No. 10 — March 10, 2000


Weekly Review

--- by Marc Castellano

The Association of Southeast Asian Nations and more than 700 Japanese companies held a seminar in Tokyo February 29 to promote investment in member countries. Asean, which comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (formerly Burma), the Philippines, Singapore, Thailand and Vietnam, has been struggling to recover from the fallout from the 1997-99 East Asian financial and economic crisis. According to the United Nations Conference on Trade and Development, Indonesia, the Philippines and Thailand all saw inward foreign direct investment plunge in 1998 and drop again in 1999. Asean's road show in Tokyo was an effort to reverse this trend by convincing Japan's business community, the largest and most important source of investment funds for the region, that opportunities abound.

Malaysian International Trade and Industry Minister Dato Seri Rafidah Aziz, who led the 10-member delegation, identified three key reasons to invest in Asean countries. First, recovery finally has taken hold. Indeed, growth returned last year in Indonesia, Malaysia, the Philippines and Thailand — which, along with South Korea, were the economies hardest hit by the crisis. Second, the potential market in Asean nations is enormous: 513.2 million people and a combined 1998 gross national product equivalent to $682.7 billion. Finally, economic integration offers important business advantages. With the Asean Free Trade Area set to go into effect for the six core members in 2002 (see JEI Report No. 47A, December 17, 1999), Japanese suppliers interested in serving the entire area can locate facilities in any of the Asean countries.

Asean Secretary General H.E. Rodolfo C. Severino made similar remarks but focused on the strength of the Japan-Asean connection. He noted that interrelated bilateral trade and investment flows have been increasing for years, adding that "Japan is today, and for a long time has been, Asean's leading trading partner and largest market." Mr. Severino also pointed out that Japan had provided 20 percent of the net foreign direct investment inflow into Asean economies from 1995 through June 1999.

The Japanese presence in Southeast Asia indeed is large. Thousands of Japanese companies not only have established manufacturing bases in the region but also have developed market niches there. According to the Ministry of International Trade and Industry, Japan in 1996 had more corporations, employed more workers and generated more dollar sales in Asia than either the United States or Germany. In addition, despite the adverse effects of the two-year regional crisis, Japanese affiliates remain optimistic about the future and are making plans to expand (see JEI Report No. 36A, September 24, 1999). Although investment in the six main Asean nations plummeted in FY 1998, a rebound already appears to be underway (see Table).

Japan's Direct Investment in Six
Asean Countries,[1] FY 1995-FY 1999

(in billions of yen; notification basis)

Fiscal Year


















[1]Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

[2]First half of FY 1999.

[3]Estimate based on extrapolation of half-year data.

Source: Ministry of Finance

 At the same time, the outlook for aid flows, the third leg of the Japan-Asean economic relationship, may not be so rosy. Japan is the largest bilateral donor for many Asean countries, and it has provided substantial assistance in the wake of the financial and economic crisis. In October 1998, Finance Minister Kiichi Miyazawa unveiled a $30 billion initiative to support reeling East Asian nations. Half of the so-called Miyazawa Plan funding was designated for midrange to long-run requirements and the other half for short-term capital needs to support trade or to boost foreign exchange reserves during the process of economic reform. Other programs were added later to help the five countries hardest hit by the crisis (see JEI Report No. 30A, August 6, 1999).

The Ministry of Finance declared February 28, however, that the Miyazawa Plan had fulfilled its purpose after providing the last $5.3 billion tranche of a pledged $21.1 billion to five Asian nations. The shortfall of $8.9 billion apparently represents the unused portion of the short-term facility. A ministry spokesperson said that although Tokyo had not closed the door on aid, "there will be no further requirement for providing assistance to Asian nations unless sudden economic deterioration occurs again." He added that Japan's $150 million loan to Indonesia, promised in February as part of a package offered by a World Bank-led consortium of donors (see JEI Report No. 6B, February 11, 2000), would be the final installment of credit extended under the Miyazawa Plan. In all, Tokyo earmarked $2.9 billion for Indonesia, $4.4 billion for Malaysia, $2.5 billion for the Philippines, $2.9 billion for Thailand and $8.4 billion for South Korea.

Because most Southeast Asian countries seem to be on a recovery track, at least for now, the end of the Miyazawa Plan is unlikely to cause problems for the region. Moreover, with Japanese investment already returning as companies head south in search of lower production costs and alternative market opportunities, economic prospects are looking brighter.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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