Asia's developing economies did well in 2002

Despite the weakening of the global economy in 2002, developing economies in the Asia-Pacific region performed surprisingly well, achieving growth of around 5 per cent during the year, says ESCAP's Economic and Social Survey of Asia and the Pacific for 2003.

This expansion, which was 2 percentage points higher than the 2001 rate, owed much to surging intra-regional trade, fiscal stimulus and monetary easing, noted the report released in Colombo last week but in Asia on April 17.

Here are the highlights of the report:

* Prospects for 2003 are conditioned by the intensity and duration of military action in Iraq and its negative ripple effects, including those on energy prices. The region imports 40 per cent of its energy requirements.

* Prospects also depend to a considerable extent on the sustainability of enhanced intra-regional trade and a supportive domestic policy stance. With the latter there are risks as fiscal stimulus cannot continue for too long as it can lead to an unsustainable increase in public debt.

*GDP growth in the region is still several percentage points below the pre-1997 crisis level. This translates into fewer job opportunities and puts greater pressure on government budgets, including allocations for poverty reduction.

Policy challenges
*Given the absence of any evidence of a strong pickup in the global economy, at least in the first half of 2003, the war in Iraq and other geopolitical uncertainties, sustaining growth in the region will depend primarily upon domestic policies.

*Domestic demand stimulus measures have relied on a mixture of fiscal and monetary policies. However, with levels of public debt exceeding 50 per cent of GDP in most economies of the region the question of fiscal consolidation has to be tackled in earnest before too long. In the case of monetary policy also, as a result of falling inflation, interest rates have reached quite low levels so that the scope for further reduction is limited in most countries.

* The programmes of reform of the corporate and financial sectors must continue to be implemented with renewed vigour to enhance investor confidence. It is worth noting that levels of investment in the private sector are still below pre-1997 levels in South-East Asia. Without a pickup in private investment, medium-term growth is likely to be jeopardized.

* As emphasized in the past, countries dependent upon official development assistance (ODA) need to redouble their efforts to improve the utilization of external assistance by drawing up realistic projects for such funding and improving their aid management structures.

* One of the central challenges of globalization is that countries have to compete for markets. Governments must strive to provide an appropriate macro-economic environment, realistic exchange rates and improvements in the physical infrastructure to enable firms to compete, and the firms themselves must promote innovation, improve product and service quality and become more receptive to change.

* The momentum of trade liberalization, including action in trade facilitation, should be maintained. It is widely accepted that regional trading arrangements can be a useful complement to the multilateral trading system and enhance its effectiveness. Nevertheless, the recent increase in bilateral trade agreements in the region should not serve to reduce the commitment of Governments to promote the multilateral objectives of the Doha Development Agenda.

* The current weaknesses in the global economy and concerns with security issues such as terrorism and the use of the international financial system by terrorists require significantly enhanced cooperation at the regional level in the exchange of information, intelligence and policy-making in the area of security.

* With regard to longer-term issues, the positive impact of education and health care on the well-being of individuals and development of societies is enormous. While the public sector is still a major provider of education and health care, additional resources need to be raised using multiple channels, including the public and private sectors, communities, non-governmental organizations, bilateral donors and multilateral organizations. Moreover, the effective and efficient utilization of resources is also important to achieve better results in the provision of health and education.

* The achievement of faster economic growth is often accompanied by environmental degradation. This affects the poor adversely and disproportionately. An analysis of the linkages between the environment and poverty and the policies adopted by the Asian and Pacific countries to mitigate their adverse impacts yields important policy conclusions. Governments have to stress the building of awareness and promoting stakeholder ownership, decentralization and the maintenance of good governance for increasing the effectiveness of those environmental policies.

Risk & challenges
In the short-term:
a) The most obvious and serious risk is what happens in the aftermath of military action in Iraq. While the war in Iraq appears to be coming to an end and its impact on Iraq's oil industry minimal, its political and security impact on the Middle-East could be more long-lasting. The global economy, too, has been adversely affected by the uncertainty leading up to the war. This is unlikely to be reversed immediately upon the ending of hostilities. Indeed, growth prospects in the developed economies are presently weaker than in 2002.

b) Impact of SARS on the region

Too early to predict its eventual impact with precision. For now, SARS has still to peak; its impact could very well extend beyond Q2 of 2003.

Main impact will be on tourism and travel and thus on hotels, restaurants and retailing. If SARS becomes long-lasting its impact will then extend beyond these sectors into actual production declines and job losses in sectors other than travel and hotels.

At the moment most private sector forecasts are predicting an overall output loss of between 0.5 and 1.0 percentage points for the region. This will be mainly concentrated in Hong Kong, China, Singapore and Thailand, the economies with large tourism sectors, and to a smaller extent in Indonesia and Malaysia. Its impact on China itself is considered to be marginal at this stage.

If the spread of the disease is contained by June 2003 there, however, exists the possibility of a significant bounce-back in Q3 & Q4 of 2003 in the regional economy. Such has been the pattern of revival following a major external shock. The effects of shocks wear off eventually and consumers tend to spend more than what they might have done otherwise. In that event the impact on output growth in 2003 could be very small.

c) The faltering momentum of growth in the US and EU - despite very low interest rates - and the anaemic Japanese economy are likely to impact on export growth from, and continue to undermine business confidence in the region. The US, EU and Japan account for around one half of exports from UNESCAP developing countries. In fact, because of slow growth in the US, EU and Japan in 2003 the momentum of intra-regional trade could also slow down as some of the within-region trade is in items whose final destination is the developed countries.

On the plus side, however, there are signs of renewed confidence in the world stock markets but it is too early to say: a) whether this confidence can be sustained or b) will translate itself into higher capital expenditures by corporations.

Four-legged quartet flies Emirates to Indonesia

Emirates' award-winning service is not limited to the airline's human customers, a quartet of four-legged passengers discovered recently.

A pair of leopards and a pair of bears bred in captivity in Sri Lanka were flown into a new home in Indonesia's Ragunan Zoo after a 3,300 km flight on Emirates.

The leopard duo Sony and Raja aged six and nine years respectively, weighing approximately 110 kilogrammes each and the three-year-old bears, Tikiri and Chuti Kalu weighing approximately 65 kilogrammes each were sent to the Ragunan Zoo as part of an exchange programme initiated by the Dehiwala Zoo in association with the Presidential Secretariat and the Sri Lanka Mission in Jakarta.

A spokesperson for the Dehiwala Zoo said that the exchange programme was initiated to expand the range of species it accommodates.

Two Orang-utans are expected to be brought to Sri Lanka from Indonesia as part of the exchangeprogramme.

Emirates SkyCargo took on the delicate task of transporting the leopards and the bears and adhering to the letter, instructions for their care en route.

These included maintaining a temperature of 25° to 30° centigrade and a humidity level of 70 to 80.

Emirates Cargo Manager in Colombo, Damian Jayasuriya said: "It was the first occasion the Colombo office handled a consignment which included carnivorous animals, and we are very happy to report that everything went to plan."

NDB sells major stake in MLL

The National Development Bank (NDB) said last week it had sold a major portion of its holding in Mercantile Leasing Limited (MLL) to a group of well known investors.

NDB, together with one of its subsidiaries owned 66% of the shares in MLL. After the divestiture, NDB will retain 10% of the shares with the balance being sold to National Savings Bank (NSB) (19.5%) and reputed businessman, M.M. Udeshi (29%).

MLL's financial statements for the year ended 31st December 2002 reflected a remarkable turnaround from the previous year in achieving a net profit of Rs. 47.4 million. Asoka Sirimanne, MLL's CEO welcoming the change in ownership structure said "having NSB as a major shareholder on top of NDB continuing to hold 10% of the shares will enhance MLL's strength and credibility and make future growth that much easier."

Nihal Welikala, General Manager, NDB, explaining NDB's rationale for selling said that as most people are aware, NDB is presently working towards merging its business with the commercial banking business of NDB Bank Ltd, subject to regulatory and shareholder approval.

"As a matter of strategic focus, attention is being directed towards the merger hence NDB's decision to decrease its holding in MLL," he said.

Tea boosts the body's defences

By Paul Recer,
WASHINGTON - An ordinary cup of tea may be a powerful infection fighter, a study suggests. Researchers report in the Proceedings of the National Academy of Sciences that they have found in tea a chemical that boosts the body's defence fivefold against disease.

They said the chemical primes immune system cells to attack bacteria, viruses and fungi and could, perhaps, be turned into a disease-fighting drug someday.

Dr. Jack F. Bukowski of Brigham and Women's Hospital in Boston and Harvard Medical School said (last week) that he and his co-authors isolated the chemical in the laboratory and then proved with a group of volunteers that it did protect against germs.

"We worked out the molecular aspects of this tea component in the test tube and then tested it on a small number of people to see if it actually worked in human beings," said Bukowski. The results, he said, gave clear proof that five cups of tea a day sharpened the body's defences against disease.

Penny Kris-Etherton, a nutrition specialist at Pennsylvania State University, said Bukowski's study adds to a growing body of evidence that tea is an effective disease fighter.

"This is potentially a very significant finding," she said. "We're seeing multiple benefits from tea."

But she said the work needs to be confirmed in a much larger study, involving more people.

In the study, Bukowski and his co-authors isolated from ordinary black tea a substance called L-theanine. He said the substance is found in green and oolong tea, which also are processed from traditional tea tree leaves.

Bukowski said L-theanine is broken down in the liver to ethylamine, a molecule that primes the response of an immune blood cell called the gamma-delta T cell.

"We know from other studies that these gamma-delta T cells in the blood are the first line of defence against many types of bacteria, viral, fungal and parasitic infections," he said. "They even have some anti-tumour activity."

The T cells prompt the secretion of interferon, a key part of the body's chemical defence against infection, Bukowski said.

"We know from mouse studies that if you boost this part of the immune system it can protect against infection," he said.

To further test the finding, the researchers had 11 volunteers drink five cups a day of tea, and 10 others drink coffee. Before the test began, they drew blood samples from all 21 test subjects.

After four weeks, they took more blood from the tea drinkers and then exposed that blood to the bacteria called E-coli. Bukowski said the immune cells in the specimens secreted five times more interferon than did blood cells from the same subjects before the weeks of tea drinking. Blood tests and bacteria challenges showed there was no change in the interferon levels of the coffee drinkers, he said.
Bukowski said it may be possible to further isolate and refine L-theanine from tea and use that as a drug to boost the infection defence of the body.

The health effects of tea have been extensively studied. It has been linked to lower heart disease and cancer risk through the action of flavonoids, a type of antioxidant. Other studies have linked tea to helping combat osteoporosis, the brittle bone disease, and to relieving some allergy symptoms.

Private investments slow due to red tape, uncertainty

Sri Lanka's private sector hasn't taken advantage of the peace process to invest heavily in the economy largely due to administrative problems and political uncertainty, a top economist said.

Dr. Dushni Weerakoon from the Institute of Policy Studies (IPS) said there were constraints towards investment because too many line ministries were involved in the implementation (and decision-making) process.

Uncertainty over the peace process had also slowed domestic and foreign investment.

She was speaking at the Colombo launch of ESCAP's annual report on economic and social trends last year and expectations for this year. The UN report was released earlier in the rest of Asia on April 17.

Weerakoon said it was too early to say how the Iraq war and SARS would impact on Asian economies including Sri Lanka, noting, however, that tourism was already affected by reduced tourist arrivals in many countries.

She said there could be some benefit from the Iraqi situation if oil prices fall as anticipated. "That could help Sri Lanka."



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