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By
Scott B. MacDonald
India
– S&P Upgrades the Outlook on Banks: Like many developing
countries, India’s track record in banking has not been stellar.
The practice of stuffing state-owned banks with bad loans to money-losing
state-owned companies was well rooted in the system. In addition,
competition was long kept under control. Although there are still
issues of inefficiency, bad loans and the need to upgrade technology
in many banks, there have been positive changes in recent years.
Standard & Poor’s in early September 2003 changed the outlook
of the banking system from negative to stable. In doing so, the
rating agency commented: “Key watershed structural reforms
in India so far have improved the health of the banking sector’s
asset quality, profitability, and capital adequacy.” 
Pakistan
– Earning Praise: The management of the Pakistani economy
has never been easy. Beyond facing ongoing problems that almost
always threaten political stability, the economy has struggled to
find a competitive nitch in the global economy and attract foreign
investment. Consequently, when there is good news it should be acknowledged.
In late August, the Asian Development Bank (ADB) commended Pakistan
for its economic recovery. The ADB’s annual economic update
for the South Asian country forecast economic growth in the year
to next June (Pakistan’s fiscal year) would rise to 5.3%. In
the fiscal year that just ended in June (2002-2003), real GDP was
a robust 5.1%, up from a more modest 3.1% in 2001-2002. Helping
stimulate economic expansion over the last few months has been the
early monsoon rains, which significantly ended a brutal three-year
drought. The expectation is that with a more regular pattern of
weather, the agricultural sector will have a much stronger performance.
This is important as agriculture accounts for a quarter of GDP and
more than two-thirds of the nation’s 145 million people rely
directly or indirectly on farm incomes. Taiwan
– Q2 Real GDP Disappoints, but…: As the number for
the second quarter of 2003’s real GDP was announced, there
was a sense of disappointment in trading rooms in Taipei. Real GDP
contracted by 0.1% year-on-year, largely due to the negative impact
of SARS. This was evident in the pronounced downturn in domestic
demand (-2.6%) and fixed asset investment (-10.2% year-on-year).
Simply stated, SARS drove consumers out of the stores and helped
add to the uncertainty facing many companies, forcing them to curtail
business travel and postpone corporate investment. Despite the disappointing
second quarter results, it is likely that the Taiwanese economy
has hit the bottom of the cycle. Prospects for the second half of
2003 look better due to pent-up consumer demand and corporate investment.
Reflecting this, the Taiwanese government raised its 2003 forecast
for real GDP from 2.9% to 3.1%, while 2004 growth is expected to
accelerate to 3.8%.
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