Watch current account deficit: IMF chief<\/p>\n
JAKARTA (JP): Managing Director of the International Monetary
\nFund Michel Camdessus yesterday warned Indonesia and other
\nAssociation of Southeast Asian Nations (ASEAN) members over their
\nhigh current account deficits and their financial systems'
\nsoundness.<\/p>\n
\"These are two financial problems you can and must overcome,\"
\nCamdessus told an international two-day conference organized by
\nthe IMF and Bank Indonesia here yesterday.<\/p>\n
He said large net capital flows into Indonesia and other ASEAN
\nnations tended to raise aggregate expenditures, pushing up
\ninflationary pressures and widening current account deficits in
\nthose countries.<\/p>\n
ASEAN groups Indonesia, Brunei, Malaysia, the Philippines,
\nSingapore, Thailand and Vietnam.<\/p>\n
However, these inflows, especially short-term ones, could be
\nsuddenly reversed because of changes in market sentiment and
\nmarket conditions in other countries, Soedradjad said.<\/p>\n
\"So countries in such situations must pay particular attention
\nto the sustainability of their external positions,\" he said.<\/p>\n
At the conference called Macroeconomic Issues Facing ASEAN
\nCountries, Camdessus said globalization had put new strains on
\ndomestic financial systems, especially the banking system.<\/p>\n
He noted large capital inflows often led to a rapid expansion
\nof the domestic credit market which could set the stage for
\nfinancial sector problems, especially if prudential supervision
\nand capital adequacy requirements were inadequate.<\/p>\n
\"Globalization has also quickened the pace of financial
\ninnovation and difficulties can arise when the pace of this
\ninnovation outstrips countries' regulatory and supervisory
\ncapacities to ensure that the new forms of risk are being managed
\nprudently,\" he said.<\/p>\n
Financial sector problems could not be prevented by prudential
\npolicy alone, he said. The problems also require appropriate
\nmonetary and fiscal policy and steps to increase the transparency
\nof institutions' operations and financial condition.<\/p>\n
At the conference which was also attended by financial
\nexecutives from non-ASEAN nations, Camdessus called on ASEAN
\ncountries to take prompt action before the situation deteriorated
\nbecause of policy makers' reluctance to tighten policies for fear
\nof worsening banking sector problems.<\/p>\n
\"Otherwise, delays in policy action could lead to a loss of
\nmarket confidence in domestic economic policy which could, in
\nturn, trigger capital outflows and put further pressure on weak
\nbanks,\" he said.<\/p>\n
Although ASEAN countries had performed well, they were not
\nimmune to the complications of large capital inflows, he said.<\/p>\n
In some countries, strong domestic demand had raised external
\ncurrent account deficits and put pressure on private sector
\ncredit and domestic prices, he said.<\/p>\n
\"Financial systems have inevitably come under pressure, too,\"
\nhe said, adding that in many countries, increased capital inflows
\nand domestic demand had stimulated excessive lending for consumer
\ncredit and real estate.<\/p>\n
Camdessus praised ASEAN countries' success in managing their
\neconomies over the past two decades.<\/p>\n
Based on current trends, by the end of the century, ASEAN will
\nhave more than doubled its share of the world's output and income
\nsince 1975 to almost 6 percent, he said.<\/p>\n
\"This will give ASEAN an economic weight about halfway between
\nthose of Germany and Java,\" he said. Over the same period,
\nASEAN's share of world trade will have increased 3.5 times to
\nabout 8 percent, a share roughly equal to Japan's share today.<\/p>\n
He said per capita Gross Domestic Product (GDP) in purchasing
\npower parity terms will have increased from less than US$1,000 to
\nalmost $10,000 in just one generation.<\/p>\n
Addressing the conference, Indonesia's Minister of Finance
\nMar'ie Muhammad acknowledged some ASEAN countries were facing
\nlarge external debts and growing current account deficits.<\/p>\n
\"In this regard, I would like to reiterate the critical
\nimportance of consistent, prudent fiscal and monetary policies,\"
\nhe said.<\/p>\n
\"In any circumstance we should refrain from overconfidence.\"<\/p>\n
The minister said ASEAN countries should review and update
\ntheir major fiscal and monetary policies accordingly to enable
\nthe region to deal with challenges and threats promptly and
\nefficiently. (hen)<\/p>",
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