Bangkok- The good news is that almost a decade after the 1997 financial crisis swept through South-East Asia, devastating economies and wrecking millions of lives, the region's macro-economic picture is now comparatively strong.

The region as a whole grew 6.2 per cent in 2007, and is forecast to notch up a respectable 5.7 per cent growth this year, according to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) 2008 economic survey.

As a whole the region is enjoying current account surpluses, high foreign exchange reserves, balanced budgets, low debt, increasing domestic demand and a strong financial system.

The bad news is that these countries remain largely reliant on exports for their growth, and that growth is now threatened by the US malaise, with its twin symptoms of slowing demand for Asian exports and appreciating Asian currencies.

"One lesson that I thought policy-makers had learned from the 1997 crisis was that there was a need to protect their economies from external shocks," said James McCormack, managing director for Asia-Pacific Fitch Rating, a country and corporate risk-rating agency.

South-East Asia's dramatic growth in the late 1980s and early 1990s made the region the darling of foreign investors and lenders long before China and India had claimed central stage for economic miracles.

South-East Asia's take-off was fueled largely by a huge influx of foreign direct investment (FDI) in manufacturing, much of it from East Asia where currencies had appreciated against the dollar, aimed at exports.

After the 1997 financial crash, there was much talk in the region about the need to boost domestic demand and reduce over-reliance on exports.

"But economies across the region actually rely now more on external demand than they did before the 1997 crisis, so if that was one of the lessons, it wasn't learned," noted McCormack.

With a few exceptions, the leading economies of South-East Asia remain export-driven, with the US market still accounting for a sizeable portion of their market, which is worrisome when the US is entering a recession.

According to the IMF, exports to the US account for an estimated 22 per cent of Singapore's GDP, 21 per cent of Malaysia's, 12 per cent of Vietnam's, 10.5 per cent of Thailand's, 7 per cent of the Philippines and only 3 per cent of Indonesia's.

Economists are quick to point out that many countries in the region have successfully diversified their exports to new markets, such as China, but this trend may be deceiving.

Much of South-East Asia's exports to China are in the form of parts and components, destined for assembly lines in foreign-owned factories that will ultimately be exporting their goods to the US or Europe.

As much as 80 per cent of the Philippines' exports to China are classified as parts and components, and 58 per cent of Singapore's.

This over-reliance on exports is in stark contrast to Asia's new powerhouses, China and India.

"Countries in the region will face twin losses from lower demand for their exports and a loss of competitiveness this year, because their currencies will go up compared with the dollar," said Shigeru Mochida, deputy executive secretary of UNESCAP.

"But China and India will be more resilient, because India is less reliant on exports and China has strong domestic demand," he added.

The two Asian giants also have a much smaller reliance on the US from their exports. China's exports to the US account for only 7 per cent of its GDP, while India's are a miniscule 2.5 per cent.

Unfortunately, the relative stability of the domestic-driven economies of China and India does not necessarily translate into good news for South-East Asian exports.

"Another problem for South-East Asia is they have difficulty competing with China in China," said McCormack.

Over the past decade China has phased out imports of many intermediate goods once sourced from South-East Asia, such as steel, by investing in their own production bases at home.

"So if South-East Asian countries can't compete with China in the US, and can't compete with China in China, where does that leave them?" asked McCormack. (dpa)