Southeast Asian economies are recovering faster than expected from the global economic crisis, but in the longer term will need to make financial, fiscal and structural adjustments to buffer themselves against future shocks, says a new study commissioned by the Asian Development Bank (ADB).

The study, Impact and Policy Responses - Indonesia, Philippines and Thailand, noted that key developing economies in the region were initially hurt by the sharp slump in demand for exports and outflows of foreign capital that emerged during the crisis. But they have been able to rebound relatively quickly, aided by both their own internal actions such as stimulus packages, and the swift action taken by developed countries to avert a prolonged slump. Overseas remittances also provided a cushion, which reduced the impact of the crisis. The study particularly points to the much greater resilience of most Southeast economies compared to the 1997-98 Asian financial crisis.

The study, prepared by Centennial Group International, is among several reports that are being discussed at a two-day regional forum, "Impact of the Global Economic and Financial Crisis", organized by ADB at its headquarters in Manila on 14 – 15 January. Top officials including policymakers, finance ministers, heads of central banks, business leaders and development experts from nearly 20 countries from developing Asia are taking part in the forum.

Indonesia was able to put in place swap lines and other financial support arrangements to restore investor confidence, thanks to policy measures taken since 1997. Record prices received for commodities in the years preceding the slump also helped provide a savings buffer for rural households. At the same time, the report said the sharp outflows of foreign capital and the fall in value of the rupiah in late 2008 could have hurt the country badly if the domestic economy was not as resilient and if steps had not been taken globally to boost investor confidence.

“It is fair to say Indonesia came perilously close to a financial crisis in late 2008 and remains vulnerable to financial shocks so the financial dimension of the economy still requires policy attention,” the study noted.

With the economy recovering, policymakers should look to exit the accommodative monetary policy taken in response to the crisis, as it could stoke inflation. But this needs to be carefully timed. At the same time, it is important that structural reforms be accelerated, particularly in the infrastructure sector, while poorly targeted fiscal subsidies should be replaced with targeted cash transfers.

In the Philippines, prospects for 2010 look relatively good with domestic factors such as rebuilding work in the wake of two devastating typhoons in 2009, and national elections, likely to fuel growth. Remittances from its millions of overseas workers played a vital role in cushioning the country from the worst effects of the crisis, but in the long run, the study said it will have to reduce its reliance on this income source, and look to diversify the economy.

Thailand’s export-driven economy is also starting to rebound as global demand begins to recover, although domestic political concerns are likely to remain a drag. An absence of inflationary pressure and low resource utilization gives the authorities scope to maintain loose monetary policy for now, but in the longer term the country will need to rebalance its economy, putting greater emphasis on domestic demand to drive growth.