Asia’s woes far from over, says WB

"Given the stabilization in Brazil’s problems, we should see a moderate increase in commercial bank lending (to Asia), but there will be less lending than last year," said Mick Riordan, a World Bank economist, in an interview related to the report’s release. Combined with a modest increase in foreign direct investment in several countries in East Asia, capital inflowson average would be flat, he said.

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

In fact, top finance officials from the Group of Seven major industrial nations agreed earlier this year to set up a new global forum to tighten coordination between regulators and the world’s watchdog bodies and keep a closer check on capital flows. Access to external capital is expected to remain tight in Asia and other emerging markets, said the report, meaning that financial problems would "persist in emerging markets for longer than had been predicted." This is a revision from last year’s report, in which the bank forecast that capital flows into emerging markets would increase and exports from the Asian countries hit hardest by the crisis would rise sharply.

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

Any turnaround in the export picture for Asian countries will be a sign of recovery, said Mody, as it will show that the region’s domestic demand is at last on the rise. This year, Mody declined to predict when this pickup will occur; part of his hesitation is due to "protectionism pressures" he sees in the US — a major trade partner for Asia — where a number of antidumping measures have been introduced by the Clinton administration or the Congress.

The bank’s prognosis may damp growing optimism that the financial turmoil that hit Asia and other regions may be near an end. Much of that belief has been driven by rising stocks: The markets in Australia, India, Taipei, Seoul, Singapore and Hong Kong are up for the year,and in the US, the Dow Jones Industrial Average recently crossed the psychologically important 10000 mark.