Effects of Asian financial crisis linger
An Australian Treasury report has found that 11 years after the Asian financial crisis, investment in East Asian economies has not recovered.
The report, Investment in East Asia since the Asian financial crisis, found that despite economic conditions in Asia having “vastly improved” since the crisis, “investment has continued to languish”.
“This is despite improved economic conditions and strong underlying investment needs typical for developing economies,” the Treasury report found.
Private, corporate and public investment levels in the region have all fallen since the crisis, with a key contributing factor being the “the apparent deterioration in ‘institutional factors’, such as regulation and governance”.
“Another possible explanation for weak investment relates to greater competition from China and the associated diversion of investment,” the report said.
“It has also been suggested that the crisis triggered a fundamental reassessment of risk by investors in emerging Asia.”
“This experience [of the crisis] led to increased investor wariness, which continues to linger despite improving economic conditions in the region.”
The writers of the report found that while the rapid rise in investment prior to the crisis was “speculative and of poor quality”, they believed those cyclical factors should have receded by now.
“Yet investment continues to be lower than suggested by the fundamentals.”
The good news is that domestic and regional reforms are strengthening the investment environment, but there is concern that East Asia’s future economic growth may be impaired by the slow investment growth.
“This underscores the need for continued domestic and regional initiatives to further strengthen the investment environment,” the report said.
East Asia includes Indonesia, Thailand, the Philippines, Malaysia, Korea, Taiwan, Singapore and Hong Kong.
The authors of the report were Elisha Houston, Julia Minty and Nathan Dal Bon from the International Economy Division at the Australian Treasury.
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