East Asia well placed to continue stable growth
East Asia well placed to continue stable growth
TOKYO (AFP): East Asia appears to be well placed to continue
attracting the inflows of foreign capital that have fueled the
region's growth, Japan's Economic Planning Agency (EPA) said
yesterday.
The EPA, in its white paper on the 1995 world economy, said
the Mexican currency crisis that began the year put considerable
pressure on East Asia.
But the region's attractiveness as a destination for direct
foreign investment, rather than equity and bond investment, and
continued attention to economic fundamentals should provide it
with the capital inflow stability needed to continue growth.
"The significance of solid fundamentals was driven home in
late 1994, when the currency crisis forced Mexico into radical
policy changes and briefly affected the currencies of countries
with heavy budget and trade deficits," the agency said in its
white paper.
The Mexican economy went into crisis due to the overvalued
peso, inflation worries caused by deteriorating state finances,
political instability, and huge withdrawals of US funds attracted
to higher American interest rates.
The Mexican crisis led to selling of Asian currencies, notably
in Thailand, Indonesia and Malaysia, prompting massive
intervention by currency authorities.
"Once the sound overall fundamentals of East Asia were
properly evaluated, selling pressure on East Asian currencies was
quickly dampened," the EPA said.
East Asia and Latin America attracted a combined 71 percent of
private sector capital inflows into the developing world in 1994,
the report said.
In East Asia, direct investment accounted for half of the fund
inflows in 1993, up from 10.3 percent in 1980, while securities
investment represented 78.7 percent of inflows into Latin
America, compared with 6.1 percent in 1980.
The high proportion of direct investment in East Asia
reflected the region's relatively strong fundamentals, the agency
said.
Direct investment is more stable because the funds could not
be easily withdrawn, unlike "hot money" securities investment,
which can disappear just as quickly as it arrives.
"In East Asia, and Latin America, it is necessary to induce
inflow of capital from outside to finance investment that cannot
be fully covered by domestic savings," said Mitsuru Taniuchi, the
EPA's director of overseas research and author of the white
paper.
"It will be the challenge of those developing nations to see
to it that there is stable inflow of capital so that there will
be economic growth based on stability," Taniuchi told a briefing
for the foreign press.
The white paper said that since 1990 there had been a
substantial inflow of international finance to Asian and South
American emerging economies.