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.