Asia's long-term outlook favorable: IMF committee

Asia's long-term outlook favorable: IMF committee

HONG KONG (AFP): The long-term outlook for Asian countries,
swept by currency turmoil, is favorable due to their solid
economic fundamentals, the IMF policymaking body said yesterday.

The Interim Committee said in a statement after a meeting here
that "the impact of recent financial market turmoil on some of
the countries affected is expected to result in a slowdown of
growth in the near-term."

But their economic fundamentals remained solid "and their
longer-term outlook is favorable, provided the required
adjustment policies are sustained," said the statement.

The committee said the disturbances Asian financial markets
had underscored the need to ensure the internal consistency of
economic policy, "strengthen financial systems, and avoid
excessive external deficit and reliance on short-term foreign
borrowing."

The Asian experience illustrated that rising capital flows may
require some adaptions to exchange rate mechanisms to changing
circumstances, the statement said.

"Regardless of a country's exchange rate arrangement, the
maintenance of appropriate macroeconomic and structural policies
consistent with the arrangement remains crucial."

Upheaval in Southeast Asian financial markets was triggered by
the de facto devaluation of the Thai baht on July 2 which has
shaved off more than a third of the currency's value.

With its economy in deep crisis and its finance sector
burdened by billions of dollars in bad debt, Thailand went cap in
had to the IMF and secured a US$17.2-billion credit line to put
its house in order.

Free Flow

The committee also backed moves that would enable the Fund to
promote the free flow of capital.

It called on the IMF executive board to complete work on
amending articles governing the Fund's operation.

"The committee invites the executive board to complete its
work on a proposed amendment to the Fund's articles that would
make the liberalization of capital movements one of the purposes
of the Fund," the committee said in the statement.

But apparently acknowledging fears in developing countries, it
added that "safeguards and transitional arrangements are
necessary for the success of this major endeavor."

Developing nations have expressed concern that their fragile
economies could be overwhelmed and disrupted by a flood of
foreign capital and have insisted on technical assistance to
prepare their financial sectors.

The committee said that "provided it is introduced in an
orderly manner and backed both by adequate national policies and
a solid multilateral system for surveillance and financial
support, the liberalization of capital flows is an essential
element of an efficient international monetary system in this age
of globalization."

In a separate communique the Interim Committee warned that the
United States must "guard against the re-emergence of inflation."

It said Japan was challenged to "achieve the objective of
domestic demand-led growth with a supportive stance of monetary
policy" and urged European countries saddled with high
unemployment to make "more determined efforts to increase
efficiency and adaptability in labor and product markets."