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Annual Report 2002

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Southeast Asia

• Indonesia
• Malaysia
• Philippines

The GDP growth performance for the Southeast Asia DMCs—Indonesia, Malaysia, and Philippines—generally improved in 2002, but the pace of growth varied among the countries. Malaysia, which was hit hard by the global trade downfall in 2001, achieved a larger increase in growth, while Indonesia and the Philippines grew at a more modest pace. The improved growth performance was driven by sound domestic demand in Indonesia, and Philippines. Recovered exports, together with strong domestic consumption, raised the growth in Malaysia. The region benefited from increased exports to the People’s Republic of China, but exports to major industrial markets continued to fall in 2002. Variations in debt continued with significant reductions in Indonesia’s total public debt and a rise in the Philippines’ external debt.

As for policies, the efforts to contain the respective fiscal deficits have been positive. Indonesia and Malaysia were able to achieve smaller budget deficits, but the budget shortfall in the Philippines grew larger than expected. On the monetary front, authorities in the region have kept their monetary policy position accommodative to help keep inflation at bay and interest rates low. This created more favorable conditions for corporate and banking sector reforms and made debt servicing easier; this was seen in Indonesia. The exchange rate policy has been supportive. The strengthened Indonesian rupiah helped further reduce the country’s public debt burden. The weakening of the Philippine peso partly reflected the pressure of the growing fiscal deficit and the difficult peace and order situation. But this helped maintain the competitiveness of Philippine exports.

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