Asian turmoil won't spark global depression: Fed<\/p>\n
WASHINGTON (AFP): Federal Reserve board governor Laurence
\nMeyer said here Thursday that financial turmoil in Asia would
\nhold back U.S. economic growth in 1998 but would not provoke a
\nglobal depression.<\/p>\n
Meyer, following a speech at the Economic Strategy Institute
\nhere, said he did not see the Asian crisis as \"a prelude to a
\nworldwide global depression.\"<\/p>\n
Asked to comment on the role of the International Monetary
\nFund (IMF) in Asia, Meyer said: \"I believe that success in
\ncontainment requires a balance of adjustment and financing along
\nthe lines of what the IMF is encouraging.\"<\/p>\n
The IMF has launched a US$57 billion bailout of the embattled
\nSouth Korean economy and has also put together rescue packages
\nfor Thailand and Indonesia.<\/p>\n
But the financial turmoil is not yet over and on Thursday in
\nNew York both Thailand and Indonesia's debt ratings were
\ndowngraded.<\/p>\n
Standard and Poor's rating agency said it was lowering
\nThailand's sovereign rating to just one notch above junk bonds
\nand Indonesia's long-term foreign currency rating was downgraded
\nfrom BB-plus to BB-minus by the Euro-American bond rating firm
\nFitch IBCA.<\/p>\n
Meyer warned that only a combination of adjustments and
\nstructural reform will restore investor confidence in the region.<\/p>\n
\"Markets punish those countries that don't seem prepared to
\nmove ahead,\" Meyer said, adding there have to be \"clear
\ncommitments\" on the part of the Asian countries to adhere to
\ntheir IMF programs.<\/p>\n
In his speech to the Economic Strategy Institute he said the
\nAsian crisis would curb U.S. economic growth in 1998 but would
\nnot provoke a recession.<\/p>\n
He said the Federal Reserve's monetary policy in 1998 would be
\n\"importantly shaped by the magnitude of the downdraft from the
\nAsian crisis.\"<\/p>\n
He said fallout from Asia could slow U.S. growth in 1998 in
\nthe range of between 0.5 and 0.75 of a percentage point.<\/p>\n
Meyer said the effects of \"some spontaneous slowdown and the
\nspillover from the Asian crisis ... should move growth closer to
\na sustainable rate, rather than threaten recession.\"<\/p>\n
Meyer said the strong U.S. economy in the fourth quarter that
\nhad \"tilted the balance\" toward a further Fed tightening of
\nmonetary policy had been offset by the crisis.<\/p>\n
Any slowdown as a result of the turmoil \"could be expected to
\nsubstitute for some or all of the monetary tightening that
\notherwise might have been justified,\" he said.<\/p>\n
Meyer said a key for monetary policy in 1998 would be whether
\nthe economy slows to or dips below \"trend growth\" levels -- the
\nroughly 2.5 percent at which the Fed believes the economy can
\ngrow without sparking inflationary pressures.<\/p>\n
\"A much larger spillover from the Asian crisis could encourage
\nan easing\" of monetary policy, Meyer said. \"Continued above-trend
\ngrowth and a further rise in utilization rates, on the other
\nhand, could encourage further tightening.\"<\/p>",
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