects (0.1 interest rates may relieve some of the borrower stress as percent), housing for slum dwellers (0.1 percent), and education quality development projects (0.1 percent). east asia: NaviGatiNG tHe peRfect stORM 32 cOuNtRy sectiONs - LaRGeR ecONOMies credits extended earlier come up for renewal. But the quality balance items and Vietnam Development Bank activities is of bank assets will probably deteriorate in 2009. forecast to be around 6.2 percent of GDP, up from 5.6 percent of GDP in 2007. However, forecasts often register capital The current account deficit has begun to decline after surging expenditures based on plans and in 2008 actual expenditures sharply in the first half of 2008, reflecting slowing import are bound to be lower than planned. On the basis of this growth because of the authorities' austerity measures and information, the Ministry of Planning and Investment robust export growth. For 2008 as a whole, however, the adjusted, downscaled or stopped 1,145 public projects with current account deficit is still likely to widen to 13 percent of a total value of more than 30 trillion dong, accounting for GDP from 10 percent in 2007 before declining in 2009. 12.7 percent of planned investment. Inflows of foreign direct investment have remained robust so The government is currently preparing a stimulus package to far. FDI approvals for the first 10 months of 2008 reached a facetheglobaldownturn. Thepackageisorganizedaroundfive record level of $59.3 billion, equivalent to about two-thirds of groups of measures: 1) promoting production and exports, 2) GDP. Disbursements in 2008 are forecast to amount to about supporting consumption and investment, 3) further loosening $11 billion, up from $8.1 billion in 2007. Both approvals and the financial and monetary stance, 4) reducing poverty and the disbursement rate are expected to slow in 2009, however. providing social welfare, and 5) strengthen public sector management at all levels. The fiscal implications of this The fiscal balance remains manageable as a result of prudent package are still unclear, but an increase in expenditures can fiscal policies in general, high oil prices during most of 2008, be anticipated. Current discussions set the additional level of and a significant fiscal tightening as a part of the stabilization expenditures at around $1 billion, or about 1 percent of 2008 package. The overall fiscal deficit for 2008, including off- GDP. eap update december 2008 cOuNtRy sectiONs - sMaLLeR ecONOMies33 smaller economies official transfers. Despite a sharp slowdown in exports, lower oil import prices and slower domestic demand are likely to cambodia narrow the current account deficit to about 8 percent of GDP Cambodia has established a remarkable track record of in 2009. Inflows of foreign direct investment are projected growth with macroeconomic stability, but shocks have to slow from a record high of 10 percent of GDP in 2007 to increased uncertainties to the economic outlook. Real GDP 5.2 percent in 2009. growth averaged 11.1 percent over 2004-07, with the pace of expansion in 2007 equal to 10.2 percent, and annual inflation Inflationary pressures have started to ease. Twelve-month averaged 5.1 percent. Slower demand abroad for garments, consumer price inflation peaked at 25.7 percent in May, slowing construction output and weakening increase in more than doubling from the end of 2007, before slowing to tourist arrivals are projected to slow growth in real GDP to 18.1percentinOctober2008.Foodpricescontributedmostto 6.7 percent in 2008 and 4.9 percent in 2009. The slowdown thepickupininflationandtoitscurrentlevel,asfoodaccounts is projected to occur despite an expansionary fiscal policy. for more than half of the consumer price basket. Buoyant On the expenditure side, the negative contribution from net domestic demand was also a factor, as banks boosted credit exports is likely to increase in 2008 and 2009, and investment in the context of rising bank deposits and inflows of foreign should slow substantially. capital. The impact of an increase in imported fuel prices was muted by the use of set administrative prices. Given the large There are substantial challenges to the four key drivers of decline in prices for imported food and energy, 12-month growth. Firstly, the increase in rice prices seemed to offer inflation is projected to slow to 10 percent by the end of 2009 substantial opportunities for Cambodia, a rice exporter, from 16 percent a year earlier. although the scope for a robust supply response remains uncertain given the recent decline in prices and limited The central bank has tightened monetary policy to help slow investment in agriculture. Secondly, the garment sector is hit inflation and lessen financial sector risks. The bank doubled bytheslowdownintheU.S.,itsmainexportmarket(although reserve requirements in July 2008, introduced a ceiling on Cambodian firms are partly insulated as they serve the low- loans to the real estate sector, tripled capital requirements end market), competitiveness issues given high inflation and in September 2008, and introduced restrictions on cash wageincreases,andtheliftingin2009ofsafeguardsmeasures withdrawals from the central bank in October 2008. As a by the U.S. and the EU on China, a major competitor in result of these measures, the 12-month growth of credit to garmentexports.Thirdly,constructionisslowing,withoutput the private sector slowed from 103 percent in June 2008 to down 17 percent from a year earlier in the first half of 2008. 82 percent in September and is projected to ease to 42 percent Fourthly, tourism has also been affected by the weaker global by December 2008. The exchange rate, which was stable at economy and the border disputes with Thailand. Growth in an average of 4,020 riels per dollar in the first half of 2008, tourist arrivals slowed to 13 percent year-on-year in the first has depreciated slightly in nominal terms since midyear, six months of 2008 from 20 percent a year before. prompting the central bank to halt its non-sterilized exchange market interventions. Thetradedeficithasincreasedfurther,butshouldfallin2009. With slower shipments abroad of garments, export growth Recent shocks imply difficult trade-offs for fiscal policy. declinedto4percentyear-on-yearinthefirsthalfof2008from The government initially responded to the food and fuel 18 percent a year before. Import growth has strengthened, price shocks with tighter fiscal policy to address inflationary by contrast, reflecting buoyant domestic consumption and pressures in a dollarized economy. However, with growth higher prices for imported fuel earlier in the year. The current prospects deteriorating and inflation pressures somewhat account deficit, as a result, is projected to widen to 12.3 reduced, the government is changing track and is planning percent in 2008 from 8.4 percent of GDP in 2007, before to increase expenditures. The fiscal deficit is estimated to east asia: NaviGatiNG tHe peRfect stORM 34 cOuNtRy sectiONs - sMaLLeR ecONOMies remain little changed at 2.2 percent of GDP in 2008 (before 15 percent in 2007. In the first half of 2008, growth in export grants) and the government projects it to widen to 3.5 percent values(ledmainlybymineralwater,fishandtimber)wasmore in 2009. than offset by higher payments for imported intermediate and consumption goods. Inflows of remittances are expected to The government continues to advance structural reforms, remain little changed after falling to 4 percent of GDP in although with some slowdown at the time of the elections. 2007 from 6.5 percent in 2006. Foreign reserves amounted to Progress in upgrading the legal framework for investment $571 million at the end ofAugust 2008, equivalent to just two (notably the enactment of the Law on Secured Transactions, months of imports of goods and services. which makes it possible for a business to use its moveable and intangible assets as security for a loan) helped improve The interim administration managed to reduce the fiscal the country's ranking in the 2009 Doing Business Report deficit to around 1 percent of GDP in 2007 because of a (from 150th to 135th place out of 181 economies). Another substantialreductionincapitalexpenditureanda9percentcut important recent reform was the introduction in May 2008 in civil service wages. The 2008 budget continues to support of ASYCUDA (Automated System for Customs Data) at the Fiji's medium-term fiscal strategy of consolidating its fiscal Port of Sihanoukville. The government started in September position and reducing debt to sustainable levels. The budget 2008 the second phase of its Rectangular Strategy with a targets a deficit of 2 percent of GDPfor 2008, based on a tight renewed emphasis on governance and rural development. controlofpublicwageincreaseswhilemorethandoublingthe allocations for capital expenditure on high priority projects. Fiji Asmall budget surplus was achieved in the first half of 2008, In the aftermath of the December 2006 coup, Fiji's economy despite cuts in income tax rates and import duty concessions. is estimated to have contracted by 6.6 percent in 2007. However, with the recent increases in consumer prices, there Tourism earnings, the largest source of foreign exchange is pressure to raise civil servants'wages on top of the reversal receipts, declined 8 percent in 2007. Construction output of the 2007 decision to cut wages. fell 21 percent. Sugar production also fell by one-fifth due to unfavorable weather conditions, problems with Fiji continues to face international sanctions by some donors, delivery of fertilizers and non-renewal of land leases. Gold including the suspension of parts of the aid program and production ceased due to the closure of the sole gold mine immigrationrestrictions.Restorationoffullbilateralrelations in 2006 for commercial reasons. The economy is expected with key external partners apparently remains dependent on to recover in 2008, albeit sluggishly. Growth is forecast at the interim administration's demonstrated commitment to less than 2 percent, led by a pick-up in tourist activity and the return Fiji to democracy. Recent statements by the Interim resumption of gold production. Prime Minister have raised doubts that Fiji will adhere to the timeline for national elections, now scheduled for March High world oil and food prices through mid-2008 deepened 2009.According to the Interim Prime Minister, elections will Fiji's difficulties. Twelve-month inflation rose to 9.5 percent not be held until Fiji adopts his regime's proposed "People's by August 2008 due to higher prices for imported food Charter" which includes changes in the Constitution that and fuel and domestic supply shocks. In response to rising would, inter alia, end communal voting which is considered commodity prices, the interim administration removed duties ethnically biased. on basic food items from July 2008, temporarily exempted from VAT locally produced eggs, and lifted the income tax lao People's democratic republic threshold from F$9,000 to F$15,000. Economic performance in 2008 has been strong, with broad- based growth, slowing inflation, a stronger currency and The trade balance deteriorated and the current account deficit rising foreign exchange reserves. Real GDP is likely to is projected to widen to 21 percent of GDP in 2008 from expand by a robust 7 percent in 2008, down from 8 percent in eap update december 2008 cOuNtRy sectiONs - sMaLLeR ecONOMies35 2007 because of fewer tourist arrivals and slower expansion real GDP growth to 5-7 percent in 2009 from about 7 percent in agricultural and hydropower production. The resource in 2008. Challenges will include a likely decline in inflows sector ­ including the mining and hydropower sector ­ has of foreign direct investment and probably other capital contributed more than 2 percentage points of the pace of inflows, lower and volatile commodity prices, and weaker expansion in 2008. After peaking at 10.3 percent in May export growth. A projected reduction in fiscal revenues, 2008, 12-month consumer price inflation fell to 6.5 percent reflecting lower resource revenues, import taxes and other in October, due to sharp decline in oil and food prices. The export revenues, will limit the government's ability to expand currency remained stable early in the year and appreciated spending at the time when a fiscal stimulus may be most by about 2 percent against the U.S. dollar from May through needed. October 2008, and by 11 percent against the Thai baht over the same period. The crisis gives more urgency to ongoing structural reforms, aimed at increasing revenues and improving the investment Fiscalrevenueshavegrownstronglybecauseofreformefforts climate. Reforms of public financial management have and a boost from resource taxes, enabling the government to advanced with the implementation of the new Budget Law achieve its target and keep the fiscal deficit below 3 percent and piloting of centralization of the treasury, customs and of GDP for a second year in a row. Based on preliminary tax services in three provinces. A new revenue sharing and estimates, revenues exceeded targets in FY2007/08 for a distribution framework has been designed. Trade facilitation third year in a row, rising from 14 percent of GDP(excluding and investment climate reforms also accelerated and the draft grants) in FY2006/07 to about 14.9 percent of GDP in Trade Facilitation Master Plan is expected to be finalized FY2007/08 (resource revenues rose from 2.3 percent of GDP in early 2009. Implementation of the Enterprise Law has to about 3.0 percent over the same period). External public taken a step forward with the launching of a new enterprise debt has fallen to a still elevated 60 percent of GDP. In net registration system, but expansion of the system to provinces present value terms, external government and government remains a challenge. A new Mining Law and combined guaranteed debt fell to about 38 percent of GDPby the end of Investment Law are expected to be submitted for approval to 2008 from 46 percent in 2007. parliament in December 2008. Capital flows remained strong in 2008, more than financing mongolia the large current account deficit. The overall current account Mongolia's external economic outlook is dramatically deficit amounted to 17 percent of GDP, with about half of it changing as the price of copper ­ a key export - is declining reflecting the non-resource shortfall. Export growth almost sharply amid the global downturn. Economic growth is doubled to 13 percent in 2008 from the previous year, thanks expected to slow from the 10 percent reached in 2007 and to strong mining and other non-resource shipments abroad and 2008, the height of the commodity boom, to 7.5 percent in despite the sharp decline in commodity export prices since 2009. Since much of the windfall revenues during the boom midyear.Foreignexchangereservesrosefrom$539millionat years were used to boost current expenditures, which tripled the end of 2007 to $660 million byAugust 2008 (5 months of in the last three years, the country enters the downturn with non-resource imports). Against the background of the strong little savings. Its dependency on copper, combined with an external balance, domestic credit rose by 71 percent from inflexible exchange rate, is now forcing the government to a year earlier in August 2008. As the economic expansion drastically cut expenditures to reflect the drop in the copper slows, however, loan quality is likely to deteriorate, exerting price. pressure on commercial banks. The current account has shifted to a deficit of about 7 percent In the future, the economy faces challenges stemming form of GDPin 2008 from a 2.5 percent surplus in 2007, reflecting the impact of the global financial crisis that are likely to slow large imports of mining capital equipment and higher prices east asia: NaviGatiNG tHe peRfect stORM 36 cOuNtRy sectiONs - sMaLLeR ecONOMies for imported food and fuel. Reflecting these developments, urban areas. With slower growth and elevated inflation, the foreign exchange reserves have fallen from $1 billion at the real value of these transfers has fallen substantially. Under end of 2007 to $670 million in late 2008 (6 months' import these circumstances, protecting the poor and supporting cover). a prudent fiscal stance go hand in hand, starting with well- targeted social grants. The budget is heavily dependent on mining revenues, a key vulnerability. In 2008, mining revenues (dominated by Sustaining foreign investment in the mining sector will be revenues on copper) accounted for 43 percent of the total. important for Mongolia's long-term prosperity. The mining As a result of the collapse of the copper price from $9,000 sector accounted for 28 percent of GDP and 64 percent of per ton in the middle of 2008 to $3,600 in November 2008, export earnings in 2007. Mongolia's world-class mining the fiscal situation is dire. Without expenditure cuts, the 2009 assets continue to attract investors' attention, but receding fiscal deficit will probably increase to 6 percent of GDP. In capitalflowsworldwidearemakingitharderforprojectstobe the future, the current situation highlights the need to manage financed. The uncertainties about global economic prospects mining revenues better than in recent years. Mongolia did will likely prompt potential investors to take a harder stance save during the boom years by putting $250 million in the in negotiations, particularly with respect to financing and in stabilizationwindowofaspecialdevelopmentfund.However, projecting future copper prices and operating costs. To help it also sharply increased outlays on wages and salaries (which guide the authorities in concluding new mining agreements, doubled in two years) and un-targeted social transfers. clear, transparent and internationally competitive mining law and policy will be needed. Amendments to the Mining Learning from recent developments, the government is Law will soon be before the new parliament, and will tackle working on an improved, transparent, multi-year budget issues including a windfall profit tax and mandatory majority framework for expenditures and investment, including a government shareholding. Removing the uncertainty around new Fiscal Responsibility Law. The law should help ensure these issues ­ especially given that they hindered reaching that the government saves during "boom" years to spend agreements with international investors in the past -- will be during times of hardship. The framework would set limits to important to instill confidence and help conclude agreements expenditure growth and public debt. Parliament can amend that will pay off in the future. the budget only within the framework of the law. Papua new guinea Inflation increased from a low of 4.5 percent in 2006 to Papua New Guinea is enjoying its longest period of an estimated 28 percent in 2008, with a peak of nearly uninterrupted growth since independence, thanks to prudent 32 percent year-on-year in August. Inflation slowed since macroeconomicpolicyandwindfallgainsfromimprovements August because of weaker increases in food prices (food in the terms-of-trade. According to Treasury estimates, real accounts for 42 percent of the consumer price basket) and GDP growth accelerated to 6.5 percent in 2007, the highest tighter monetary policy, despite a sharp upward adjustment in eleven years.8 Growth has been broad-based, with mining in administered prices. and non-mining sectors expanding strongly. Oil production is declining, meanwhile, due to the exhaustion of the existing One of the key priorities in protecting the poor will be to SouthernHighlandsoilfields.Amongthenon-miningsectors, reduceinflation,asithaserodedsubstantiallytherealvalueof growth has been particularly strong in telecommunications, their earnings, public transfers or remittances. Some seventy thanks to deregulation of the mobile telephony, and in percent of households received some form of a transfer, either construction,duetothecompletionofamajormineandthanks from a public or a private source. During the boom years, the to public infrastructure spending. Stronger economic growth coverage and value of public transfers rose substantially and played an important role in poverty reduction, especially in 8 The statistical authorities have not produced GDP numbers since 2004. eap update december 2008 cOuNtRy sectiONs - sMaLLeR ecONOMies37 boosted formal employment across most of the economy and current account surplus, and foreign exchange reserves rose shortages of skilled labor emerged in some sectors.Although to $2.7 billion in June 2008 (5 months' import cover) from formal employment rose by a third since 2005, its share in the $1.4 billion at the end of 2006 and $2.1 billion at the end labor force is still low. of 2007. With the drop in commodity prices since midyear, reserves fell to $2.3 billion by mid-October. Fiscalpolicyremainedrestrained,asthestatebudgetbenefited from the commodity windfall in recent years. PNG's mineral Real GDP growth is likely to slow to about 7 percent in 2008 budget revenues reached 13 percent of GDP in 2007 after and more in 2009. The key risk to the outlook is the prospect averaging 5 percent in the ten years prior to the start of the of further declines of the prices for PNG's key exports. In the recent commodity boom. The government prudently capped medium term, PNG's growth prospects may be enhanced if expenditure growth, directing part of the windfall mineral a $10 billion liquefied natural gas project drawing on natural revenues to public debt repayments and saving a part in gas deposits in Southern Highlands goes forward by 2014 as trust accounts for the future. As a result, the overall central planned. budget has been in large surplus in recent years and currently windfall savings accumulated in trust accounts are close to solomon islands 20 percent of GDP. The non mineral budget deficit, the key Since its arrival in 2003, the Australian-led Regional indicator of windfall revenue use in the economy, declined to Assistance Mission to Solomon Islands (RAMSI) has 5 percent of GDP in 2007 from 8 percent in 2006 on lower successfully maintained law and order, but domestic politics than assumed trust fund spending. The non-mineral deficit remains fragmented. Successive governments have been has increased in 2008 with the partial release of funds under based on parliamentary coalitions with shifting allegiances a major financing program for parliamentarians. Mineral that have resulted in frequent votes of no confidence and budget revenues, meanwhile, are affected negatively by the changes in government. The ruling National Unity and Rural decline in the prices for PNG's major exports, copper, gold Advancement coalition government, which assumed office and oil. Nonetheless, the overall fiscal deficit remains within in December 2007 after a vote of no confidence, is the third parameters of the 2008-12 Medium-Term Fiscal Framework government since the April 2006 parliamentary elections. It that aims at smoothing the fiscal stance over the commodity survived a vote of no confidence in August 2008. Coalition price cycle by capping the non-mineral deficit at 8 percent of politicshas contributedto expansionary fiscal policyin recent GDP and directing 30 percent of revenue windfalls to public years. debt prepayment. The economy continues to grow strongly, thanks in part to the Inflation has been on the rise during 2008. Twelve-month unsustainableloggingboomandthepro-cyclicalfiscalpolicy. headline inflation rose to 10.7 percent by June 2008 from Since the end of the civil conflict and the long recession that 3 percent in December 2007. Rising prices of fuel and ended in the early years of this century, real GDP growth imported food contributed to inflation, as did buoyant has averaged 7 percent and reached a 15-year record of domestic demand amid strong credit growth facilitated by 10.3 percent in 2007. Growth is expected to remain robust the placement of central government trust accounts with at over 7 percent in 2008. Although the restoration of peace commercial banks. Looking forward, inflation may stabilize and increased aid flows have been conducive to economic because the currency has strengthened and commodity prices expansion, growth has consistently been led by the logging have fallen. sector. With output increases of over 20 percent in both 2007 and in 2008, log production is now triple the level of the early The external position has recently come under pressure with 2000s and is estimated to be more than six times above its reservesdeclininginSeptemberandOctober.Untilmid-2008, sustainable level. booming commodity export earnings supported a sizable east asia: NaviGatiNG tHe peRfect stORM 38 cOuNtRy sectiONs - sMaLLeR ecONOMies The imminent end of large-scale logging clouds the medium- Tocopewiththeforthcomingdeclineoflogging,theSolomon term economic prospects for Solomon Islands. With the Islands will need a program of stabilization and structural commercially viable natural-growth forests being rapidly reformtogeneratefasternonlogginggrowth.Therecentsurge exhausted, logging output is expected to start declining in inflation and declining foreign exchange reserves indicate sharply in 2009-10, falling by around 80 percent by 2013. anincreasingexternalvulnerabilityandtheneedfor tightening As logging accounts for about 16 percent of GDP, 70 percent macroeconomic policies, including rationalization of public of exports and 15 percent of government revenues excluding expenditure. State-owned enterprises, which have received foreign grants, the decline is expected to significantly slow government transfers and guarantees in recent years, are also economic growth, adversely impact government services and in need of reform. Facilitating rehabilitationand development challenge external sustainability. With unsettled near-term of potential mining projects such as the Goldridge gold mine prospects for the rehabilitation of the Goldridge mine, the and nickel deposit development on the Isabel Island are also only large-scale project which can offset to some extent the important to consider as a way to help offset the projected loss of foreign exchange earnings from logging, the economy decline of the logging sector. The reform program addressing will likely require significant adjustment over the medium these challenges will need to consider measures to encourage term. private growth in areas such as agriculture, fisheries, and tourism. Such a program would better define land ownership Fiscal policy remains expansionary and pro-cyclical, and rights, facilitate enterprises entry, exit and competition across fiscal surpluses in 2003-06 have shifted into deficits in sectors, and invest in infrastructure, all of which are critical 2007-08 while growth strengthened. Thanks in large part to support the non-logging growth. to the logging revenue windfall, fiscal revenues increased from 26 percent of GDP (excluding foreign grants) in 2004 Timor-leste to 37 percent of GDP in 2007-08. Public expenditures The political and security situation in Timor-Leste has have also risen strongly, jumping by around 10 percentage stabilized since the failed assassination attempt on the points of GDP during the period. In 2007, expenditures rose country's two top leaders in February 2008. The coalition 29 percent and in 2008 the increase may reach 38 percent, government has demonstrated resilience and made progress if the 5.5 percent of GDP supplemental budget approved in in several areas in its first year in office. The majority of the August 2008 is fully implemented. To finance spending, the internally displaced population (IDP) has returned to their government has begun drawing on the reserves it holds in a homes and the large IDPcamps in the capital, Dili, have been debt service escrow. closed. Rehabilitation of housing and livelihoods continues. Payment of pensions to veterans has begun and one-off cash Monetary policy was tightened recently, as inflation and payments to petitioners have been completed to allow them balance of payments pressures have risen. Twelve-month to start civilian life. inflation rose sharply through midyear, reaching 20 percent by July 2008 from 10.1 percent at the start of the year. A Economic performance in 2008 has been reasonably strong. strong increase in imports, reflecting in part higher prices With more rapid budget execution, which could double for imported food and fuel, are likely to cause the current government spending on a cash basis relative to 2007, the account deficit to double to 6 percent of GDP in 2008. Fuel non-oil economy is expected to grow at about 7 percent in imports amount to an oversized 13 percent of GDP, while half 2008. Inflation increased due to higher import prices of basic of all food is imported. Foreign exchange reserves fell from food staples and petroleum products, but should be limited $120 million at the end of 2007 to $85 million at the end of to 8-9 percent in 2008 now that these import prices have September, equivalent to 2.5 months of imports. receded. eap update december 2008 cOuNtRy sectiONs - sMaLLeR ecONOMies 39 In response to higher world food prices through mid-2008, procurement reform to help improve budget execution. At the government continued to subsidize rice imports. The the time of budget rectification, the government's Estimated government acted quickly to prevent recurrence of the urban Sustainable Income generated by the Petroleum Fund was rice shortage and subsequent security problems of early 2007 projected at $396 million in 2008, up from the $294 million and began to import rice directly, selling it at a subsidized estimated in December 2007. Timor-Leste's sustainable price. spending is highly sensitive to oil prices and would be negatively affected should prices fall further. Budget execution has accelerated but remains a challenge, especially for capital spending. Overall expenditures There is progress on reforms of the civil service and audit amounted to $282 million during January-September, with and efforts on anti-corruption. The government is working capital outlays estimated at $43 million. Spending on a to improve governance, including by setting up independent cash basis is estimated to reach $400-430 million for 2008 service-oriented civil service overseen by a Civil Service as a whole, a substantial increase relative to previous years. Commission, and strengthening administrative practices Nonetheless, this year's likely outcome is projected to fall underpinned by external audit. The government is also short of the amount targeted under the amended (rectified) proceeding with plans to decentralize to all thirteen districts, budget adopted inAugust 2008. Government spending under establishing municipalities as autonomous entities, financed the2008rectifiedbudgetissetat$788million,or$441million through grants from the central government over three years more than the original budget approved in December 2007. starting in 2009. The Economic Stabilization Fund, a new budget sub-line to address the impact of higher food and oil prices, accounts for Looking ahead, the challenges are to expand capital spending 54 percent of the increase. that would increase jobs and incomes, and raise economic growth on a sustainable basis, as cash transfers to IDPs and The fiscal surplus in 2008 is likely to rise, thanks to the petitioners decline. As this occurs, it is vital to strengthen increase in petroleum revenues. The surplus is projected to public financial management and accountability standards increase even if the rectified budget is implemented in full, an to ensure sound and sustainable spending of the country's outcomethatisnotanticipated.Progressismadeinadvancing petroleum resources. east asia: NaviGatiNG tHe peRfect stORM 40 appeNdix taBLes & cHaRts a p p e N d i x t a B L e s & c H a R t s aPPendix Table 1. quaRteRLy ReaL Gdp GROWtH (percent change from a year earlier) ongK siaa hinac ongh ndonesiai oreaK hina)c( alaysiam Philippines ingapores Thailand aste aiwanT q1-2002 8.8 -1.0 3.5 6.5 2.7 4.2 -0.6 1.3 4.5 5.9 q2-2002 9.2 0.5 4.2 7.0 4.7 4.6 4.9 4.8 5.0 6.9 q3-2002 9.3 2.8 5.6 6.8 7.1 3.3 6.6 6.7 5.8 7.4 q4-2002 9.1 4.8 4.7 7.5 6.9 5.5 5.9 5.7 6.0 7.4 q1-2003 10.8 4.1 4.9 3.8 6.3 4.8 3.6 3.6 6.9 7.3 q2-2003 8.4 -0.9 5.0 2.2 5.9 4.3 -1.8 -0.2 6.6 5.1 q3-2003 10.1 3.8 4.6 2.3 4.6 5.4 4.1 4.1 6.7 6.7 q4-2003 10.4 4.7 4.6 4.1 6.5 5.1 8.1 6.3 8.3 7.7 q1-2004 9.8 7.7 4.1 5.4 8.2 7.2 9.1 8.0 6.7 8.0 q2-2004 9.6 12.0 4.4 5.7 7.9 7.1 12.6 9.2 6.6 8.5 q3-2004 9.2 6.6 4.5 4.7 6.4 5.6 7.6 5.4 6.3 7.1 q4-2004 9.5 7.9 7.2 3.3 4.9 5.8 7.0 2.5 5.9 6.9 q1-2005 10.5 6.2 6.0 2.9 5.6 4.5 4.2 2.2 3.6 7.0 q2-2005 10.5 7.1 5.9 3.4 4.3 5.1 6.9 3.1 4.7 7.4 q3-2005 10.2 8.1 5.8 4.8 5.6 4.7 8.9 4.4 5.5 7.7 q4-2005 10.4 6.9 5.1 5.5 5.9 5.4 9.1 6.9 4.7 8.1 q1-2006 10.4 9.0 5.1 6.3 5.9 5.6 10.4 5.0 6.4 8.3 q2-2006 11.5 6.2 5.0 5.2 6.0 5.5 8.2 4.9 5.3 8.4 q3-2006 10.6 6.4 5.9 5.0 5.9 5.1 7.4 5.5 4.8 8.0 q4-2006 10.4 6.6 6.0 4.2 5.3 5.5 7.0 3.9 4.5 7.6 q1-2007 11.1 5.5 6.1 4.0 5.5 7.0 7.0 3.8 4.4 8.0 q2-2007 11.9 6.2 6.4 4.9 5.7 8.3 9.1 5.5 4.4 8.9 q3-2007 11.5 6.8 6.5 5.1 6.7 7.1 9.5 7.0 5.1 8.9 q4-2007 11.2 6.9 6.3 5.7 7.3 6.4 5.4 6.4 5.7 8.7 q1-2008 10.6 7.3 6.3 5.8 7.4 4.7 6.9 6.2 6.0 8.5 q2-2008 10.1 4.2 6.4 4.8 6.7 4.4 2.3 4.6 5.3 7.6 q3-2008 9.0 1.7 6.1 3.8 4.7 4.6 -0.6 -1.0 4.0 6.0 Source: Haver analytics and national sources. quarterly data for china is estimated using new annual production side Gdp data. eap update december 2008 appeNdix taBLes & cHaRts41 aPPendix Table 2. GROWtH iN ReaL Gdp aNd cOMpONeNts Of aGGReGate deMaNd (percent change from a year earlier) ndonesiai aisyalam senippilihP dnaliahT ongK ongh aeroK hinac ingapore*s aiwan.T siaa.e.s s nie gdP 2006 5.5 5.8 5.4 5.1 7.0 5.1 8.2 4.9 5.4 5.6 2007 6.3 6.3 7.2 4.8 6.4 5.0 7.7 5.7 6.0 5.6 2007 H1 6.3 5.6 7.6 4.2 5.9 4.5 8.1 4.7 5.8 5.1 2008 H1 6.4 6.7 4.6 5.7 5.8 5.3 4.5 5.3 6.0 5.3 consumption 2006 3.2 6.5 5.5 3.2 6.0 4.5 3.3 1.8 4.2 3.9 2007 5.0 10.8 5.8 1.5 7.8 4.5 4.6 2.6 5.3 4.5 2007 H2 5.4 11.6 5.9 1.8 10.0 4.7 5.4 2.8 5.7 5.0 2008 H1 5.5 10.3 4.3 2.5 5.4 2.9 4.9 1.6 5.4 3.1 investment 2006 2.5 7.9 3.8 3.8 7.0 3.6 15.9 0.6 4.1 4.3 2007 9.2 9.6 11.8 1.4 4.2 4.0 20.2 2.4 7.6 5.0 2007 H2 11.2 11.5 7.8 3.3 3.8 2.1 16.8 1.3 8.6 3.4 2008 H1 14.1 5.8 4.3 3.6 7.0 0.3 27.9 -2.3 8.0 3.1 exports 2006 9.4 7.0 13.4 8.5 9.4 11.8 8.3 10.4 9.3 10.7 2007 8.0 4.2 5.6 7.1 8.0 12.1 5.4 8.8 6.6 10.0 2007 H2 7.1 5.3 3.8 6.0 7.3 13.2 6.2 12.0 5.9 11.3 2008 H1 15.8 7.9 1.2 9.0 6.7 12.2 -29.9 10.5 10.0 7.1 Source: Haver analytics. national data sources. and World Bank staff estimates. Regional averages are 2000 us$ Gdp weighted. * singapore exports are net exports. east asia: NaviGatiNG tHe peRfect stORM 42 appeNdix taBLes & cHaRts aPPendix Table 3. east asia: MeRcHaNdise expORt GROWtH (in u.s. dollars, percent change from a year earlier) 2006 2007 2007 2007 2007 2008 2008 Q2 Q3 Q4 Q1 Q2 ei-08m Jun-08 Jul-08 ug-08a ep-08s ct-08o east asia (9) 18.8 16.8 17.0 15.5 17.8 19.3 21.3 24.4 17.4 25.2 17.4 17.2 ... se asia 16.0 12.3 12.0 8.1 16.8 21.0 24.6 24.0 25.2 29.9 18.0 17.7 ... indonesia 17.7 13.2 15.6 9.4 14.1 31.0 29.8 31.4 34.9 25.0 30.3 28.5 4.9 Malaysia 14.0 9.7 7.7 6.9 16.0 19.1 28.9 30.1 25.4 32.9 15.7 16.0 ... philippines 13.0 6.8 4.2 1.6 9.6 2.7 5.3 2.3 8.8 4.4 6.5 1.2 ... thailand 18.5 16.8 17.4 11.0 22.2 22.3 22.2 18.2 23.0 39.5 15.4 17.5 3.8 china 27.2 25.7 27.5 26.2 22.2 21.4 22.2 28.1 17.2 26.8 21.1 21.5 19.2 Nies 13.5 10.9 10.2 8.9 14.1 16.7 19.1 21.0 14.6 21.8 13.3 12.5 2.4 Hong Kong 9.4 8.8 11.1 7.8 8.3 10.7 8.1 10.6 -0.6 11.4 2.0 3.5 9.4 Korea 14.4 14.1 14.1 9.4 18.2 17.5 23.2 26.9 16.5 35.7 18.7 27.7 8.5 singapore 18.4 10.1 7.2 8.5 14.8 21.3 26.4 25.4 24.6 28.5 16.7 17.7 -5.0 taiwan (china) 12.5 10.3 6.6 10.0 15.8 17.9 19.1 21.0 21.3 8.1 18.0 -1.7 -8.1 Source: Haver analytics and national data sources. eap update december 2008 appeNdix taBLes & cHaRts43 aPPendix Table 4. east asia aNd tHe pacific: Gdp GROWtH pROJectiONs (percent change from a year earlier) forecast forecast forecast 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 east asia 4.6 7.0 6.8 8.0 7.7 8.7 9.0 7.0 5.3 6.5 developing east asia 6.7 8.0 8.9 9.1 9.2 10.2 10.6 8.5 6.7 7.8 South East Asia 2.3 4.9 5.7 6.0 5.2 5.5 6.1 5.2 3.8 5.1 indonesia 3.6 4.5 4.8 5.0 5.7 5.5 6.3 6.0 4.4 5.9 Malaysia 0.5 5.4 5.8 6.8 5.3 5.8 6.3 5.5 3.7 4.6 philippines 1.8 4.3 5.0 6.4 5.0 5.4 7.2 4.0 3.0 4.1 thailand 2.2 5.3 7.1 6.3 4.6 5.2 4.9 4.6 3.6 5.0 Transition china 8.3 9.1 10.0 10.1 10.4 11.6 11.9 9.4 7.5 8.5 vietnam 6.9 7.1 7.3 7.8 8.4 8.2 8.5 6.5 6.5 7.5 Small Economies 4.0 3.7 5.1 6.7 7.8 7.3 6.9 6.3 4.7 5.6 cambodia 8.0 6.5 8.5 10.3 13.3 10.8 10.2 6.7 4.9 6.0 timor-Leste 16.5 -6.7 -6.2 0.4 2.3 -3.4 16.5 4.3 1.4 ... Lao pdR 5.8 5.9 6.1 6.4 7.1 8.1 7.9 7.0 6.0 7.9 Mongolia 1.3 4.2 6.1 10.8 7.1 8.6 9.9 10.0 7.5 ... fiji 2.0 3.2 1.0 5.3 0.7 3.6 -6.6 1.7 1.1 1.6 Kiribati 1.8 5.8 1.4 -2.9 -0.2 -5.5 1.7 1.0 1.1 1.1 Marshall islands 5.5 4.0 1.8 0.4 3.5 1.3 2.0 1.2 1.8 2.0 Micronesia, fed. sts. 0.3 1.4 3.3 -4.4 1.5 -2.3 -3.1 1.0 1.0 1.0 palau 1.3 -3.5 -1.3 4.9 5.5 3.0 2.5 2.0 2.0 2.0 papua New Guinea -0.1 -0.2 2.2 2.7 3.4 2.6 6.5 7.0 4.9 5.0 samoa 7.1 4.4 1.6 3.2 5.4 1.9 6.1 3.5 3.0 3.5 solomon islands -9.0 -1.6 6.4 8.0 5.0 6.1 10.2 7.3 4.0 3.4 tonga 2.6 3.0 3.2 1.4 2.3 4.4 -0.3 1.2 2.6 1.9 vanuatu -2.6 -7.4 3.2 5.5 6.5 7.2 6.6 6.3 5.5 5.0 east asia nies 1.1 5.3 3.2 6.1 4.9 5.6 5.6 3.7 2.0 3.5 Hong Kong (saR) 0.5 1.8 3.0 8.5 7.1 7.0 6.4 3.6 1.4 3.1 Korea 3.8 7.0 3.1 4.7 4.2 5.1 5.0 3.9 2.0 3.8 singapore -2.4 4.2 3.5 9.0 7.3 8.2 7.7 2.5 1.2 2.0 taiwan (china) -2.2 4.6 3.5 6.2 4.2 4.9 5.7 3.7 2.5 3.6 Japan 0.2 0.1 1.8 2.7 1.9 2.4 2.1 0.5 -0.1 1.5 Source: World Bank data and staff estimates. east asia is the sum of developing east asia and the Newly industrialized economies. east asia: NaviGatiNG tHe peRfect stORM 44 appeNdix taBLes & cHaRts aPPendix Table 5. ReGiONaL aGGReGates fOR pOveRty MeasuRes iN east asia $1.25 ­a-day $2-a-day oorP oorP eanm PPP$/ (%) of (%) of onsumptionc month) (2005 eadcounth ndexi (million) umbern eadcounth ndexi (million) umbern noitalupoP (million) eap 1990 49.16 54.7 873.3 79.8 1.273.7 1.595.9 1993 54.55 50.8 845.3 75.8 1.262.1 1.664.9 1996 67.01 36.0 622.3 64.1 1.108.1 1.728.7 1999 70.76 35.5 635.1 61.8 1.104.9 1.788.4 2002 85.65 27.6 506.8 51.9 954.1 1.837.0 2005 106.85 16.8 316.2 38.7 728.7 1.884.4 eap excluding china 1990 72.98 39.2 180.5 66.0 304.4 460.8 1993 73.84 42.6 207.3 68.0 330.9 486.4 1996 85.81 35.0 178.8 61.5 314.2 511.2 1999 82.96 35.2 188.1 62.7 335.2 534.7 2002 89.76 25.5 142.1 54.0 300.8 556.6 2005 100.98 19.0 110.2 44.8 259.5 579.9 south east asia (indonesia, Malaysia, philippines, thailand) 1990 77.05 38.6 120.3 65.1 202.9 311.8 1993 82.24 37.8 124.2 63.8 209.8 328.7 1996 96.46 29.5 101.6 56.2 193.9 344.9 1999 91.12 31.8 114.8 59.2 213.6 361.1 2002 97.84 21.3 80.3 49.9 188.4 377.3 2005 107.30 17.0 66.8 42.2 166.0 393.8 Lower-income east asia (cambodia, Laos, pNG, vietnam) 1990 58.57 41.2 34.6 69.5 58.4 84.1 1993 43.53 60.5 54.4 83.6 75.2 90.0 1996 47.82 55.1 52.7 80.6 77.1 95.7 1999 54.43 47.3 47.4 75.3 75.6 100.3 2002 60.87 41.0 42.6 69.1 71.9 104.1 2005 79.14 26.1 28.4 53.8 58.6 108.8 Source: World Bank staff estimates eap update december 2008 appeNdix taBLes & cHaRts 45 aPPendix Table 6. pRiMaRy cOMMOdity pRices (in u.s. dollars, percent change from a year earlier) actual projections 90 98 commodity 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1980- 1991- crude oil average 0.0 -5.7 56.2 -13.7 2.4 15.9 30.6 41.5 20.4 10.6 42.3 -26.4 1.8 Non-energy commodities -0.8 0.4 -1.4 -9.1 5.3 10.2 17.5 12.0 29.1 17.0 22.4 -23.2 -4.3 Agriculture -1.9 0.8 -5.7 -9.1 8.6 9.6 10.5 2.7 12.7 20.0 28.4 -20.9 -1.3 cocoa -7.3 4.0 -20.2 18.0 66.4 -1.5 -11.5 -0.8 3.5 22.6 33.2 -23.1 -5.0 coffee, arabica -3.6 12.6 -16.2 -28.5 -1.2 4.3 25.3 42.7 -0.4 8.0 13.8 -12.9 -3.7 coconut oil -1.4 10.6 -38.9 -29.4 32.4 11.0 41.4 -6.6 -1.6 51.4 36.0 -24.0 -15.8 palm oil -3.0 12.3 -28.8 -7.9 36.6 13.6 6.3 -10.4 13.3 63.1 21.8 -26.3 -7.1 Rice, thai, 5% 0.8 2.1 -18.5 -14.6 11.0 3.0 20.3 20.4 6.5 7.1 102.2 -32.4 2.5 sugar, world 16.4 -2.8 30.6 5.6 -20.3 3.0 1.1 37.9 49.5 -31.8 30.5 -6.9 7.4 Logs, Malaysia 1.9 3.4 1.5 -16.3 2.7 14.5 5.4 3.0 17.9 11.9 6.4 -8.8 -3.8 sawnwood, Malaysia 4.1 -0.1 -1.0 -19.1 9.4 4.6 5.5 13.4 13.6 7.6 10.4 -10.7 -4.4 Rubber, Rss1, singapore -1.7 0.5 6.2 -13.8 33.0 41.5 20.4 15.2 40.3 8.7 17.9 -22.2 -2.4 Metals and minerals 2.9 -2.6 12.6 -9.6 -3.1 12.7 37.1 28.9 56.9 12.0 5.0 -25.5 -5.5 tin -6.7 -0.7 0.6 -17.5 -9.5 20.5 73.9 -13.3 19.0 65.6 27.3 -27.0 -3.7 copper 4.3 -4.1 15.3 -13.0 -1.2 14.1 61.1 28.4 82.7 5.9 -0.6 -32.2 -4.2 Source: World Bank dec prospects Group. projections as of 11/4/08. east asia: NaviGatiNG tHe peRfect stORM 46 appeNdix taBLes & cHaRts aPPendix Table 7. east asia: excHaNGe Rates (Lcu/u.s. dollar, end-of-period) hinac hinac ndonesiai oreaK alaysiam Philippines ingapores aiwan.T Thailand ietnamv Japan Jan-2007 7.78 9,090.00 940.90 3.50 49.03 1.54 32.95 35.80 16,035.50 121.68 feb-2007 7.74 9,160.00 938.30 3.51 48.29 1.53 32.95 35.45 15,990.00 118.48 Mar-2007 7.73 9,118 940.30 3.46 48.26 1.52 33.09 35.02 16,022.50 117.65 apr-2007 7.71 9,083 929.40 3.42 47.51 1.52 33.28 34.77 16,045.50 119.60 May-2007 7.65 8,828 929.90 3.40 46.27 1.53 33.02 34.65 16,079.00 121.62 Jun-2007 7.62 9,054 926.80 3.45 46.33 1.53 32.74 34.54 16,113.00 123.23 Jul-2007 7.57 9,186 923.20 3.45 45.61 1.51 32.81 33.81 16,126.50 118.95 aug-2007 7.56 9,410 939.90 3.50 46.70 1.52 33.00 34.33 16,225.50 116.20 sep-2007 7.51 9,137 920.70 3.42 45.06 1.49 32.58 34.27 16,091.50 115.05 Oct-2007 7.47 9,103 907.40 3.34 43.95 1.45 32.41 34.00 16,082.50 114.75 Nov-2007 7.40 9,376 929.60 3.36 42.80 1.45 32.27 33.85 16,044.00 110.30 dec-2007 7.30 9,419 938.20 3.31 41.40 1.44 32.44 33.75 16,010.00 114.00 Jan-2008 7.19 9,291 943.90 3.24 40.65 1.42 32.20 33.03 15,971.00 106.36 feb-2008 7.11 9,051 937.30 3.19 40.36 1.39 30.95 31.87 15,931.00 104.73 Mar-2008 7.02 9,217 991.70 3.19 41.87 1.38 30.41 31.51 16,105.00 100.10 apr-2008 7.00 9,234 999.70 3.16 42.19 1.36 30.45 31.74 16,116.00 104.08 May-2008 6.95 9,318 1,031.40 3.24 43.88 1.37 30.41 32.46 16,246.00 105.66 Jun-2008 6.86 9,225 1,043.40 3.27 44.76 1.36 30.35 33.52 16,842.00 106.40 Jul-2008 6.86 9,118 1,008.50 3.26 44.14 1.37 30.59 33.54 16,755.00 107.99 aug-2008 6.85 9,157 1,081.80 3.39 45.69 1.42 31.52 34.17 16,525.00 109.10 sep-2008 6.85 9,378 1,187.70 3.46 46.92 1.43 32.13 34.02 16,575.00 104.30 Oct-2008 6.86 10,995 1,291.40 3.56 48.75 1.48 33.00 34.99 16,812.50 98.49 Nov-2008 6.87 12,151 1,468.83 3.62 48.86 1.51 33.30 35.48 16,973.50 95.56 Sources: Haver analytics. datastream. eap update december 2008 appeNdix taBLes & cHaRts47 aPPendix Table 8. east asia: fOReiGN ReseRves MiNus GOLd (in billions of u.s. dollars) ongK ) hinac hinac ndonesiai alaysiam otalT Philippines Thailand ongh sar( oreaK ingapores aiwan.T dec-1997 142.8 17.4 20.8 7.3 26.3 92.8 20.4 71.3 83.5 482.5 dec-1998 149.2 23.5 25.6 9.3 28.8 89.7 52.0 75.1 90.3 543.4 dec-1999 157.7 27.3 30.6 13.3 34.1 96.2 74.0 77.0 106.2 616.4 dec-2000 168.3 29.4 29.5 13.1 32.0 107.5 96.1 80.2 106.7 662.9 dec-2001 215.6 28.0 30.5 13.5 32.4 111.2 102.8 75.7 122.2 731.7 dec-2002 291.1 32.0 34.2 13.3 38.1 111.9 121.3 82.2 161.7 885.9 dec-2003 408.2 36.3 44.6 13.7 41.1 118.4 155.3 96.2 206.6 1,120.3 dec-2004 614.5 36.3 66.4 13.1 48.7 123.5 199.0 112.6 241.7 1,455.9 dec-2005 821.5 34.7 70.2 15.9 50.7 124.2 210.3 116.2 253.3 1,697.1 dec-2006 1,068.5 42.6 82.2 20.0 65.3 133.2 238.9 136.3 266.1 2,053.0 dec-2007 1,530.3 56.9 101.1 30.2 85.2 152.6 262.1 163.0 270.3 2,651.7 Jan-2008 1,591.9 56.0 109.0 31.0 90.3 159.8 261.8 167.6 272.8 2,740.2 feb-2008 1,649.2 57.1 116.0 32.2 97.9 160.2 262.3 171.7 277.8 2,824.5 Mar-2008 1,684.3 59.0 120.0 32.8 107.5 160.7 264.2 177.5 286.9 2,892.7 apr-2008 1,758.7 58.8 123.8 32.8 107.4 159.8 260.4 175.8 289.4 2,966.9 May-2008 1,799.2 57.5 124.9 32.4 106.6 158.9 258.1 175.8 290.1 3,003.5 Jun-2008 1,811.1 59.5 125.5 32.7 103.2 157.5 258.0 176.7 291.4 3,015.5 Jul-2008 1,847.4 60.6 124.8 33.0 102.3 157.6 247.4 174.8 290.9 3,038.7 aug-2008 1,886.3 58.4 122.3 33.2 99.0 158.1 243.1 169.9 282.1 3,052.3 sep-2008 1,906.0 57.1 109.4 32.8 100.0 160.6 239.6 168.6 281.1 3,055.4 Oct-2008 ... 50.6 99.9 32.4 101.2 154.9 212.2 162.0 278.2 ... Sources: Haver analytics. thomson datastream. and iMf international financial statistics. east asia: NaviGatiNG tHe peRfect stORM 48 appeNdix taBLes & cHaRts Table 9a. east asia: BaLaNce Of payMeNts (in percent of Gdp) Overall Balance 1/ current account capital account 2/ 2004 2005 2006 2007 2008 3/ 2004 2005 2006 2007 2008 3/ 2004 2005 2006 2007 2008 3/ east asia 8.7 5.4 6.8 9.7 19.3 4.5 5.7 7.2 8.7 8.4 4.2 -0.3 -0.4 1.0 10.9 China 10.7 9.0 8.9 13.4 12.8 3.5 7.0 9.0 10.8 10.8 7.1 2.0 -0.1 2.6 2.0 S.E. Asia 4.6 1.0 4.6 6.3 14.5 3.3 2.1 5.2 6.1 5.3 1.2 -1.1 -0.6 0.2 9.2 indonesia 0.0 -0.6 2.2 3.3 1.8 0.6 0.1 3.0 2.4 1.3 -0.6 -0.6 -0.8 0.9 0.5 Malaysia 17.5 2.7 7.6 10.1 12.8 12.1 14.5 16.3 15.5 16.5 5.4 -11.7 -8.7 -5.4 -3.7 philippines -0.6 2.8 3.5 7.0 5.7 1.6 1.9 4.4 4.5 2.6 -2.3 0.9 -1.0 2.5 3.1 thailand 4.7 1.1 7.1 8.1 11.9 1.7 -4.3 1.1 6.5 5.1 3.0 5.5 6.0 1.6 6.7 NIEs 7.8 1.9 4.5 4.3 9.5 6.5 5.5 5.2 6.1 5.4 1.3 -3.6 -0.8 -1.8 4.1 Hong Kong 3.1 0.4 4.7 9.4 9.9 9.5 11.4 12.0 12.8 12.8 -6.4 -11.0 -7.3 -3.4 -2.9 Korea 6.4 1.4 3.2 2.4 0.8 4.1 1.9 0.5 0.6 0.2 2.3 -0.5 2.7 1.8 0.5 singapore 15.0 3.0 14.7 16.5 18.4 19.8 23.9 21.8 24.2 18.5 -4.8 -20.9 -7.1 -7.7 -0.1 taiwan, china 10.6 3.2 3.5 1.1 6.3 5.6 4.5 6.7 8.5 8.1 5.0 -1.2 -3.2 -7.4 -1.8 Median for 9 6.4 2.7 4.7 8.1 9.9 4.1 4.5 6.7 8.5 8.1 2.3 -0.6 -1.0 0.9 0.5 Sources: Haver analytics. national sources. 1/ equals change in foreign reserves. 2/ includes errors and omissions. 3/ four-quarter total. 3q 2007 - 2q 2008 Table 9b. east asia: capitaL accOuNt cOMpONeNts (in percent of Gdp) Net fdi Net portfolio Net Other capital 2004 2005 2006 2007 2008 1/ 2004 2005 2006 2007 2008 1/ 2004 2005 2006 2007 2008 1/ east asia 1.5 2.2 1.6 2.1 1.5 -0.3 -0.9 -2.5 -0.8 -1.5 1.5 -0.6 0.4 -1.4 -0.6 China 2.7 2.9 2.2 3.5 3.0 1.0 -0.2 -2.4 0.5 1.2 2.0 -0.2 0.5 -2.0 -2.8 S.E. Asia 1.1 2.2 1.5 0.6 0.6 2.3 1.4 1.7 0.7 -1.4 -2.0 -3.1 -3.7 -2.1 0.7 indonesia -0.6 1.8 0.6 0.5 0.6 1.7 1.5 1.1 1.3 1.1 -0.4 -3.3 -1.0 -1.1 -1.3 Malaysia 2.1 0.7 0.0 -1.4 -1.4 7.0 -2.7 2.2 2.9 -3.5 -4.9 -5.1 -9.8 -7.3 0.3 philippines 0.1 1.7 2.4 -0.4 1.0 -2.0 3.5 2.6 2.1 0.8 0.0 -3.0 -5.1 0.9 1.3 thailand 3.6 4.3 3.9 3.0 1.9 1.9 3.1 1.8 -2.8 -2.5 -3.2 -1.1 -2.9 -1.5 4.2 NIEs 0.0 1.0 0.5 0.1 -1.1 -3.4 -3.2 -4.9 -4.4 -9.4 2.5 0.0 2.3 0.2 3.0 Hong Kong -7.0 3.6 0.0 0.2 0.2 -23.7 -17.7 -14.1 -6.7 -6.7 18.6 2.0 3.2 -14.6 -0.1 Korea 0.7 0.3 -0.5 -1.4 -1.8 1.0 -0.4 -2.6 -2.5 -1.6 -0.6 0.9 5.4 4.3 2.4 singapore 10.8 8.3 9.2 7.3 3.0 -6.4 -6.9 -6.5 -10.3 -14.9 -11.1 -17.3 -12.9 -8.4 6.8 taiwan. china -1.6 -1.2 0.0 -0.8 -1.7 -1.4 -0.8 -5.2 -10.5 -7.3 5.4 3.0 0.1 1.3 4.6 Median for 9 0.7 1.8 0.6 0.2 0.6 1.0 -0.4 -2.4 -2.5 -2.5 -0.4 -1.1 -1.0 -1.5 1.3 Sources: Haver analytics. national sources. 3/ four-quarter total. 3q 2007 - 2q 2008 eap update december 2008 appeNdix taBLes & cHaRts49 aPPendix Table 10. east asia: NONpeRfORMiNG LOaNs (in percent of of total loans) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 dec dec dec dec dec dec dec dec dec dec Mar Jun sep dec Mar Jun sep china .. .. .. .. .. 23.1 17.9 13.2 8.6 7.1 6.6 6.5 6.2 6.2 5.8 5.6 5.5 indonesia 1/ 7.2 48.6 32.9 18.8 12.1 7.5 6.8 4.5 7.6 6.1 6.0 5.8 6.2 5.2 4.6 4.0 3.9 Korea 2/ 6.0 7.3 13.6 8.8 3.3 2.4 2.2 2.0 1.3 0.9 0.9 0.8 0.8 0.7 0.8 0.7 0.8 Malaysia 3/ .. 10.6 11.0 9.7 11.5 10.2 9.0 7.5 5.8 4.8 4.4 4.1 3.5 3.2 3.0 2.6 2.4 philippines 4/ 4.7 10.4 12.3 15.1 17.3 15.0 14.1 12.7 8.2 5.7 5.3 5.2 5.2 4.5 4.5 4.0 4.0 thailand 5/ .. 45.0 39.9 19.5 11.5 18.1 13.9 11.6 8.3 8.1 7.5 7.9 8.0 7.3 6.8 6.5 6.1 Source: National data sources 1/ excludes iBRa's aMc. 2/ excludes KaMcO/Kdic. 3/ excludes danaharta. this series. used by Bank Negara Malaysia. is net of provisions and excludes interest in suspense. 4/ from september 2002 onwards. the ratios are based on the new definition of nonperforming loans under Bsp circular 351 which allows banks to deduct bad loans with 100 percent provisioning from the NpL computations. 5/ excludes transfers to aMcs. the jump in headline NpLs in december 2002 was a one-off increase. reflecting a change in definition and did not affect provisioning. east asia: NaviGatiNG tHe peRfect stORM 50 appeNdix taBLes & cHaRts aPPendix Table 11. east asia: fiNaNciaL MaRKet iNdicatORs stOcK MaRKet iNdex, eNd-Of-peRiOd, dec. 31, 2007 = 100 mar-07 Jun-07 sep-07 dec-07 mar-08 Jun-08 sep-08 oct-08 nov-08 china 60.6 72.6 105.5 100.0 66.0 52.0 43.6 32.9 35.6 indonesia 66.7 77.9 85.9 100.0 89.1 85.6 66.7 45.8 45.3 Malaysia 86.3 93.7 92.5 100.0 86.3 82.1 70.5 59.8 59.9 philippines 88.5 101.1 98.7 100.0 82.4 67.9 71.0 53.9 54.4 thailand 78.5 90.5 98.5 100.0 95.2 89.6 69.5 48.5 46.8 vietnam 115.6 110.5 112.9 100.0 55.8 43.1 49.3 37.4 34.0 Hong Kong 71.2 78.3 97.6 100.0 82.2 79.5 64.8 50.2 49.9 Korea 76.6 91.9 102.6 100.0 89.8 88.3 76.3 58.7 56.7 singapore 91.2 100.3 105.2 100.0 86.8 85.1 68.1 51.8 50.0 taiwan 92.7 104.4 110.6 100.0 100.8 88.4 67.2 57.3 52.4 Source: thomson datastream LOcaL-cuRReNcy GOveRNMeNt BONd yieLds, 10-yeaR BONds, eNd-Of-peRiOd, iN peRceNt mar-07 Jun-07 sep-07 dec-07 mar-08 Jun-08 sep-08 oct-08 nov-08 china 3.4 4.4 4.4 4.5 4.1 4.5 3.8 3.1 3.0 indonesia 9.9 9.0 9.2 10.0 11.7 13.4 13.2 17.3 15.6 Malaysia 3.5 3.5 3.7 4.1 3.8 4.9 4.6 4.3 3.7 philippines 7.2 7.4 7.2 6.6 7.3 9.4 8.1 9.5 9.5 thailand 4.3 4.5 4.7 5.0 4.6 5.9 4.4 3.8 3.8 vietnam 7.5 7.8 8.6 9.1 9.2 16.0 15.0 15.0 10.9 Hong Kong 4.2 4.8 4.3 3.4 2.6 3.5 2.9 2.4 1.7 Korea 4.9 5.5 5.6 5.7 5.3 6.0 6.1 5.5 5.8 singapore 2.9 2.9 2.7 2.7 2.3 3.6 3.2 3.0 2.3 taiwan 2.0 2.5 2.6 2.6 2.4 2.7 2.2 2.0 1.5 Source: Bloomberg eap update december 2008 appeNdix taBLes & cHaRts51 fOReiGN-cuRReNcy GOveRNMeNt BONd spReads (eMBiG), eNd-Of-peRiOd, iN Basis pOiNts OveR u.s. tReasuRies mar-07 Jun-07 sep-07 dec-07 mar-08 Jun-08 sep-08 oct-08 nov-08 china 53 54 88 120 154 137 191 329 214 indonesia 171 165 217 275 329 381 490 803 930 Malaysia 73 75 108 119 144 153 194 451 401 philippines 167 155 184 172 207 303 324 434 549 vietnam 108 122 156 203 283 368 404 880 802 Source: Jp Morgan, Bloomberg cRedit defauLt sWap (cds) spReads ON fOReiGN-cuRReNcy GOveRNMeNt BONds, eNd-Of-peRiOd, iN Basis pOiNts mar-07 Jun-07 sep-07 dec-07 mar-08 Jun-08 sep-08 oct-08 nov-08 china 11 13 20 29 81 75 90 163 171 indonesia 119 110 142 154 245 286 357 707 712 Malaysia 16 16 25 44 99 116 171 235 267 philippines 120 111 145 153 243 266 284 468 413 thailand 42 39 43 55 111 135 172 235 300 Hong Kong 5 5 9 18 58 42 62 109 104 Korea 17 17 24 47 97 107 182 370 366 Source: thomson datastream east asia: NaviGatiNG tHe peRfect stORM 52 appeNdix taBLes & cHaRts aPPendix Table 12. Key MONetaRy MeasuRes iMpLeMeNted iN east asia siNce septeMBeR 2008 capital injections liquidity measures Key policy rates deposit and liabilities guarantees $19 billion to cut the minimum required ratio cut one-year lending rate china the state-owned (MRR) for large banks by 2% and agricultural Bank for small banks by 3.5%. scrap four times by a cumulative of china bank lending quotas. 189 bps. Liquidity injection: $6.1 billion. Hong Kong extend discount window cut base rate twice by a Guarantee all deposits until (saR) operations (wider range of cumulative 200 bps. the end of 2010. collateral, tenor up to 3 months). Liquidity injection: $485 million. cut MRR for fx deposits by 2% and allow use of central bank bills and government bonds as required reserves. cut repo rate cut the one-month Bank indonesia by 75 basis points. increase Guarantee deposits up to 2 rates on reserve deposits by 150 indonesia rate by 25 basis billion rupiah ($205,000). basis points. extend open market points. operations (OMO) (tenor of non- regular OMO from 14 days to 3 months, tenor of fx swaps from 7 days to 1 year). Liquidity injections: $45 billion. swap line with fed: $30 billion. $767 million pay interest on reserve deposits. extend OMO operations (wider cut 7-day repo rate three Korea to state-owned Guarantee $100 billion of industrial Bank of range of collateral). delay Basel times by a cumulative 125 bank loans for three years. Korea ii capital adequacy ratio (caR) bps. rules by half year. Reduce rate on special sMe loans by 75 basis points. Malaysia cut the MRR by 0.5% cut the overnight policy Guarantee all deposits until rate by 25 basis points. december 2010. cut MRR by 2%. extend rediscounting facility. extend repo operations (wider range philippines of collateral). Open new dollar deposit and new dollar repo facilities. Relax bank mark- to-market (MtM) rules on government bonds. singapore Liquidity injections: $2.8 billion. Guarantee all deposits for swap line with fed: $30 billion. three years. eap update december 2008 appeNdix taBLes & cHaRts53 capital injections liquidity measures Key policy rates deposit and liabilities guarantees Liquidity injections: $3.6 billion. Lowered the MRR for time deposits from 4.75-12% cut 10-day loan rate four Guarantee all deposits until taiwan (china) to 4-10.75%. extend repo times by a cumulative 87.5 the end of 2009. Guarantee operations (tenor of repos from bps. interbank debt until the end 30 to 180 days, coverage of of 2009. insurance companies). thailand cut the one-day repo rate Guarantee all deposits until by 100 basis points. august 2011. cut the MRR for dong demand deposits below 12 months at state-owned banks and joint- stock commercial banks by 5% and for dong time deposits vietnam above 12 months by 3%. Reduce cut the base rate four times discount rate by 400 basis by a cumulative 400 bps. points. Reduce refinancing rate by 400 basis points. increase rates on reserve deposits by 400 basis points. extend repo operations. Memoranda Liquidity injections: $33.7 billion. swap line with fed: $30 billion. Guarantee all deposits for 3 cut overnight cash rate years (deposits larger than australia extend repo operations (tenor from 6 months to 1 year, wider four times by 300 bps $638,000 pay a guarantee range of collateral, easier rules cumulative. fee). temporary guarantee on collateral substitution). of interbank debt. Liquidity injections: $249.2 billion. unlimited swap line with the federal Reserve. Reduce Lombard rate for banks by 25 basis points. pay 0.1% on bank excess reserves. extend cut uncollateralized Japan repo operations (wider range of collateral, including lower-grade overnight call rate by 20 corporate bonds). increase size bps. and frequency of commercial paper (cp) purchases. Relax Basel ii caR rules. Relax bank MtM rules on government bonds. New Zealand swap line with the fed: cut official cash rate by Guarantee all deposits for $15 billion. 250 bps. two years. Sources: National authorities, Reuters and World Bank staff. east asia: NaviGatiNG tHe peRfect stORM 54 appeNdix taBLes & cHaRts aPPendix Table 13. Key fiscaL MeasuRes iN east asia siNce septeMBeR 2008 Program amount Program details · Road and railroad construction · Low-income housing · Rural infrastructure · Water · electricity china $586 billion (15% of Gdp) · transportation · environment · technological innovation · earthquake reconstruction · Reform of vat · establishment of social safety net · Low- and medium-cost housing ($0.7 billion) · infrastructure projects ($0.6 billion) Malaysia $2 billion (1% of Gdp) · private investment fund and micro-credit facility ($0.5 billion) · education and training projects ($0.3 billion) · increase in government salaries ($686 million) · Rural road pavement ($972 million) · investment projects in villages ($429 million) · development of water sources and agricultural productivity ($257 million) · cash transfers to low-income elderly ($171 million) thailand $2.86 billion * (1% of Gdp) · Recapitalization of the Bank for agriculture and agricultural cooperatives ($200 million) and sMe Bank ($57 million) · Royal initiative project ($29 million) · Housing for slum dwellers ($29 million) · education quality development projects ($29 million) · extension until March 2010 of reduction in property transfer fees and specific taxes for property transactions · infrastructure projects ($3.6 billion) · support for sMes, farmers, and fishermen ($2.7 billion) Korea $11 billion (1% of Gdp) · support for low-income families ($0.8 billion) · tax cuts ($2.3 billion) Sources: National authorities, Reuters, and World Bank staff. * awaiting approval by parliament. eap update december 2008 appeNdix taBLes & cHaRts55 aPPendix charT 1. east asia: stOcK MaRKet pRice iNdices east asia: NaviGatiNG tHe peRfect stORM 56 appeNdix taBLes & cHaRts aPPendix charT 2. east asia: LOcaL-cuRReNcy 10-yeaR GOveRNMeNt BONd yieLds eap update december 2008 appeNdix taBLes & cHaRts57 aPPendix charT 3. east asia: fOReiGN-cuRReNcy GOveRNMeNt BONd spReads east asia: NaviGatiNG tHe peRfect stORM 58 appeNdix taBLes & cHaRts aPPendix charT 4. east asia: sOveReiGN cRedit defauLt sWap (cds) spReads eap update december 2008 Key iNdicatORs 59 K e y i N d i c a t O R s cambodia: Key indicaTors 2003 2004 2005 2006 2007e 2008f 2009f year year year year year year year output, employment and Prices Real Gdp (% change y-y) 8.5 10.3 13.3 10.8 10.2 6.7 4.9 industrial production index (2000=100) 145.9 170.1 191.7 226.7 245.7 255.4 263.3 (% change, previous year) 12.0 16.6 12.7 18.3 8.4 4.0 3.1 consumer prices (% change y-y) 0.5 5.6 6.7 2.8 10.8 16.0 9.0 Public sector Government balance (% Gdp) -6.8 -4.5 -3.3 -1.6 -2.2 -2.2 -3.5 Foreign Trade, boP and external debt trade balance (millions us$) -581 -681 -1,018 -1,056 -1,335 -1,797 -1,349 exports of goods (millions us$) 2,087 2,589 2,910 3,694 4,089 4,210 4,402 (% change y-y) 18.9 24.1 12.4 26.9 10.7 3.0 4.5 Key export (% change y-y) 1/ 19.7 22.6 11.4 19.8 7.9 4.0 1.0 imports of goods (millions us$) 2,668 3,270 3,928 4,749 5,424 6,007 5,751 (% change y-y) 15.1 22.5 20.1 20.9 14.2 10.8 -4.3 current account balance (millions us$) 2/ -493 -436 -592 -527 -719 -1270 -889 (% Gdp) -10.6 -8.2 -9.4 -7.2 -8.4 -12.3 -7.8 foreign direct investment (millions us$) 74 121 375 475 866 813 596 external debt (millions us$) 2,868 3,080 3,155 3,318 3,537 2,148 2,276 (% Gdp) 61.6 57.7 50.2 45.6 41.1 20.8 19.8 short-term debt (millions us$) 221 262 279 209 218 218 218 debt service ratio (% exports of g&s) 2.6 2.1 1.8 1.4 0.8 0.6 0.5 foreign exchange reserves, gross (millions us$) 737 809 915 1,097 1,616 2,156 2,161 (months of imports of g&s) 2.9 2.6 2.4 2.4 3.1 3.7 3.8 Financial markets domestic credit (% change y-y) 28.3 33.0 22.7 35.7 70.7 25.0 15.0 short-term interest rate (% p.a.) 17.3 16.7 16.2 16.4 16.2 15.5 15.0 exchange rate (Riel/us$, eop) 3,980 4,031 4,116 4,061 4,003 4,100 4,100 Real effective exchange rate (2000=100) 95.3 93.4 93.4 94.3 95.3 135.5 120.0 (% change y-y) -6.0 -2.1 0.0 1.0 1.0 42.2 -11.4 stock market index (end-period, aug 88=100) .. .. .. .. .. .. .. Memo: Norminal Gdp (millions us$) 4,658 5,334 6,286 7,268 8,603 10,334 11,465 Source: National data sources e = estimate f = forecast 1/ Garments 2/ excludes official transfers 3/ One-year us$ loans east asia: NaviGatiNG tHe peRfect stORM 60 Key iNdicatORs china: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 10.4 11.6 11.9 9.4 7.5 11.3 10.6 10.1 9.0 .. .. .. .. industrial production index /1 (% change y-y) 11.6 12.9 13.5 9.8 7.6 17.5 16.2 15.9 13.0 14.7 12.8 11.4 8.2 unemployment (%) /1 4.2 4.1 4.0 4.6 5.0 4.0 4.0 4.0 4.0 .. .. .. .. Real wages (% change y-y) 12.6 12.7 13.3 .. .. .. .. .. .. .. .. .. .. consumer price index (% change y-y) 1.8 1.5 4.8 6.5 2.0 4.4 6.9 8.4 9.7 6.3 4.9 4.6 4.0 Public sector Government balance (% Gdp) -1.2 -1.0 0.6 -0.2 -2.5 .. .. .. .. .. .. .. .. domestic public sector debt (% Gdp) 3/ 17.5 16.1 14.2 14.5 17.0 .. .. .. .. .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) 102.1 177.5 262.0 266.5 292.3 76.0 41.4 58.2 83.3 25.3 28.7 29.4 35.2 exports of goods (billions us$) 762.3 969.3 1,218.3 1,461.9 1,595.0 339.8 306.0 360.7 408.0 136.7 134.9 136.4 128.3 (% change y-y) 4/ 28.4 27.2 25.7 20.0 9.1 22.2 21.4 22.4 23.0 26.9 21.1 21.3 19.1 Key export (% change y-y) 5/ 29.0 28.5 26.2 20.5 9.1 22.4 21.4 21.5 22.1 25.7 20.3 20.4 .. imports of goods (billions us$) 660.2 791.8 956.3 1,195.3 1,302.9 263.7 264.5 302.5 324.6 111.4 106.2 107.1 93.1 (% change y-y) 4/ 17.7 19.9 20.8 25.0 9.0 25.4 28.6 32.4 25.7 33.6 22.9 20.9 15.4 current account balance (billions us$) 160.8 253.3 371.8 386.0 427.0 .. .. .. .. .. .. .. .. (% Gdp) 7.2 9.5 11.3 9.3 8.9 .. .. .. .. .. .. .. .. foreign direct investment (billions us$) /6 72.4 72.7 83.5 80.0 60.0 30.3 27.4 25.0 22.0 8.3 7.0 6.6 6.7 external debt (billions us$) 281.0 323.0 373.6 .. .. .. .. .. .. .. .. .. .. (% Gdp) 12.2 11.6 10.8 .. .. .. .. .. .. .. .. .. .. short-term debt (billions us$) 156.1 183.6 220.1 .. .. .. .. .. .. .. .. .. .. debt service ratio (% exports of g&s) 3.1 2.1 2.0 .. .. .. .. .. .. .. .. .. .. foreign exchange reserves, gross (billions us$) 823 1,074 1,533 2,048 2,547 1,535 1,689 1,815 1,912 1,852 1,891 1,912 .. (months of imports of g&s) 14.9 16.3 19.2 20.0 22.0 17.5 19.2 18.0 17.7 16.6 17.8 17.9 .. Financial markets domestic credit (% change y-y) 9.3 15.7 16.1 .. .. 16.1 14.8 14.1 14.5 14.6 14.3 14.5 14.6 short-term interest rate (% p.a.) 7/ 3.3 3.3 3.3 3.3 3.3 3.3 4.1 4.1 4.1 4.1 4.1 4.1 4.1 exchange rate (RMB/us$, eop) 8.08 7.82 7.37 6.81 6.70 7.37 7.08 6.90 6.83 6.84 6.85 6.83 6.84 Real effective exchange rate (2000=100) 98.7 97.2 98.8 .. .. 98.8 99.4 101.0 108.8 101.2 105.3 108.8 112.1 (% change y-y) 8.0 -1.5 1.7 .. .. 4.9 4.8 5.5 9.4 4.1 6.6 9.4 14.4 stock market index (dec. 19, 1990=100) 8/ 1161 2675 5262 .. .. 5,262 3,473 2,736 2,294 2,776 2,397 2,294 1,729 Memo: Nominal Gdp (billions us$) 2,303 2,780 3,462 4,147 4,798 .. .. .. .. .. .. .. .. Source: National data sources 3/ includes treasury bond, policy financial bond and other financial bond (end-period outstanding) f = forecast 4/ Nominal growth rate 1/ annual data are not comparable with the quarterly and monthly data. annual data cover all 5/ Manufactured exports industrial enterprises while the quarterly and monthly ones only refer to those enterprises with 6/ Gross fdi utilized sales value above Rmb5 millions. 7/ central Bank loans to financial institutions, less than 20 days 2/ Official urban unemployment only, not including laid-off workers 8/ shanghai stock exchange a-share price composite eap update december 2008 Key iNdicatORs 61 indonesia: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 1/ 5.7 5.5 6.3 6.0 4.4 6.3 6.3 6.4 6.1 .. .. .. .. industrial production index (2000=100) 119 117 123 .. .. 124 123 128 134 131 132 134 .. (% change y-y) 1.3 -1.6 5.3 .. .. 3.6 2.5 2.4 2.7 2.7 2.9 2.7 .. unemployment (%) 10.3 10.3 9.1 .. .. .. .. .. .. .. .. .. .. Real wages (% change y-y) -8.2 3.5 1.3 .. .. .. .. .. .. .. .. .. .. consumer price index (% change y-y) 10.5 15.4 6.6 11.1 .. 6.7 8.2 11.0 12.1 11.9 11.8 12.1 11.8 Public sector Government balance (% Gdp) -0.5 -0.9 -1.3 -1.7 .. domestic public sector debt (% Gdp) 25.0 21.9 18.6 .. .. 19 19 17 16 .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) 156.5 177.4 202.9 248.6 .. 54.9 61.3 69.2 .. .. .. .. .. exports of goods (millions us$) 87.0 103.5 118.0 142.8 .. 32.2 34.4 37.3 .. .. .. .. .. (% change y-y) 22.9 19.0 14.0 21.0 .. 22.0 29.2 27.6 .. .. .. .. .. Key export (% change y-y) 2/ 25.2 14.6 14.5 52 .. 47.3 58.7 69.1 .. .. .. .. .. imports of goods (billions us$) -69.5 -73.9 -84.9 -105.8 .. -22.7 -26.9 -31.9 .. .. .. .. .. (% change y-y) 37.2 6.3 15.0 24.6 .. 19.7 42.8 51.9 .. .. .. .. .. current account balance (billions us$) 0.3 10.8 10.4 0.7 .. 3.4 2.3 -1.5 .. .. .. .. .. (% Gdp) 0.1 3.0 2.4 0.1 .. 3.7 2.6 -1.6 .. .. .. .. .. foreign direct investment (billions us$) 3/ 8.3 4.9 6.9 .. .. 2.7 2.8 2.9 .. .. .. .. .. external debt (billions us$) 128.8 129.6 128.2 136.6 .. .. .. .. .. .. .. .. .. (% Gdp) 45.1 35.5 29.6 26.4 .. .. .. .. .. .. .. .. .. foreign exchange reserves, gross (billions us$) 36.1 42.6 56.9 .. .. 56.9 59.0 59.5 57.1 60.6 58.4 57.1 50.6 (months of imports of g&s) 4.7 5.5 6.2 .. .. 5.9 5.3 5.3 5.2 .. .. .. .. Financial markets domestic credit (% change y-y) 11.1 8.5 14.5 .. .. 14.5 12.2 15.6 16.6 13.2 12.0 .. .. short-term interest rate (% p.a.) 4/ 9.2 11.6 8.4 .. .. 8.0 .. .. .. 8.8 9.0 9.3 9.5 exchange rate (Rupiah/us$, ave) 9,704.0 9,283.0 9,200.0 .. .. 9,163.7 9,217.0 9,225.0 9,378.0 9,118.0 9,153.0 9,378.0 10,995.0 Real effective exchange rate (2000=100) 114.2 133.8 134.8 .. .. 128.8 128.5 132.7 141.5 135.3 138.7 141.4 .. (% change y-y) -1.3 17.1 0.7 .. .. -3.6 -5.0 -4.1 6.0 stock market index (aug. 1988=100) 5/ 1,162 1,805 2,746 .. .. 2,746 2,447 2,349 1,833 2,305 2,166 1,833 1,257 Memo: Nominal Gdp (billions us$) 285.9 364.6 432.8 517.4 .. 113.6 122.1 134.0 147.4 .. .. .. .. Source: National data sources f = forecast 1/ Based on Gdp 2000 base 2/ crude oil exports 3/ uses new classification starting in 1994 4/ policy rate: one-month Bank indonesia certificates 5/ Jakarta composite east asia: NaviGatiNG tHe peRfect stORM 62 Key iNdicatORs Korea: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 4.2 5.1 5.0 3.9 2.0 5.7 5.8 4.8 3.8 .. .. .. .. industrial production index (2000=100) 100.0 108.4 115.8 .. .. 126.1 121.1 124.7 119.0 123.2 115.6 118.2 .. (% change y-y) 6.3 8.4 6.8 .. .. 10.9 10.6 8.6 5.6 8.7 1.9 6.1 .. unemployment (%) 3.7 3.5 3.3 .. .. 3.0 3.4 3.1 3.1 3.1 3.1 3.0 3 Nominal wage (% change) 5.7 11.5 9.4 .. .. 8.8 7.2 4.1 5.3 4.0 .. .. .. Real wages (% change y-y) 2.9 9.1 6.7 .. .. 5.2 3.3 -0.7 -0.2 -1.8 .. .. .. consumer price index (% change y-y) 2.7 2.2 2.5 .. .. 3.4 3.8 4.8 5.5 5.9 5.6 5.1 4.8 Public sector Government balance (% Gdp) 1/ 1.9 1.8 3.8 .. .. .. .. .. .. .. .. .. .. public sector debt (% Gdp) 2/ 29.5 32.2 32.1 .. .. .. .. .. .. .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) 3/ 23.8 15.2 13.6 .. .. 2.7 -6.6 -.3 -8.0 -2.0 -3.8 -2.2 1.2 exports of goods (billions us$) 3/ 284.4 325.5 371.5 .. .. 103.3 99.4 114.5 115.0 41.0 36.6 37.4 37.4 (% change y-y) 12.0 14.4 14.1 .. .. 18.2 17.4 23.1 27.1 35.6 18.2 27.7 8.5 imports of goods (billions us$) 3/ 261.2 309.4 356.8 .. .. 100.6 106.0 114.8 123.0 41.0 36.6 37.4 37.4 (% change y-y) 16.4 18.4 15.3 .. .. 25.9 28.9 30.5 43.0 47.1 36.4 45.8 10.4 current account balance (billions us$) 15.0 5.4 6.0 .. .. 3.2 -5.2 -.1 -8.6 -2.5 -4.7 -1.3 .. (% Gdp) 1.9 0.5 0.6 .. .. 1.2 -2.3 -0.1 -3.8 .. .. .. .. foreign direct investment (billions us$) 4/ 2.0 -4.5 -13.7 .. .. -7.4 -4.8 -2.9 -2.3 -1.2 -0.7 -0.3 .. external debt (billions us$) 187.9 260.1 382.2 .. .. 382.2 413.8 420.6 425.1 .. .. .. .. (% Gdp) 23.7 29.2 39.4 .. .. 35.5 45.2 44.4 46.6 .. .. .. .. short-term debt (billions us$) 65.9 113.7 160.3 .. .. 160.3 176.5 176.5 189.4 .. .. .. .. debt service ratio (% exports of g&s) 5/ 8.0 7.4 7.5 .. .. .. .. .. .. .. .. .. .. foreign exchange reserves, gross (billions us$) 210.3 238.9 262.2 .. .. 262.2 264.2 258.0 239.6 247.4 243.1 239.6 212.2 (months of imports of g&s) 8.0 7.7 7.3 .. .. 6.5 6.2 5.7 4.9 4.8 5.0 5.1 .. Financial markets domestic credit (% change y-y) 6/ 9.4 14.8 9.4 .. .. 9.4 9.9 .. .. .. .. .. .. short-term interest rate (% p.a.) 7/ 3.3 4.2 4.8 .. .. 5.0 5.0 5.0 5.1 5.0 5.2 5.2 .. exchange rate (Won/us$, eop) 1,011.6 929.8 936.1 .. .. 936.1 990.4 1,046.0 1207.0 1,012.2 1,089.0 1,207.0 1,291.0 Real effective exchange rate (2000=100) 114.2 122.7 122.8 .. .. 120.7 112.9 105.2 105.4 105.7 104.6 105.9 .. (% change y-y) 12.1 7.4 0.1 .. .. -2.9 -8.7 -15.3 -14.1 -15.4 -14.1 -12.7 .. stock market index (Jan. 4, 1980=100) 8/ 1,379 1,434 1,897 .. .. 1,897 1,704 1,675 1,448 1,595 1,474 1,448 1,113 Memo: Nominal Gdp (billions us$) 791.2 889.1 970.3 .. .. 269.1 228.6 236.6 228.0 .. .. .. .. Source: National data sources, iMf, and Haver analytics 3/ trade figures are on a customs-clearance basis. f = forecast 4/ foreign direct investment is on a net basis as reported in the BOp. 1/ consolidated central government. excludes privatization proceeds. includes the civil service 5/ iMf figures pension fund. 6/ iMf ifs figures 2/ domestic and external debt. excludes conversion of Kdic and KaMcO bonds: Won 13 trillion 7/ Overnight repo rate (end-of-period). in 2003, and Won 12 trillion annually until 2006. 8/ KOspi eap update december 2008 Key iNdicatORs 63 lao Pdr: Key indicaTors 2003 2004 2005 2006 2007 2008f 2009f year year year year year year year output, employment and Prices Real Gdp (% change y-y) 6.1 6.4 7.1 8.1 7.9 7.0 6.0 consumer price index (% change y-y) 15.5 10.5 7.2 6.8 4.5 8.5 4.5 Public sector 1/ Government balance (% Gdp) 2/ -5.6 -3.3 -4.5 -3.8 -2.7 -3.0 -3.5 Foreign Trade, boP and external debt trade balance (millions us$) -244 -520 -586 -446 -911 -1.167 -1.559 exports of goods (millions us$) 450 536 684 1.143 1.203 1.354 1.168 (% change y-y) 21.6 19.1 27.6 67.1 5.2 12.6 -13.7 Key export (% change y-y) 22.0 10.8 30.3 57.8 1.1 13.3 -13.1 imports of goods (millions us$) 694 1,056 1,270 1,589 2,114 2,466 2,306 (% change y-y) 9.6 52.2 20.3 25.1 33.0 16.7 -6.5 current account balance (millions us$) -175 -413 -502 -361 -706 -912 -1.036 (% Gdp) -8.1 -17.1 -18.1 -10.3 -17.2 -17.5 -17.6 foreign direct investment (millions us$) 42 315 257 335 721 924 687 external debt (millions us$) 2,171 2,459 2,888 3,070 3,306 3,551 3,889 (% Gdp) 101.0 101.6 104.0 87.8 80.5 68.0 65.9 short-term debt (millions us$) 72 95 109 .. .. 97 98 debt service ratio (% exports of g&s) 15.1 17.4 20.9 15.8 17.5 14.7 17.4 foreign exchange reserves, gross (millions us$) 3/ 214 226 238 335 539 660 693 (months of imports of g&s) 3.2 2.7 2.4 3.0 3.7 5.2 6.1 Financial markets domestic credit (% change y-y) 2.8 9.0 7.6 -9.1 21.0 50.5 .. short-term interest rate (% p.a.) 4/ 24.9 16.0 15.0 14.5 13.0 13.0 13.0 exchange rate (Kip/us$, ave) 10,516.3 10,581.9 10,635.8 10,060.6 9,562.9 8,994.1 8,815.0 exchange rate (Kip/us$, eop) 10,466.5 10,357.0 10,676.0 9,655.0 9,341.0 8,730.0 8,845.0 Real effective exchange rate (2000=100) 97.6 95.9 103.0 105.5 102.7 .. .. (% change y-y) 0.3 -1.7 7.4 2.4 -2.7 .. .. Memo: Nominal Gdp (millions us$) 2,149 2,419 2,777 3,498 4,108 5,221 5,901 Source: National data sources f = forecast 1/ fiscal year basis 2/ after grants 3/ excluding gold 4/ treasury bill rate east asia: NaviGatiNG tHe peRfect stORM 64 Key iNdicatORs malaysia: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 5.3 5.8 6.3 5.5 3.7 7.3 3.4 6.7 4.7 .. .. .. .. industrial production index (2000=100) 126.9 133.3 136.0 .. .. 140.2 138.7 138.8 .. 141.5 139.6 .. .. (% change y-y) 3.6 5.0 2.1 .. .. 4.4 5.9 3.4 .. 2.3 0.9 .. .. unemployment (%) 3.5 3.5 3.3 3.5 3.7 3.0 3.6 3.5 .. .. .. .. .. consumer price index (% change y-y) 3.0 3.6 2.0 5.0 3.5 2.2 2.6 4.9 8.4 8.5 8.5 8.2 ... Public sector Government balance (% Gdp) /1 -3.6 -3.3 -3.2 -5.0 -4.8 -5.9 -4.4 -1.0 .. .. .. .. .. domestic public sector debt (% Gdp) 1/ 38.0 37.9 38.5 39.4 39.9 35.0 36.7 35.3 .. .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) 26.4 30.6 30.3 36.8 33.7 8.6 8.4 12.4 .. 4.4 3.8 .. .. exports of goods (billions us$) 141.2 166.8 183.0 203.5 207.6 49.4 47.6 53.6 .. 19.4 17.6 .. .. (% change y-y) 11.5 18.1 9.7 11.2 2.0 7.6 9.9 20.8 .. 25.3 10.6 .. .. Key export (% change y-y) 2/ 9.9 6.4 -4.2 -0.4 -2.3 -2.0 -9.2 9.2 .. 8.1 -3.1 .. .. imports of goods (billions us$) 114.8 136.1 152.7 166.7 173.9 40.9 39.2 41.2 .. 15 13.8 .. .. (% change y-y) 9.2 18.6 12.2 9.2 4.3 10.9 6.8 9.9 .. 15 4.2 .. .. current account balance (billions us$) 20.0 26.5 29.1 .. .. 8.0 7.5 11.3 .. .. .. .. .. (% Gdp) 14.6 16.3 15.0 17.1 13.8 14.9 13.6 19.6 .. .. .. .. .. foreign direct investment (billions us$) 1.0 0.0 -2.8 .. .. -1.5 -0.9 0.9 .. .. .. .. .. external debt (billions us$) 52.3 52.2 56.7 .. .. 56.7 68.0 71.9 .. .. .. .. .. (% Gdp) 37.8 32.2 29.2 .. .. 35.7 42.1 44.6 .. .. .. .. .. short-term debt (billions us$) 12.4 12.1 16.5 .. .. 16.5 25.6 28.3 .. .. .. .. .. debt service ratio (% exports of g&s) 5.4 4.8 3.8 .. .. 3.8 3.0 1.9 .. .. .. .. .. foreign exchange reserves, gross (billions us$) 70.2 82.5 101.3 108.0 115.0 101.3 120.3 125.8 .. 125.2 118.1 109.7 .. (months of imports of g&s) 3/ 7.7 7.8 8.4 .. .. 8.4 9.4 9.8 .. 8.3 8.6 .. .. Financial markets domestic credit (% change y-y) 8.6 6.3 8.6 .. .. 8.6 10.0 11.7 10.5 9.9 11.0 10.5 .. short-term interest rate (% p.a.) 4/ 2.84 3.54 3.54 .. .. 3.54 3.55 3.6 3.6 3.6 3.6 3.6 3.56 exchange rate (Ringgit/us$, eop) 3.78 3.53 3.31 3.47 3.3 3.31 3.19 3.3 3.5 3.3 3.4 3.5 3.53 Real effective exchange rate (2000=100) 5/ 95.2 99.0 102.4 .. .. 101.8 103.3 103.7 .. 105.3 .. .. .. (% change y-y) 0.3 4.0 3.4 .. .. 2.0 0.3 0.1 .. 3 .. .. .. stock market index (apr. 4, 1986=100) 6/ 900 1,096 1,445 .. .. 1,445 1,248 1,187 1,019 1,163 1,101 1,019 864 Memo: Nominal Gdp (billions us$) 138.2 162.5 194.1 .. .. 53.4 54.8 57.8 .. .. .. .. .. Source: National data sources, World Bank staff estimates f = forecast 1/ federal government only. 2/ electronics. 3/ excludes services imports. 4/ One-month interbank rate. 5/ World Bank's staff estimate. 6/ KLse composite. eap update december 2008 Key iNdicatORs 65 PaPua new guinea: Key indicaTors 2003 2004 2005 2006 2007e 2008f 2009f year year year year year year year output, employment and Prices Real Gdp (% change y-y) 2.2 2.7 3.4 2.6 6.5 7.0 4.9 tourist arrivals (thousands) 56.3 59.0 69.3 77.7 104.1 .. .. (% change y-y) 4.7 4.9 17.3 12.2 34.0 .. .. consumer price index (% change y-y) 14.7 2.1 1.7 2.3 0.9 11.2 8.2 Public sector Government balance (% Gdp) -1.2 1.7 3.7 6.8 8.9 6.1 0.9 domestic public sector debt (% Gdp) 24.5 25.2 22.3 18.1 17.1 14.4 14.5 Foreign Trade, boP and external debt trade balance (millions us$) 718 760 816 1,401 1,419 1,688 1,243 exports of goods (millions us$) 2,153 2,554 3,278 4,207 4,750 5,417 4,859 (% change y-y) 30.8 18.6 28.3 28.3 12.9 14.0 -10.3 Key export (% change y-y) 1/ 32.1 10.5 6.0 9.3 15.3 23.4 -12.8 imports of goods (millions us$) 1,435 1,794 2,462 2,805 3,331 3,730 3,617 (% change y-y) 10.2 25.0 37.2 13.9 18.8 12.0 -3.0 current account balance (millions us$) 159 88 207 128 112 319 -132 (% Gdp) 4.5 2.2 4.2 2.3 1.8 3.9 -1.5 foreign direct investment (millions us$) 96.7 25.8 67.9 193.1 462.0 307.0 224.0 external debt (millions us$) 2,311 2,158 2,048 2,175 1,958 1,962 2,122 (% Gdp) 65.3 55.0 41.6 39.0 30.8 23.9 24.5 short-term debt (millions us$) 111 109 232 167 100 100 100 debt service ratio (% exports of g&s) 11.1 11.0 9.7 8.3 8.4 6.4 6.4 foreign exchange reserves, gross (millions us$) 523 663 765 1.427 2.087 2.110 2.145 (months of imports of g&s) 2.7 2.8 2.4 3.8 4.8 4.3 4.4 Financial markets domestic credit (% change y-y) -4.1 0.9 23.7 38.2 34.4 39.0 21.0 short-term interest rate (% p.a.) 18.7 3.1 3.8 3.4 5.7 8.5 7.0 exchange rate (Kina/us$, eop) 3.3 3.1 3.1 3.0 2.8 2.6 2.6 Real effective exchange rate (2000=100) 100.1 101.0 108.3 101.8 102.7 96.9 .. (% change y-y) 6.9 0.9 7.2 -6.0 0.9 19.6 .. Memo: Nominal Gdp (millions us$) 3,536 3,927 4,921 5,579 6,356 8,208 8,661 Source: National data sources e = estimate f = forecast 1/ Gold east asia: NaviGatiNG tHe peRfect stORM 66 Key iNdicatORs PhiliPPines: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 1/ 5.0 5.4 7.2 4.0 3.0 6.4 4.7 4.4 4.6 .. .. .. .. industrial production index (1994 = 100) 95.0 86.9 84.6 .. .. 91.1 80.0 87.5 92.6 92.6 .. .. .. (% change y-y) 1.0 -8.5 -2.7 .. .. 0.1 -0.3 6.8 8.9 8.1 .. .. .. unemployment (%) 2/ 7.7 8.0 7.3 .. .. 6.3 7.4 8.0 7.4 7.4 .. .. .. Nominal wages (% change y-y) 3/ 8.5 7.9 4.5 .. .. 3.4 3.4 5.3 6.7 9.1 5.5 5.5 5.5 Real wages (% change y-y) 3/ 51.5 0.9 1.9 .. .. 0.6 -1.0 -2.8 -1.7 0.5 -2.9 -2.5 -2.3 consumer price index (% change y-y) 7.7 6.3 2.8 10.0 8.5 3.3 5.5 9.7 12.2 12.3 12.5 11.8 11.2 Public sector Government balance (% Gdp) 4/ 2.7 1.1 0.2 .. .. 1.5 -3.1 1.8 .. .. .. .. .. domestic public sector debt (% Gdp) 5/ 33.5 28.7 26.2 .. .. 26.2 25.2 .. .. .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) 6/ -7.8 -6.7 -8.2 .. .. -2.6 -2.7 -3.7 .. .. .. .. .. exports of goods (billions us$) 6/ 40.3 46.5 49.5 .. .. 12.8 12.3 12.9 .. .. .. .. .. (% change y-y) 3.8 15.6 6.4 .. .. 9.4 3.0 5.2 .. .. .. .. .. Key export (% change y-y) 7/ 2.5 4.2 4.7 .. .. 5.8 -4.6 0.3 .. 2.6 -2.8 -2.7 .. imports of goods (billions us$) 6/ 48.0 53.3 57.7 .. .. 15.3 15.0 16.5 .. .. .. .. .. (% change y-y) 8.0 10.9 8.4 .. .. 13.8 15.4 15.5 .. .. .. .. .. current account balance (billions us$) 8/ 2.0 5.3 6.3 .. .. 1.7 0.9 .8 .. .. .. .. .. (% Gdp) 2.0 4.5 4.4 1.5 2.1 3.9 2.2 2.0 .. .. .. .. .. foreign direct investment (billions us$) 1.7 2.8 -0.5 .. .. 0.4 0.5 0.2 .. .. .. .. .. external debt (billions us$) 9/ 55.5 53.4 54.9 .. .. 54.9 54.6 54.8 .. .. .. .. .. (% Gdp) 56.1 51.4 43.3 40.3 39.2 37.7 35.3 33.8 .. .. .. .. .. short-term debt (billions us$) 9/ 6.2 5.0 7.1 .. .. 7.1 6.7 8.8 .. .. .. .. .. debt service ratio (% exports of g&s) 13.5 12.0 9.8 .. .. 9.8 10.6 .. .. .. .. foreign exchange reserves, gross (billions us$) 9/ 18.5 23.0 33.8 36.7 35.3 33.8 36.6 36.7 36.7 36.9 36.7 36.7 35.7 (months of imports of g&s) 10/ 3.8 4.4 5.9 .. .. 5.9 6.0 5.8 5.8 5.8 5.8 5.8 5.6 Financial markets domestic credit (% change y-y) -4.1 6.8 4.7 .. .. 4.7 .. .. .. .. .. .. .. short-term interest rate (% p.a.) 11/ 7.3 7.8 7.0 .. .. 6.3 5.4 5.2 5.6 5.5 5.9 5.5 5.8 exchange rate (peso/us$, ave) 55.1 51.3 46.1 .. .. 42.7 41.0 43.6 45.6 44.1 45.7 46.9 48.7 Real effective exchange rate (2000=100) 92.3 102.5 112.3 .. .. 117.8 122.6 119.9 121.2 121.2 .. .. .. (% change y-y) 7.0 11.1 9.6 .. .. 11.2 13.8 8.0 7.6 6.4 .. .. .. stock market index (Jan. 2, 1985=100) 12/ 1,983 2,412 3,443 .. .. 3,653 3,127 2,679 2,612 2,577 2,688 2,570 1,951 Memo: Nominal Gdp (billions us$) 98.8 117.6 144.1 .. .. 44.3 40.7 42.1 .. .. .. .. .. Source: National data sources 6/ Balance-of-payments basis. f = forecast 7/ electronics, semiconductors. 1/ the Gdp series has a break in 200. 8/ estimate. 2/ New methodology. the 2003-06 figures are based on 1995 census. the 2007 figure is based 9/ central bank figures. on 2000 census. 9/ includes income receipts 3/ Non-agriculture wages, National capital Region. 10/ Based on end-of-period gross international reserves. import cover is average. 4/ National government. 11/ interbank call rate. 5/ total public sector domestic debt. 12/ pHisix composite, period average for annual figures. eap update december 2008 Key iNdicatORs 67 Thailand: Key indicaTors 2005 2006 2007 2008f 2009f 2007 2008 2008 year year year year year q4 q1 q2 q3 Jul aug sep Oct output, employment and Prices Real Gdp (% change y-y) 4.5 5.1 4.8 4.6 3.6 5.7 5.7 6.1 5.3 .. .. .. .. industrial production index (2000=100) 155.6 167.0 180.7 .. .. 191.9 191.9 199.3 189.3 194.0 197.7 195.9 .. (% change y-y) 9.1 7.3 8.2 .. .. 12.3 12.3 12.6 10.1 11.1 7.6 4.6 .. unemployment (%) 1.8 1.5 1.4 1.4 2.0 1.1 1.1 1.7 1.4 .. .. .. .. Real wages (% change y-y) 1/ 2.4 1.6 0.6 .. .. 1.9 1.9 -0.1 10.6 .. .. .. .. consumer price index (% change y-y) 4.5 4.7 2.4 6.2 4.0 2.9 2.9 5.0 7.5 9.2 6.4 6.0 3.9 Public sector Government balance (% Gdp) 2/ -0.6 1.1 -1.7 -0.8 -2.5 -3.3 -3.3 -4.7 5.3 .. .. .. .. domestic public sector debt (% Gdp) 3/ 38.1 34.4 33.2 34.4 34.6 33.2 33.2 .. 31.4 .. .. .. .. Foreign Trade, boP and external debt trade balance (billions us$) -8.3 1.0 11.6 -1.1 -5.8 4.6 -0.1 0.4 -1.3 -0.8 -0.7 0.1 .. exports of goods (billions us$) 109.4 127.9 150.0 183.1 202.3 42.3 41.4 45.1 48.2 16.8 15.8 15.7 .. (% change y-y) 15.2 17.0 17.3 22.0 10.5 24.0 22.9 26.3 25.5 43.9 15.5 19.5 .. Key export (% change y-y) 4/ 25.7 25.2 16.2 .. .. 23.9 24.9 23.8 6.4 21.8 -8.1 10.2 .. imports of goods (billions us$) 117.6 126.9 138.5 184.2 208.1 37.6 41.5 44.6 49.5 17.5 16.5 15.5 .. (% change y-y) 25.8 7.9 9.1 33.0 13.0 16.1 35.1 29.3 39.1 53.4 26.9 38.6 .. current account balance (billions us$) -7.6 2.3 14.0 -1.1 -5.3 6.2 2.7 -1.0 -2.5 -0.9 -0.9 -0.7 .. (% Gdp) -4.3 1.1 5.7 -0.4 -1.9 2.3 1.0 -0.4 .. .. .. .. .. foreign direct investment (billions us$) 5/ 6.5 10.5 10.2 9.5 3.5 2.0 2.8 2.3 .. .. .. .. .. external debt (billions us$) 6/ 52.0 59.6 61.7 64.0 65.0 61.7 66.9 66.7 .. .. .. .. .. (% Gdp) 29.5 28.9 25.2 22.7 23.2 22.9 23.7 23.8 .. .. .. .. .. short-term debt (billions us$) 6/ 16.4 18.6 21.6 22.4 22.8 21.6 25.5 25.8 .. .. .. .. .. debt service ratio (% exports of g&s) 10.8 11.3 11.8 .. .. 9.8 8.8 6.1 .. .. .. .. .. foreign exchange reserves, gross (billions us$) 52.1 67.0 87.5 96.3 94.0 87.5 110.0 105.7 102.4 104.8 101.2 102.4 103.2 (months of imports of g&s) 5.3 6.3 7.5 6.3 5.4 7.5 8.0 7.1 6.2 6.0 6.2 6.6 .. Financial markets domestic credit (% change y-y) 7/ 8.0 3.4 5.7 .. .. 5.7 15.2 16.4 .. .. .. .. .. short-term interest rate (% p.a.) 8/ 2.62 4.64 3.75 .. .. 3.21 3.17 3.14 3.49 3.31 3.45 3.70 3.67 exchange rate (Baht/us$, ave) 40.2 37.9 34.5 33.3 36.0 33.9 32.4 32.2 33.8 33.5 33.8 34.2 34.4 Real effective exchange rate (1994=100) 9/ 96.6 105.2 112.2 .. .. 111.3 114.7 116.1 .. 112.7 .. .. .. (% change y-y) 1.9 8.9 6.7 .. .. 2.2 3.3 2.6 .. -2.4 .. .. .. stock market index (dec. 1996=100) 10/ 714 680 858 .. .. 858 817 769 597 676 684 597 417 Memo: Nominal Gdp (billions us$) 176.2 206.4 245.5 281.6 280.3 67.3 70.7 70.2 .. .. .. .. .. Source: National data sources, World Bank staff estimates 4/ Rice and rubber. f = forecast 5/ Non-bank fdi. 1/ average wage of employed person, using the National statistical Office Labor force survey, 6/ Bank of thailand figures. deflated by cpi inflation. 7/ Loans of commercial banks. 2/ cash balance of central government. 8/ One-day repurchase rate, average. 3/ includes domestic central government (cG) debt, domestic debt of non-financial state 9/ World Bank staff estimates. enterprises, and the financial institutions development fund (fidf) debt. series was revised by 10/ Bangkok set adding vf & efpO. east asia: NaviGatiNG tHe peRfect stORM 68 Key iNdicatORs vieTnam: Key economic indicaTors 2003 2004 2005 2006 2007e 2008f 2009f year year year year year year year output, employment and Prices Real Gdp (% change y-y) 7.3 7.8 8.4 8.2 8.5 6.5 6.5 industrial production (% change y-y) 15.5 16.0 17.2 17.0 17.1 16.0 16.0 unemployment (%) 1/ 5.8 5.6 5.3 4.8 4.6 4.5 4.5 consumer price index (% change y-y) 3.2 7.8 8.3 7.5 12.6 22.0 7.0 Public sector Government balance (% Gdp) 2/ -1.2 0.9 -0.1 1.1 -2.2 -1.6 -1.6 domestic public sector debt (% Gdp) 3/ 41.0 42.4 43.3 42.5 45.5 41.5 41.0 Foreign Trade, boP and external debt trade balance (millions us$) -5,107 -5,451 -4,314 -5,065 -14,121 -18,452 -17,044 exports of goods (millions us$) 20,176 26,485 32,447 39,826 48,561 64,101 72,113 (% change y-y) 21 31 22 23 22 32 13 Key export (% change y-y) 4/ 16.8 48.3 30.3 12.1 2.7 30.0 0.0 imports of goods (millions us$) 25,256 31,954 36,761 44,891 62,682 82,552 89,157 (% change y-y) 28 27 16 22 40 32 8 current account balance (millions us$) -1,930 -1,591 -561 -229 -6,901 -10,460 -8,500 (% Gdp) -4.9 -3.5 -1.1 -0.3 -9.9 -11.7 -8.2 foreign direct investment (billions us$) 1.9 1.9 2.0 2.4 6.6 8.0 6.5 external debt (millions us$) 13,800 15,600 17,200 19,100 23,500 27,500 30,000 (% Gdp) 33.7 33.5 32.6 31.6 33.5 31.5 32.0 debt service ratio (% exports of g&s) 7.8 6.0 5.4 5.0 4.6 4.0 4.7 foreign exchange reserves, gross (millions us$) 5,620 6,314 8,557 11,485 21,000 22,500 22,700 Reserves (in weeks of imports of g&s) 8.7 8.4 8.8 8.5 12.0 13.5 12.0 Financial markets domestic credit (% change y-y) 28.4 41.6 31.7 25.4 53.9 40 30 short-term interest rate (% p.a.) 5/ 6.3 6.7 7.8 7.9 8.9 16.0 12.0 exchange rate (dong/us$, eop) 15,646 15,777 15,916 16,055 16,010 .. .. Real effective exchange rate (2000=100) 90.6 89.3 93.2 96.7 97.5 .. .. (% change y-y) -7.8 -1.4 4.3 3.8 0.8 .. .. stock market index (Jul. 2000=100) 6/ 166.9 239.3 307.5 752.0 972.0 .. .. Sources: vietnam Government statistics Office, state Bank of vietnam, iMf, and World Bank staff estimates e = estimate f = forecast 1/ urban areas. 2/ excludes off-budgetary items. 3/ includes guaranteed and off-budgetary items. 4/ crude oil. 5/ three-month deposit, end-of-period. 6/ Ho chi Minh stock index eap update december 2008