Big debt haunts SE Asian states

Big debt haunts SE Asian states

SINGAPORE (AFP): After years of sizzling growth, Southeast
Asia's emerging "Tigers" are finding that there can be no easy
escape from the problem of high current-account deficits hanging
over their economies.

Economists predict worrying deficits to persist for Indonesia,
Malaysia and Thailand, crimping the ability of their monetary
authorities to lower interest rates amid concern over the
disruptive nature of excessive capital inflows.

Zainal Aznam Yusof of Malaysia's Institute of Strategic and
International Studies told a regional-monetary conference that
ended here on Saturday that Kuala Lumpur's expectations of an
improvement in the balance of payments "may not materialise."

"Interest rates policy will have to reflect the need to
maintain a tight monetary stance," he said. "It would be
premature to conclude that interest rates have peaked."

Interest rates need to be high enough to attract capital
inflows to help finance the gap in the balance of payments even
as export growth weakens amid stable external demand, economists
say.

In its latest quarterly economic review, Nomura Research
Institute (NRI) projected Indonesia's current-account deficit to
widen to US$8.5 billion in 1996 after more than doubling year-on-
year to $7.5 billion in 1995.

Malaysia's deficit was projected to contract slightly to $6.6
billion from $7.1 billion, the Philippines' to widen to $3.2
billion from $1.9 billion and Thailand's from $13.4 billion to
$14.7 billion.

In 1997, NRI predicted deficits to reach $7.5 billion for
Indonesia, $6.1 billion for Malaysia, $3.5 billion for the
Philippines and $16.8 billion for Thailand.

Hartadi Sarwono, manager of the policy analysis and planning
division in Bank Indonesia, the central bank, traced the problem
to the emergence of "a very strong domestic demand especially
private investment and consumption."

Strong domestic demand produced a beneficially high level of
economic activities but also generated high inflation and a
swelling current-account deficit "and that is of course not
good," he said.

"This development has increased the vulnerability of a small
open economy like Indonesia to external financial disturbances,
and complicated monetary management," he said.

Large capital inflows had fueled domestic demand and led to
worries of economic overheating, Sarwono said, adding that the
challenge was to have just enough money in circulation to keep
inflation and the current-account deficit within tolerable
bounds.