Ladies and gentlemen: I am here today to speak on the ASEAN economic crisis and the prospects for economic recovery.

As we are all acutely aware of, a little over a year ago the region was visited by a phenomenon which came to be known as the Asian Contagion. Today, we in ASEAN find ourselves in the midst of a situation very different from last year�s and perhaps unique in our history. Just a year ago ASEAN was at the height of our confidence and promise. Our individual member economies were progressing and breaking new ground in the march towards development. New entrants to the Association further enhanced the expected role and importance ASEAN would play in the coming years. As the world�s fastest growing economic region, we were certain that the future was ours.

True, there were pessimists here and there who proclaimed that the "Asian miracle" was fundamentally hollow and that a slowdown was impending. There were always economists who, every now and then, managed to churn out numbers and analyses showing that ASEAN currencies were overvalued, but development policies were flawed, and that sooner or later certain excesses would be catching up with us. Such negative pronouncements were largely ignored by our governments and by business. We were so caught up in our successes that the theoretical cracks being pointed out seemed baseless and ethereal.

Unfortunately for us all, the pessimists turned out to be right. Even more distressing they were correct to a degree that surprised even them. Many of the ASEAN members did not experience just currency devaluation, but currency collapse. Many of us did not just experience slowdowns but actually went into recession. Capital markets did not just go bearish, but actually plunged downwards. Credit did not just become constricted, but dried up.

During the opening of the crisis, the ASEAN economies found ourselves the target of speculative attacks on our currencies which led to significant and drastic depreciation. This was followed by drops in our capital market indices as a result of deteriorating perception as to the health of our economies. From there, a downward spiral ensued and we had a situation of problems compounding on further problems.

Looking back on the last year, we find changes that were previously unthinkable given the confidence we had in ourselves just one year ago. Since that time, the Indonesia Rupiah depreciated by 505.6%, the Malaysian Rupiah by 64.4%, the Philippine Peso by 59.4%, the Singapore Dollar by 19.4%, and the Thai Bhat by 45.2%, The capital market indices likewise underwent similar radical drops. In Jakarta, the index dropped 41.8%, in Kuala Lumpur the fall was by 57.4%, In Manila it was 34.8%, in Singapore it was 45.9%, and in Bangkok the drop was 55.4%.

Across ASEAN, other economic indicators were likewise down. Economic growth in ASEAN is expected to be negative in 1998 with many of us going into recession. Foreign Direct Investment inflows to the region have been in decline since 1997. Regional export growth has likewise slowed, and tourist arrivals are also expected to decline. In some countries, there have been political upheavals to some extent or other.

All throughout the crisis many have striven to understand its causes. MIT professor Paul Krugman, who pioneered formal economic analysis of what causes currency crises, offers an interesting explanation. He pointed out that Asian banks and finance companies in many countries throughout the region operated with implicit government guarantees. These, together with poor regulation and distorted investment decisions, encouraged bankers to finance risky projects in the expectation that they would enjoy the profits, if any, while the government would cover serious losses. Competition among over-guaranteed and over-regulated banks leads bankers to base decisions not on a project�s expected return but on its ideal return in ideal circumstances, what Mr. Krugman calls its "Pangloss value." Two implications follow: there with be too much investment and the price of assets that are in limited supply, such as land, will rise excessively. This bubble persists so long as the government guarantee is maintained. But then reality strikes. The first banks whose investment fails to yield Pangloss returns gel bailed out but the cost of the bail-outs reduces government�s willingness to provide future rescues. Without those implicit government guarantees, Pangloss values collapse, leading to a general fall in asset prices, which in turn, leads to loan defaults and losses for the banks. This starts a spiral in which pessimism becomes a self-fulfilling prophecy.

In the Philippines, our economy has suffered along with the rest of the region, but we find that the effects have not been as sever. Rather than negative growth, we experienced diminished growth. GNP, GDP, and exports are expected to grow positively this year albeit lower than our peaks in 1996.

We believe that the reason for this are the reforms initiated, enacted and implemented by the Philippine government over the past few years. In this short period of time over 175 laws have been passed seeking to make the Philippines more business and investor friendly.

The measures our Asian neighbors are taking to remedy the crisis have already been in place in the Philippines since before. These are transparency in finance and economic affairs, safeguards against crony capitalism, accountability of government, and the institution of democratic processes and the rule of law. The painful lessons our neighbors are only now learning we already learned back in our "sick man of Asia" days. Indeed, the manifestation of economic difficulties here in the Philippines is due more to association with the region rather that with real weaknesses in our fundamentals. We are a victim of the nervous flight of investor confidence from the region.

Our laws, policies, programs, and other reform measures are numerous but they can be summarized under three themes: privatization, deregulation and liberalization.

For 1998 we expect our economy to grow by 2.0% to 2.5% in terms of GNP. Though a year ago we were targeting a figure in the 7% to 8% range we are happy that growth is still present though diminished.

But while the Philippine economy has not suffered as much, it has indeed suffered. Our economy, just like the rest of the region, is faced with the constricting effect of high interest rates and diminished access to financing for business ventures. The deterioration of the Peso-Dollar exchange rate has particularly hit hard our industries with high import dependence and low value added.

To address the difficulties, we are now undertaking programs to encourage and prod our industries to restructure and to gear up for competition in the new environment. We believe that industries that are globally competitive can ride out any storm. Thus, we seek to raise our overall level of competitiveness in terms of goods, services, agriculture, manpower, and even government services.

All across ASEAN governments and businesses are undertaking measures to remedy the crisis. A number of IMF-led programs have been initiated which aim to restructure economic systems. Efforts are being made to introduce into them more transparency and safeguards to root out inefficiencies and structural weaknesses in the systems. Efforts are likewise being made to attain and maintain political stability by reemphasizing that the government is accountable to the people. In times of crisis such as now, when the solutions require major structural changes, it is important that those governing are able to have credibility before their constituents. Without this, any reform effort is doomed to fail.

Other measures being undertaken across ASEAN include: (1) confidence building measures, (2) strengthening of financial institutions, (3) enabling competitiveness, and (4) addressing social impacts.

Because of the efforts being undertaken to address the difficulties, and the recognized urgency behind all this, we expect that recovery will take place and it will do so in the next 2 to 3 years. However, there is a need to watch for any further signs of instability, which could produce further contagion effects. Included here is the possible devaluation of the Chinese Yuan, the progress of Japan�s efforts at economic recovery, the sustainability of economic growth in the United States, the effects of the introduction of the Euro in the European Union, developments in Russia and IMF Intervention there, etc.

As I said earlier, a year ago we in ASEAN were filled with confidence and promise. This confidence, that which we had in ourselves and that which the rest of the world had in us, has been severely battered. However, I believe that the sense of promise is still there. No matter how much the crisis has effected our region and played havoc on our economies and social climates, I believe that the ASEAN region continues to possess potentials not found anywhere else in the world.

We in ASEAN should look at the crisis and the difficulties that resulted from them not merely as failures but as opportunities. The crisis presented to us the structural inadequacies and weaknesses in our economic systems. Our goal now is to address and correct them so that growth can be pursued and taken up once more. In many ways, the crisis is doing us the service of bringing home to us the lesson that growth must be based on sound and healthy policy environments. The immediacy of the crisis is forcing ASEAN governments to concentrate on good economic housekeeping and on the setting up of regulatory structures consistent with the demands of a global economy.

This crisis will pass, and once it has done so, we in ASEAN will have reformed our weaknesses and strengthened our systems. There can be no doubt that we will roar again. After all, many things have not changed. We still comprise a combined population of around half a billion talented and hard working people all seeking development and a better way of life. We still possess the resources to fuel development. And we still possess the dynamic linkages that will enable us to pull through together into greater achievement.