Don't panic over U.S. slowdown, Koehler tells Asia

Don't panic over U.S. slowdown, Koehler tells Asia

TOKYO (Reuters): The head of the International Monetary Fund (IMF) advised Asia not to panic about the slowdown in the U.S. economy, saying it would not lead to a repeat of the region's gut-wrenching 1997 financial crisis.

But IMF Managing Director Horst Koehler said Asia would feel the pinch of slower U.S. growth and he urged governments to respond by stepping up the pace of much-needed economic reforms.

"This will have an impact but...people should not panic," Koehler told CNN in an interview aired on Friday.

Growth rates in -- or close to -- double digits in Hong Kong and South Korea were simply unsustainable and might slow to the 4-6 percent range, he said.

"It is a kind of normalization. The region as a whole, including China, is still a place of considerable stable trade and commerce, so therefore growth rates will come down in the Asian region but not in the sense that there is a risk of recession," he said.

The IMF chief will have a chance to take the region's temperature when he attends a meeting of 25 Asian and European finance ministers at the weekend in the Japanese city of Kobe.

Paying a call on Japanese Finance Minister Kiichi Miyazawa ahead of the Asia-Europe Meeting (ASEM), Koehler also tried to dispel some of the gloom enveloping Japan, which is struggling to mount a sustained recovery after a decade of below-par growth.

"In a time of transition there may be some pain involved, but there is no need to be pessimistic about the future," a Finance Ministry official quoted Koehler as telling Miyazawa.

Asia is more exposed than, say, Europe to a downturn in the United States because it exports a much larger proportion of its output to America.

But Koehler, who was interviewed by CNN in Hong Kong on Thursday, said he was not concerned that slower growth could trigger a re-run of the balance-of-payments crunch in 1997 that plunged the region into a deep recession.

Since then, most countries had reduced their debts, built up foreign exchange reserves and improved their economic fundamentals, he said.

Vincent Truglia, managing director of sovereign ratings at Moody's Investors Service, agreed with Koehler's assessment.

"We're not talking about any foreign currency crisis like we saw in 1997 and 1998. Rather we're talking about a more traditional cyclical downturn," Truglia told Reuters Television.

"But that doesn't mean that it will be particularly pleasant when looking at individual domestic economies of a lot of these countries," he said.

"It seems to me that the strong recovery in 1998, 1999 and 2000 may have contributed to a weakening of the momentum for the need to restructure the corporate and financial sector. That is a bit of a problem," Koehler said.

He named Indonesia, Thailand and South Korea as being among the laggards.

"I'm not satisfied but it's not too late. I think the slowing- down of the global economy, triggered by the slowing-down of the U.S. economy, may have been the right signal at the right time to build up new momentum," Koehler said.