COMMENTARY
Commentary:  Crisis' Risks and Rewards
April 20, 2009
Christopher Bjorke

East Asia's climb out of the economic doldrums will be tough. That is bad news for its people, but also creates a number of challenges for companies trying to tap what was recently the world's most dynamic growth region.

Growth for the region has been downgraded from 8 percent to 5.3 percent in the latest World Bank projections. Dependent upon steady demand from the developed countries, the economic crisis has idled factories and left masses of workers unemployed. The downturn has slowed poverty reduction in the region, stranding 10 million more people in poverty than was projected in 2008, according to the bank's half-year update on the region.

"In the region, the initial global financial turbulence was marked by sudden reversals of capital flows in the middle-income economies, rapidly declining equity market prices, a sharp increase in the price of external private capital, a shortage of dollar liquidity, and in some cases, a depreciating currency," stated the World Bank report.

Risks, but hope

Aside from the troubles of East Asia's people, the region's slow recovery means problems for companies that want to do business there - but it could also mean opportunities.

Over the last decade, after recovering from the financial crisis of 1997, East Asia has provided much of the world economic growth, expanding at double-digit rates. The recession has robbed Asia of some of the dynamism that marked Asia recently. Rising unemployment will surely dampen spending by its emerging consumer class. Depreciating currencies also drives up the price locals pay for imports.

Another element is country risk. Thailand has been paralyzed by protests against the ruling elite. Although the situation has its origins in the country's 2006 coup, times of rising unemployment and frustration often create an unstable business environment.

So what is the upside? Despite Asia-Pacific's current troubles, there is still room for foreign companies.

Asian countries are adopting stimulus plans to keep their economies from freezing up, most notably China, with its billions in foreign reserves. With foreign demand weak, countries will need to turn to domestic demand to spur growth. When consumers are encouraged to spend, a portion of that spending is bound to go to imports. Also, when foreign investment is scarce, the few investors around often find a more welcome reception and more opportunities.

Having weathered the Asian financial crisis of 1997-98, left many of the countries better able to cope with the symptoms now affecting Western countries. The World Bank report notes that the countries hurt 12 years ago have "strengthened their external balances, increased foreign exchange reserves, reduced government debt and improved banking supervision."

It will take time for Asia-Pacific to shake off the effects of the crisis, but growth will return along with foreign demand. When they do, smart companies will be there to reap the benefits.

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