As PM Mahathir has pointed out, Malaysia’s exchange controls have not harmed its economy. The Malaysian government has been working out bad loans in the banking sector, and getting banks to consolidate into core-banking groups. It is not clear how much corporate restructuring has taken place. But Malaysia’s external debt is relatively low and it can afford a certain amount of very long-term infrastructure projects which may not offer attractive financial returns. In Indonesia, Abdurrahman Wahid has just been elected as the fourth President, with Megawati as Vice-President, in Indonesia’s first truly democratic presidential election in over thirty years. It is a good outcome, after two traumatic years of upheaval and chaos. But the road ahead for Indonesia is not easy. The new government faces many urgent priorities. It must work out a new political balance, redefine the role of the military, lay the basis of a civil society, and strengthen the rule of law. Then confidence will return and the economy will revive. In this arduous task of national reconstruction and reconciliation, Indonesia has the good wishes and support of its neighbours, including Singapore. North East Asia In North East Asia, Japan is finally recovering from its prolonged recession. Public investment, private consumption and housing investments are all improving. We are also starting to see real financial and corporate restructuring in Japan. Sony, Nissan and NTT have recently announced sizeable cuts in their workforces2 – a significant departure from the lifetime employment system.
In addition to encouraging trends in the global economy, the stabilisation of output growth in the euro area has contributed significantly to this. However, the most recent industry and consumer surveys also give positive indications with regard to economic activity in the euro area. Therefore, it is likely that economic activity will accelerate in the second half of 1999 and the year 2000. When assessing the risks for price stability, the ECB does also monitor the external value of the euro. The weakening of the effective exchange rate of the euro, which remained at around 8% between the start of the year and early September, lent itself to an increase in import prices denominated in euro. Taking into account all available information, the outlook for the preservation of price stability remains favourable. However, recently inflationary risks have increased slightly. In the coming months it will therefore be necessary to monitor developments in the monetary aggregates and credit aggregates. In addition, the short-term effects of the increase in oil prices and exchange rate developments on consumer prices need to be taken into account. The latter factors should not affect the outlook for price stability as long as wage increases remain moderate. The wage round for the year 2000 will, however, play an important role in future price developments. On the basis of this current assessment of the monetary, financial and economic situation, the Governing Council of the ECB left the central bank interest rates unchanged at yesterday’s meeting.