Phl, China most affected by Japan disaster – WB report

BAGUIO CITY, Philippines  – The Philippines and China are the most affected countries in the East Asian region by developments in Japan, the World Bank said.

In a report titled “Securing the Present, Shaping the Future” and released last March 21, the bank said the Philippines and China “are more connected to developments in Japan than the rest of East Asia”.

This is particularly true for the Philippines where electronics goods bound mostly for Japan account for two-thirds of its total exports.

On the other hand, energy producers, such as Indonesia, Malaysia, and Vietnam could benefit in the short to medium-term from higher energy prices “as Japan begins to rebuild and tries to close the energy gap caused by the loss of nuclear capacity,” the WB said, adding that longer-term demand for fossil fuels could remain high as other nations revisit plans for their nuclear electricity production.

The WB report noted that after the 2005 Kobe earthquake, Japan’s trade slowed only for a few quarters before recovering. Within a year, imports had recovered fully and exports had rebounded to 85 percent of pre-quake levels.

Over the last five years, developing East Asia’s trade with Japan has accounted for about nine percent of the region’s total external trade, the WB continued. On average, assuming Japanese real GDP growth slows by 0.25 to 0.5 percentage points by mid-2011, exports from developing East Asia may slow by 0.75 to 1.5 percent. 

“This time around,” the WB foresees, “disruption to production networks, especially in automotive and electronics industries, could continue to pose problems.”

Japan is a major producer of parts, components, and capital goods which supply East Asia’s production chains.

While the WB says it is too early to estimate accurately, the cost of the March 11 quake damage is likely to be greater than the damage caused by the 6.9 magnitude Kobe earthquake.

The WB estimates the damage of the March 11 quake at $122-235 billion (2.5-4 percent of GDP) while that caused by the Kobe tremblor was only $100 billion (two percent of GDP).

The toll on life this time was 15,214 (dead and missing) while there was only 6,434 in 1995.  

The impact on regional finance is also seen by the WB as a major issue. “About one-fourth of developing East Asia’s long-term debt is denominated in yen,” the creditor giant said, adding “ranging from about eight percent in China to about 60 percent in Thailand.” 

This means that a one-percent appreciation in the Japanese yen translates to a $250-million increase in annual debt servicing on yen-denominated liabilities held by East asia’s developing countries – about 0.25 percent of the region’s aggregate debt-service ratio.

Japan is a significant source of foreign direct investment to East Asia, the WB said. It is the largest direct investor in the Philippines, Thailand, and Korea, and the second or the third largest in Malaysia, Indonesia, and Singapore.

The WB claims that at this stage, it is unclear how the disaster will affect Japanese outward FDI, “But it may dent the pace of overseas investment as the country’s focus turns inward on reconstruction,” it added. –Artemio A. Dumlao (The Philippine Star)