INTERNATIONAL ECONOMIC DEVELOPMENTS

Prolonged Asian economic crisis has changed the world economic growth forecast for the year 1998 the level is lower than previous estimates. For instance the IMF, the World Economic Outlook May 1998 edition, the revised economic growth forecast for the world back to about 3 percent of the estimated 3.5 percent in December 1998 and 4.25 percent in October 1998. Lower economic growth will occur in countries that this year is still experiencing an economic crisis, namely Indonesia, Korea, and Thailand. These countries will experience a sharp decline in domestic demand and imports. On a smaller scale, the decline in growth will also occur in Malaysia, the Philippines, and several other East Asian countries.

Among developed countries, the Japanese short-term outlook appears to worsen. Associated with various economic difficulties being faced by Asian countries which are its main trading partner, Japan's economic recovery is hampered by a variety of domestic economic problems, such as a weak financial sector and the difficulties caused by bad debts, delays in implementing structural reforms, as well as decrease fiscal stimulus in the year 1997 as the increase of consumption tax. Meanwhile, the economic growth of countries in North America and Western Europe remains at the level of alert. Strong domestic demand conditions in the United States, Canada, and Great Britain and several other Western European countries are expected to drive improvements needed balance of payments position of Asian countries due to the reduced flow of foreign capital into the region. Asian countries which are experiencing the process of restructuring an opportunity to increase exports to the developed countries.

Although so far the crisis Asian countries is still limited impact on world growth, however, this crisis together with the decline in oil prices can cause quite extensive changes to the development of world trade. Some countries may suffer painful consequences. These countries are not expected to conduct trade barriers or excessive exchange rate depreciation to improve their competitiveness. This will result in defensive reactions ýcounterproduktifý, slowing the process out of the crisis, and reduce the potential for world economic growth.