The Country risk rankings, September 1999
Global Economic Projections, September 1999
According to the latest Euromoney country risk ranking, the key Asian economies have turned the corner. The region has made the necessary adjustments to regenerate growth, broadly benefited from new-found currency competitiveness and has begun to attract investors again, as governments, banks and corporates push ahead with restructuring plans. However, the scale of the challenges ahead is reflected by these countries' modest rebound up the rankings. Political commitment to wholehearted reform is still in question.
Malaysia turns the corner
Economists and analysts are particularly positive about Malaysia. It climbs 12 places to 46, making the country one of the highest climbers in the whole survey. For economic performance alone, it rises 28 places to 46, with GNP growth forecasts of 3.4% over the next two years. Attitudes to prime minister Mahathir's monetary policy have softened somewhat, now the ringgit is pegged to the dollar. South Korea, the Philippines and Thailand also do well.
At the other end of the spectrum, Indonesia still lags far behind its neighbours, slipping 10 places to 98. The one bright spot: growth predictions do show an anticipated improvement from 2.4% next year to 3.1% in 2001.
China has also lost ground, down five places to 50 in the overall table, marking the country's third consecutive fall in our surveys. Observers doubt it will be able to meet its 7% growth target - the average GNP growth prediction in our survey was only 6.4% - and suspicion is hardening into conviction that the renminbi will be devalued by the year-end.
Opinion is divided with regard to Latin America and Brazil in particular, which rises to 71 from 76. Although the Cardoso coalition has succeeded in making a number of emergency fiscal adjustments, many economists and analysts are still not convinced there is going to be any real improvement in the short term. Inflation has risen and the real is weaker - it fell by more than 4% in July and August. However, others predict that Brazil will emerge quickly from these difficulties and think it is already at the turning point in a V-shaped recovery. Our GNP growth forecasts show a rise from 2% to 3.5% over the next two years.
Commodity price boost
A rise in the price of oil, metals and other raw materials has boosted the position of a number of other Latin American countries such as Chile and Venezuela, which have both moved up four places to 38 and 78 respectively. El Salvador also does well, rising three places to 70. The country's economy has started to slow down and stabilize after rapid growth over the last few years. Ecuador causes most concern. Even before its announcement that it would be missing the latest payments on its Brady bonds, our survey had confirmed its dire position with a 16-place fall to 114.
The prospects for central and eastern Europe are mixed. The Kosovo conflict has taken its toll on Bulgaria's infrastructure. It used to send two-thirds of its exports through Yugoslavia but now has to re-route them through Romania, which only has one bridge over the Danube and one ferry crossing. It drops two places to 89. Croatia has also been hard-hit and this has added to its existing infrastructural weaknesses and current account problems. It falls from 57 to 52.
The Czech Republic, at , is still in the grip of recession. Growth is slow, interest rates are high, unemployment is rising, and budget imbalances are deteriorating. Nevertheless it stands at the forefront of the reform process, as it pushes ahead with privatization plans and develops a more open currency market. Next year its position should improve.
Russian fallout continues
The Baltic states are struggling with the fall-out from Russia. Estonia, Latvia and Lithuania have all lost ground over the last 12 months. They now rank 52, 62 and 65 respectively. But there could be good news ahead: the EU commission is due to meet this December to work out details of the next two phases of admission. The line-up of countries entering in the next wave may well be broadened to include the Baltics, as well as the Slovak Republic.
In the past two surveys, attention has focused on the dramatic fall of Russia. Although it ranks very low at 159, it has managed to rise two places since March. Economic forecasts are still downbeat because the country must contend with high unemployment, a budget deficit, structural imbalances and political instability. However, things could be about to change now that Russia has set up an IMF programme which technically enables it to roll over its debt. This gives the country more resources to finance some of its post-Soviet debt.
There has been progress on the side of its Soviet debt, too, as the Paris Club has agreed to suspend Russia's payments for 17 months until the end of next year. Now that the rouble is devalued, the country has a current account surplus and economists are expecting to see signs of recovery towards the second quarter of next year.