Recent Economic Developments in Southeast Asia

Summary

Although there is considerable diversity in living standards and level of development, the countries of Southeast Asia share a number of features and have adopted similar macro-economic and sector policies and have generally been successful in achieving high rates of economic growth. These countries are all at various stages in the process of making the transition from agriculture and labour-intensive manufacturing to higher technology and skill-intensive products and further development of the services sector. Countries in Southeast Asia have generally adopted open trading systems, maintained low rates of inflation and adopted prudent fiscal and monetary policies. They have also been very successful in raising saving and investment rates to high levels while also attracting capital and technology from abroad. However, they have also been the recipients of large inflows of foreign direct investment, which has helped them to increase industrial capacity and adopt new technology.

Regional Economic Performance

The economies of Southeast Asia faced a number of challenges in 1995. For the countries within the Association of Southeast Asian Nations (ASEAN), continued rapid growth put pressure on labour markets, stretched productivity capacity and threatened continued price stability. Controlling inflation without a slowdown in growth was a paramount concern of public policy for many economies in the region. In a rapidly globalizing international environment, Southeast Asia faced intense competition in external markets and the need to upgrade skills and technology to meet these challenges intensified. Moreover, the financial crisis in Mexico posed a potential risk to the region as there was a ripple effect on other emerging markets. However, prompt policy responses and the strength of underlying economic fundamentals kept the disruption within Southeast Asia to a minimum. While stock markets weakened in the weeks immediately following the crisis, business returned to normal very quickly.

The transitional economies of Myanmar, Cambodia and Lao PDR, and to a lesser extent Vietnam, faced the serious challenge of continued structural adjustment from centrally planned to market-driven activities.