But it has now broadened. Intra-regional trade is buoyant. In most countries, consumer spending has rebounded, and private investment has picked up. Challenging conditions remain The recovery has given the Asian economies breathing space to tackle the problems uncovered by the crisis. But these problems have not gone away. Post-crisis ASEAN faces major challenges. North East Asia seems to be doing better than South East Asia. And continuing political and economic difficulties in South East Asia, plus the perceived weakness of ASEAN as an organisation, are strongly colouring the views of analysts and investors. North East Asia The thaw in relations between North and South Korea bodes well for North East Asia. South Korea, one of the crisis countries, has recovered quickly and strongly. Under President Kim Dae Jung, the government pushed hard for economic reforms, restructuring the chaebols and cleaning up the banking sector. Last year South Korea recorded the fastest growth in Asia - 10.7%. South Korea’s reforms are now running into difficulties. The actual task of breaking up and selling off pieces of the chaebols is encountering stiff union resistance. But North East Asia continues to attract interest. Other than South Korea, another major reason is China. China has weathered the economic crisis much better than many analysts had expected. Its economy slowed down but did not falter, and is now growing strongly again. China is continuing with its 1  BIS Review 111/2000  economic reforms, improving its investment environment and offering attractive long term opportunities for investors.

Their challenge is to evolve into modern corporations that are more than family companies. They need to be run professionally by the best man for the job, and not by heirs who may or may not have inherited the business skills and acumen of the founder. Third, governments need to untangle the complicated and deeply-entrenched ties between state, banks and industry, which exist in many Asian countries, like the chaebols in South Korea, or the state-owned enterprises in China. Such industries and enterprises often account for a significant share of GDP, but they are neither subject to market discipline, nor driven purely by economic considerations. They often find it difficult to operate as efficiently as private sector firms. Banks fail to apply normal criteria in approving loans, because of political pressure or implicit state guarantees. Employees enjoy de facto life-time job security. Well-connected persons help themselves to privileges at the companies’ expense. And governments find it politically impossible to close down the operations, no matter how unsuccessful. It is essential to speed up restructuring and reforming these unproductive enterprises. In China, the government is making a massive effort to reform its SOEs. In South Korea President Kim Dae Jung is pushing chaebols to rationalise and consolidate, and change their traditional ways of doing business. ASEAN countries must not lag behind, or else it will affect confidence in their investment climate. Banking sector reforms Besides pursuing corporate restructuring, ASEAN economies must persevere to clean up and recapitalise unsound banks, and strengthen the banking sector.