ASEAN nations must tighten fiscal policy: Study<\/p>\n
MANILA (Dow Jones): Southeast Asian countries may have to
\ntighten fiscal policy because of mounting public debt incurred as
\nthey battled the region's economic crisis over the past two
\nyears, according to a report by the Association of Southeast
\nAsian Nations (ASEAN).<\/p>\n
"With the already high level of external debt in crisis-
\naffected countries and additional public debt the governments
\nhave incurred in financing the banking sector restructuring and
\nfiscal stimulation packages...expansionary fiscal policies may
\nnot be sustainable," says a final draft of the report, obtained
\nSunday at ASEAN's summit in Manila.<\/p>\n
"With most countries expecting budget deficits next year, the
\nlevel of public debt will rise from the already-high levels in
\n1999," it adds.<\/p>\n
The report, prepared by an Asean monitoring group that was
\nformed last year to help avert future crises, doesn't single out
\nindividual ASEAN countries as facing particularly heavy debt
\npressures, or say when fiscal policies might have to be
\ntightened.<\/p>\n
But it says the fiscal issue is a potential threat to Asean's
\nrecovery because, for the time being at least, fiscal stimulus is
\nexpected to continue playing an important role in growth. Rising
\nglobal interest rates, especially in the U.S., could add to the
\nproblem, it says.<\/p>\n
The report suggests that ASEAN ministers consider ways to
\nreduce the cost of managing their public debt, including:
\ndeepening domestic bond markets to allow for longer maturities
\nand better liquidity; securitizing state enterprises;
\ndiversifying public debt to include more borrowing in yen as U.S.
\ninterest rates rise; and sharing experience of debt management
\nbetween Asian members.<\/p>\n
Another area of concern is that consumer demand in some
\ncountries remains weak and private investment hasn't turned
\naround, the report says. In addition, corporate and financial
\nsectors are continuing to suffer from bad debt problems, and if
\nrestructuring and reform of these sectors stalls, economies will
\nsuffer, it adds.<\/p>\n
It finds that the movements of banking stocks in ASEAN
\ncountries since financial crises began suggest investors are
\nconfident about Malaysia's bank restructuring, have doubts about
\nThailand's, and don't see any sign of recovery in Indonesia's
\nbanking sector.<\/p>\n
The report urges ASEAN countries to strengthen public and
\ncorporate governance and disclosure, enforce bankruptcy laws and
\nprovide tax incentives to promote restructuring.<\/p>\n
A possible slowdown in the U.S. economy next year could also
\nhurt ASEAN, though this may be offset by growth in Japan and the
\nEuropean Union, the report says.<\/p>\n
It suggests that ASEAN limit its vulnerability to external
\nshocks by encouraging more trade within the region. Two ways to
\ndo this might be to create an ASEAN exchange rate system or even
\nan ASEAN common currency, and to establish a regional mechanism -
\na kind of "Asian Monetary Fund" - to protect financial stability,
\nthe report says.<\/p>\n
A devaluation of China's yuan could also damage ASEAN's
\nrecovery, the report says, though it doesn't estimate the
\nlikelihood of this.<\/p>",
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