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INTERVIEW Manu Bhaskaran of Singapore

Published by Daily Davos on 1999-01-01

Manu Bhaskaran, 41, managing director of SG Securities--the largest French bank in Singapore--is widely considered one of the most influential economic analysts in Asia. Trained at Cambridge and Harvard Universities, Bhaskaran is a sought-after speaker on Asian and global economic issues all over Asia and also in Europe and the United States. He has especially monitored the region's financial crisis, and his views on economic recovery and social issues have often by solicited by Asian political and business leaders. He has been coming to Davos for the last decade. He spoke with Newsweek columnist Pranay Gupte. Excerpts:

GUPTE: Are Southeast Asian economies adjusting appropriately to the post-Asian crisis period?
BHASKARAN: There are really two levels of adjustment. First, there has been the near term macroeconomic crisis management response which is now gaining strength. Under this, (a) domestic demand is being boosted. Interest rates have fallen and fiscal stimulus packages are filtering through to boost domestic demand. (b) Financial structures are being cleansed. Institutions and programs have been established to clean up bank balance sheets and recapitalize them. Bad banks have been closed or merged and nonperforming loans are approaching or near or just past their peak, depending on the country in question. Second, there has been a longer term structural response. (a) Policies have been reformed. For instance, trade, investment, sectorial deregulation has been put in place. Regulatory reforms have also been made particularly in the financial sector. (b) Corporate restructuring has been pursued at the micro level. The last has been slow and disappointing but it probably would have been too much to expect a smooth and rapid restructuring when large interests are at stake. Finally, again at the micro level, there are signs that economic agents are adjusting to the changed environment. There is anecdotal evidence of companies shifting to export production to take advantage of devalued exchange rates, etc. and so laying the foundations for recovery later.

Are outside investors displaying greater interest in Asia now that the worst of the economic crisis seems to have passed?
Foreign portfolio investors have started to invest again, particularly in equities. As for foreign direct investment in greenfield investments, the data suggests greater caution. The thrust has been more on foreign investors gaining control of their existing joint ventures by buying out local partners or in buying controlling stakes in distressed companies with good assets. Such M&A activity has been particularly strong in Korea but there are signs of some increase in activity in Thailand, Philippines and Malaysia as well.

What lessons, if any, have Asian leaders learned from the crisis?
The most important lesson has been the need for closer supervision of the financial sector. While the causes of the Asian crisis are complex, it is not disputed that weak financial sectors were a major factor. Second, leaders will be wary of fixed exchange rate systems which are not backed by a currency board (or in Malaysia's case by capital controls). Third, leaders will be more careful about the sequencing of liberalization. Clearly, premature liberalization of financial sectors without putting in place appropriate supervisory frameworks was a mistake.

What steps has the financial community taken to immunize the region from future crises of such dimensions?
Very few steps have been taken by the larger financial community. The ongoing G7 and other efforts to review and reform the global financial architecture are in their early stages and realistically will take a couple of years before bearing fruit.

As a business person, how do you see sustainable development being affected at Asian grassroots?
Except for Indonesia where there has been a fullblown comprehensive political crisis, there has not been such a widespread damaging of the economic fabric to fundamentally damage development at the grassroots level. We see economic growth rates post-2001 recovering to the 4 percent to 6 percent level for most of the region, somewhat below the 6 percent to 7 percent rates of pre-crisis days but still quite good.

Is corruption impossible to eradicate in most Asian economies?
Corruption cannot be eradicated quickly. But the experience of Hong Kong and Singapore in the last 30 years shows that a committed and clean government can comprehensively reduce corruption given time. There has been a backlash against cronyism and other forms of corruption in the region which is forcing political elites to respond. It is still an open question however how far any improvement will go.

How can regional economic and developmental cooperation be enhanced?
Regional cooperation has been disappointing. While many regional countries contributed to the various rescue packages cobbled together by the IMF/World Bank, the response of regional institutions such as ASEAN and APEC has been less than impressive.

In this age of globalization, how can Asia compete better with other regions?
At the government level, Asia can compete best by simply getting the basics right--a sound policy regime emphasizing deregulation, stable noninflationary macroeconomic policies and an open trade and investment regime, a heavy emphasis on education and skills development, a continued program of infrastructure building.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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