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Roaring Out of the Doldrums

10 minute read
Charles P. Alexander

TIME’s Pacific Board of Economists sees a growth surge for the region

After spending 1982 in the doldrums, the economies of the nations bordering the Pacific are again becoming dynamos. In South Korea, Taiwan and Singapore, where factories are churning out exports at a pell-mell pace, economic growth has reached annual rates in the 6% to 9% range, up from 4% to 7% a year ago. Japan is gliding along at a more modest 3.4% rate, but its government has a plan to spur domestic demand. Australia is bouncing back from its worst recession in three decades.

That was the rosy report from the members of TIME’S Pacific Board of Economists during a meeting in Singapore. The economists predicted that virtually all the major Pacific countries will enjoy 1984 growth rates in the 4% to 8% range. Unemployment should edge downward in many nations, and no new outbreak of inflation is in sight.

Yet TIME’s economists remain cautious about their countries’ long-term outlook. The Pacific region has been plagued by political instability: social unrest in the Philippines, uncertainty about the post-colonial status of Hong Kong and the assassination of key members of the South Korean government. “I am sure that none of the Asian economies will collapse because of political factors,” said Edward Chen, of the University of Hong Kong, “but it may be difficult to keep up with past growth. It’s never too early to worry.”

The mam spark for the Pacific surge is the strong recovery of the U.S. economy, which has been expanding at an 8.8% rate over the past six months and generating many new jobs. The Government announced last week that U.S. unemployment dropped from 9.3% to 8.8% in October. With Americans spending freely again, South Korea’s exports to the U.S. are up 34% this year, while Taiwan’s have increased 20%. But demand in Western Europe and Japan remains weak. Warned Lawrence Krause, a senior fellow at the Brookings Institution in Washington, D.C.: “The world needs growth in Europe and Japan. The U.S. can begin a recovery, but it cannot pull everybody along to prosperity.”

The outlook for key Pacific nations:

Japan. Unlike its Asian neighbors, which are still in the launch phase of industrial development, Japan has already reached cruising altitude. Said Bunroku Yoshino, director of the Institute for International Economic Studies in Tokyo: “Japan is very comfortable, like the U.S. was in the 1950s under President Eisenhower.” He predicted that unemployment, now only about 2.5%, may go to 2% in 1984. Exports were up about 10% in the third quarter of the year and will stay strong. Japan’s car manufacturers have unveiled new models that will undoubtedly dazzle foreign customers (see box).

Despite the export surge, Japan’s overall growth rate of 3.4% is sluggish by Asian standards. Reason: consumer demand inside Japan is lagging. Cameras, cars, television sets and other appliances have become so ubiquitous in Japan, said

Yoshino, that many families have “no more big items to buy for the moment.” The government announced a proposal last month to spur the economy with a $5 billion tax cut and $8.1 billion in new public works spending. Yoshino forecast that these measures might help lift Japan’s growth rate to 5% by the end of 1984.

South Korea. Political flux seems to have become the norm in South Korea. Last year President Chun Doo Hwan ousted half of his 22-member Cabinet after a scandal arose involving illegal loans and fraud by moneylenders with connections to his government. On a visit to Burma last month, 14 leading South Korean officials, including four Cabinet ministers, were killed in a terrorist bombing.

Even with the upheavals, South Korea’s economic prospects continue to be remarkably bright. After a sharp recession in 1980, the government launched a major public construction program that included housing projects, commercial buildings and a subway for the capital city of Seoul. The spending helped boost South Korea’s growth rate to 8.5%.

The stimulus was so successful that President Chun has decided to cool the economy to prevent inflation, now coasting at an annual rate of 2.3%, from speeding up. The government will hold 1984 spending to 1983 levels. Board Member Suh Sang Mok, a senior researcher at the Korea Development Institute, predicted that, even with the new austerity program, his country would have 8% growth in 1984. He was optimistic about the government’s ability to recover from the Burma bombing. “The policymakers who replaced the old Cabinet share the same philosophy,” he said, “so our present economic directions will be maintained.”

ASEAN. The TIME board forecast that growth rates in all five countries of the Association of South East Asian Nations will increase next year by about ½ to 1½ percentage points. High-flying Singapore, with its fast-growing electronics and financial-services industries, will lead the way. Said Board Member Pang Eng Fong of the National University of Singapore: “We feel like a water skier being pulled by a speedboat. We dare not let go.”

Thailand is also enjoying a spurt because its currency is strong, its financial markets are awash with funds, and loans are therefore easy to get. Said Narongchai Akrasanee, an economic adviser to Thailand’s Industrial Finance Corp.: “For the first time in history, banks have gone to customers, begging them to borrow.”

Malaysia has benefited from higher prices for rubber, palm oil and tropical hardwoods. But rather than trying to expand its economy too rapidly, the government is aiming to reduce Malaysia’s $10 billion foreign debt by curbing public spending and imports.

Indonesia, a big oil exporter that was hurt this year by the dip in petroleum prices, is trying to keep its $24 billion foreign debt from ballooning. The country has devalued its currency by 28% to reduce imports and postponed several industrial projects, including petrochemical plants.

The economic recovery in the Philippines is threatened by the country’s continuing political unrest in the wake of the assassination last August of Opposition Leader Benigno Aquino Jr. Speculation is rising that if President Ferdinand Marcos does not step down voluntarily, he will be forced out. Marcos’ troubles have made it difficult for him to deal firmly with the Philippines’ runaway government deficit, which now totals close to 4% of the country’s gross national product.

Taiwan. The engines of economic expansion are humming again in Taiwan. Growth is running at a 6% rate this year, up from 3.9% in 1982. Board Member Chen forecast that Taiwan could maintain the 6% pace through 1984 and hold unemployment to a low level of 2%.

Taiwan has rapidly diversified its economy, moving into the manufacture of products as varied as computers and catchers’ mitts. The Taiwanese have been adept at dispersing industry throughout the island to provide job opportunities for rural people as well as city dwellers. Taiwan’s chief weakness may be its dependence on U.S. markets; American purchases account for 40% of exports. Said Chen: “Without the U.S. recovery, Taiwan would have been in very bad shape.”

Hong Kong. The specter of a possible takeover by China when Britain’s lease on most of Hong Kong expires in 1997 has shaken the colony. Hong Kong real estate prices have plunged by as much as two-thirds during the past 18 months. The Carrian group, one of Hong Kong’s largest property developers, has collapsed, and the government has assumed control of the Hang Lung Bank, which was faltering partly because of bad real estate loans.

These tremors notwithstanding, Hong Kong’s export industries are so strong that the colony has been able to reach a 6% growth rate. Chen forecast that expansion will slow to perhaps 4.5% next year. The weakness of Hong Kong’s currency in the international exchange markets has fanned the inflation rate, which is now 12.5% and will remain at least 10%, Chen said, through 1984.

China. The current growth rate of 8% to 9% in the People’s Republic of China may be more than this still backward but ambitious country can handle. China’s runaway drive to build factories and housing projects has produced cement shortages and other crippling bottlenecks. Chen predicted that the country’s expansion may slow a bit next year, to 7%.

China’s momentum has come in part from limited experiments with capitalist-style incentives. Instead of delivering all profits to the government, many businesses are now allowed to pay taxes on their income and keep what is left over. But the country has had trouble melding its teeming urban populations into the industrial workplace. Though official unemployment is only 2.5% to 3%, hordes of people are given make-work jobs. Some enterprises could lay off 30% of their workers, Chen said, without suffering any reduction in output.

Australia. While Australia II was winning the America’s Cup this fall, the Australian economy was also “getting under full sail,” in the words of Board Member Peter Drysdale. A professorial fellow at the Australian National University in Canberra, Drysdale predicted that Australia will pull out of a slump that has raised unemployment above 10%. Said he: “There is a strong mood of confidence in the Australian economy—a sharp contrast with the confusion and retreat of twelve months ago.”

After three years of devastating drought, Australia has had enough rainfall in 1983 to ensure a dramatic revival of farm incomes, which plunged more than 50% during the dry spell. Moreover, the new Labor government of Prime Minister Robert Hawke is energizing the economy with a 7% increase in public spending. Drysdale predicted that Australian growth will accelerate from its current 1% level to 5.5% in 1984.

The long-term outlook for the Pacific economies depends to a large extent on the length and strength of the American recovery, since the U.S. is the single largest Western customer for Asian products. Board Member Krause optimistically forecast that the U.S. economy would grow by an average of 4% to 4.5% annually over the next three to five years.

The Asian nations realize that they must reduce their dependence on the West by developing stronger economic ties with one another. Several of TIME’s economists criticized the Japanese for not importing more from their neighbors. Narongchai contended that the problem was the country’s cultural provincialism. Said he: “The majority of the Japanese people just want to buy Japanese goods.”

Of all Asian markets, the most enticing is China, with its immense population. So far, political tensions have interfered with Chinese trade. The Taiwan government refuses to sanction shipments to the mainland. China is unwilling to deal with South Korea for fear of offending North Korea. Even so, resourceful Taiwanese and South Korean businessmen manage to export a great deal of merchandise to China by sending goods to Hong Kong, where they are often repackaged and shipped to the mainland.

TIME’s economists agreed that even after two decades of spectacular growth, Asia has only begun to realize its potential. If the dynamic countries on the Pacific rim can forge effective economic alliances, they will undoubtedly continue their headlong rush into the ranks of the world’s rich nations. —By Charles P. Alexander

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