Asian economies pay the price of growth in widening deficits

The opening up and deregulation of markets may be fuelling the fires of growth in Asia, but the expansion is sucking in imports and saddling some governments with widening trade deficits.

This is the conclusion of the United Nations Economic and Social Survey of Asia and the Pacific 1996, which warns the balance of payments problem is worsening in a number of countries in the region.

Imports are being encouraged by the liberalisation and opening up of trade, it says, as well as easier access to credit and capital, including foreign investment. At the same time, exports are facing more intense competition based on differences in cost and efficiency, the report says.

The study pinpoints India, Indonesia, Malaysia, Pakistan, the Philippines, South Korea, Sri Lanka and Thailand as countries that are suffering a deterioration in the balance of trade and payments in what are otherwise well-performing economies.

'Bottlenecks are building in some countries, leading to a need for some fundamental changes in their structures. Several countries have severe labour and skills shortages, and consequently higher costs of production, and so are losing comparative advantage in producing simple manufactured goods based on cheap labour,' the report says.

It suggests that there will have to be a shift in industrial and production structure towards more technology-intensive areas and an improvement in labour productivity in existing industries.

'The existence of cheap labour in low-wage countries is also no guarantee that they will be able to compete effectively in the international markets,' the study says.