We are finally starting to see some positive news around the East Asia and Pacific region, but it is too soon to begin to speak of "green shoots" of economic activity or reaching the bottom of the economic downturn in Asia. Although the Swine flu  (one disease originating from animals that did not come from Asia!) and the nervousness about the condition of U.S. banks had a slightly negative impact  on financial markets in Asia this past week, the stock markets are still up by about 12% for the year – led by Indonesia (21.6%), Korea (11.8%), and China (9.4%).
Speaking of Indonesia, the Government is close to completing it net financing requirement for 2009, having raised $7.2 billion of its $8.8 billion planned issuance for the year. Most notably, on April 17, the Government raised $650 million from its first sale of global Islamic bonds  (or sukuks) at a yield of 8.8%, attracting more than $4 billion in orders. This is an interesting development, since the Government failed to raise much funding in February 2008 through a domestic sukuk due to a lack of demand. There is now speculation that if the Government can issue additional international bonds, then Indonesia may end up not utilizing much of its $4 billion in contingency financing from official sources, including the World Bank's $2 billion "Public Support Expenditure Facility " loan (pdf).
We have already talked about the slowdown in the growth in GDP, FDI , exports, production, etc., in China. However, recall that I wrote earlier  of the massive increase in lending by banks, particularly the state-owned banks – lending rose  by $667 billion in the first quarter of 2009, or 90% of the Government's lending target for the entire year and six times as many loans in March this year as compared to a year ago. But we are now seeing the results of the massive boost in lending over the past months. This lending has helped to push up fixed asset investment  by 28% in the first quarter of the year, and fixed asset investment accounts for 45% of GDP. This may point to a sign or recovery, or a sign of new bad loans in the future. The banking supervisor has become concerned with this rapid rise in new lending and has made vague pronouncements  encouraging banks to "properly address the relation between business growth and risk management." There have also been news reports  that rules are being developed by the supervisor to regulate the flow of new lending and inspections have taken place to investigate the surge in new lending. It should be noted the supervisor is also strongly encouraging lending in targeted economic segments, such as small and mid-sized enterprises and rural areas.
To balance some of the good news, in the Philippines, bank lending is declining and loan spreads are increasing despite measures to ease liquidity conditions. The Philippine central bank  has cut policy rates by a cumulative 150 basis points since December, offered larger rediscounting facilities, and eased mark-to-market guidelines for banks. Lending is declining  particularly to the manufacturing, mining, household, and real estate sectors and the spreads are increasing. These are potential indications of tightening bank credit conditions. Although the capital levels of banks  in the Philippines is generally high (over 15%), there has been deterioration in recent months.
We'll keep looking for positive economic signs in the region, but it still seems like things may get worse before they get better ... the IMF is projecting  (pdf) that the total loan write-downs by banks in emerging Asia (excluding China) will be $270 billion as a result of this crisis, so there are real worries about what the future holds.