Rise in Price of Oil Starts to Hurt Asia

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Paris, Wednesday, September 20, 2000 Rise in Price of Oil Starts to Hurt Asia Drop in Exports Is Principal Fear

By Michael Richardson International Herald Tribune SINGAPORE - The surge in oil prices is starting to hurt Asia, increasing energy costs in many economies and raising fears that growth may slow just as much of the region is rebounding impressively from the financial crisis and recession of 1997 and 1998. Asian stock markets have fallen sharply in recent days, partly because of concerns that soaring oil prices will dent corporate profits, fuel inflation, force interest rates up and curb growth.

But analysts said Tuesday that the main risk to the region's export-oriented economies was the large potential loss of sales in the United States, Europe and Japan if a prolonged oil increase undermines demand in any of the world's three major markets.

The Japanese finance minister, Kiichi Miyazawa, implicitly endorsed that view when he said Tuesday in Tokyo that finance ministers and central bankers from the Group of Seven leading industrial powers would discuss the impact of high oil prices when they meet in Prague this weekend.

David Fernandez, an economist at J.P. Morgan & Co., in Singapore, said global demand was clearly being hurt by higher oil prices, raising a central concern for the developing and newly industrialized economies of Asia: the possibility that U.S., European and Japanese imports from the region will slow.

''At this point, such an event seems unlikely,'' he said. ''But for a region so reliant on exports, that is emerging Asia's true vulnerability to higher oil prices.''

Much of the growth in demand for oil that has pushed prices to 10-year highs has come from Asia, which has to import most of its oil. Rapid industrialization has increased the region's share of global oil consumption to 17 percent from 11 percent in 1990. Crude oil for November delivery fell 50 cents on Tuesday to $35.05 a barrel on the New York Mercantile Exchange

Bill Belchere, chief economist in the Singapore office of Merrill Lynch & Co., said that if oil prices averaged $33 a barrel in 2001, it could trim as much as one and a half percentage points from the annual growth of some countries, and half a percentage point of growth from the region as a whole.

But the impact on Asian countries would be uneven. Indonesia, Malaysia and Brunei - all net exporters of oil - would continue to get a boost to their economic growth.

China is partly insulated because it burns a lot of domestically produced coal, although demand for imported oil is rising fast.

Japan, too, is unlikely to suffer much from the higher prices because of its strong currency. Japan has also greatly reduced its dependence on imported oil since the 1970s by making more efficient use of the fuel and switching to alternative energy sources, such as nuclear power.

Mr. Belchere said that the main losers would be the region's other oil-reliant economies: the Philippines, South Korea, Thailand, Taiwan, Singapore, India and Hong Kong.

The Philippines, Thailand and South Korea have had to raise gasoline and other energy prices by as much as 50 percent in recent months to offset the higher cost of imported oil. This has created a public and political outcry.

http://www.iht.com/IHT/TODAY/WED/FIN/asiaoil.2.html

-- Martin Thompson (mthom1927@aol.com), September 19, 2000


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