Economic performance and external debt in Asian developing countries

During the past decade of economic turbulence, external shocks have had severe impacts on developing Asian countries. In particular, the two oil shocks and the subsequent recessions have had severe negative balance-of-payments effects on the oil-importing developing countries, while the recent softening of the world oil markets has created difficulties for even the “oil-rich” Asian countries of Malaysia and Indonesia. But the ability of the countries of East and Southeast Asia to respond to changing external conditions has been impressive. Asian countries have continued to grow at real rates of 5% to 6% annually owing to quick and flexible policy responses combined with a market-oriented, outward-looking approach. In addition, the long-term capacity for repayment of external debt in Asia is quite strong, although it has deteriorated over the past several years. Saving rates have risen to high levels and external funds have been used mainly to finance investment in agriculture, industry, and energy production. It must be emphasized, however, that external conditions have not been conducive to overcoming the debt situation. The better coordination of macroeconomic policies and determined efforts to reduce protectionism in all countries, while maintaining capital flows to developing nations, are all necessary to create a better environment for resolution of the debt problem.