French minister warns of possible Asian woes effect
French minister warns of possible Asian woes effect
PARIS (AFP): There is still a risk of a "domino effect" on other economies from the Asian crisis and the G-7 is working "very hard" to limit the effects of the turmoil, French Finance Minister Dominique Strauss-Kahn said yesterday.
"Stabilization in Asia does not seem to be totally sure, which is worrying," Strauss-Kahn told a press conference. "The risk of a domino effect has not totally disappeared."
He said, however, that he was still "fairly calm" about the Asian events, and that there was no risk of deflation in Europe.
France was able to achieve three percent economic growth this year, he said.
Strauss-Kahn said he did not expect the Asian economies to see lower prices leading to a full-blown recession. "In the worst case, there will be a stagnation of output in those countries," he said.
He also said that the International Monetary Fund (IMF) had to continue to play a role in dealing with the crisis, noting that the Group of Seven leading industrialized nations was very active on the issue.
The Group of Seven comprises Britain, Canada, France, Germany, Italy, Japan and the United States.
Finance ministers of the four European G-7 members urged their Japanese counterpart in a letter late last year to carry out economic reforms to help combat the effects of the Asian crisis on the Japanese economy, Strauss-Kahn said.
But he said foreign private banks also had a "major" role to play in bringing the crisis to an end.
South Korean officials said on Thursday that South Korea would submit revised economic forecasts to the IMF Fund showing lower growth and higher inflation than previously forecast.
Meanwhile Thailand is seeking a review of the conditions of its IMF aid package because of worsening economic prospects.
South Korea is also seeking a rollover of its short-term debt with European and other banks pending a rescheduling of its US$200 billion foreign debt, almost half of which is in the form of short-term credit.
There is one piece of good news, however, Strauss-Kahn said: "we have avoided a default in payment" of South Korea's debt.
The governor of the South Korean central bank is currently touring European capitals for talks with central bankers, and is to meet with Bank of France governor Jean-Claude Trichet later Thursday.
Asian markets meanwhile continued to tumble on Thursday, with the spotlight on Indonesia, where share prices plunged 12 percent on the day and the rupiah dropped to 10,000 to the dollar after the government unveiled a budget which did not meet all the IMF's conditions.
Indonesia "does not seem to have committed itself along the path laid down by the international community, in presenting a budget which is not within those guidelines," Strauss-Kahn said.
IMF officials said the situation in Indonesia was worrying. If The IMF found that Indonesia was not implementing the conditions for the bailout package, it could block the release of the next installment of aid of US$3 billion due in March.
The IMF organized multi-billion dollar multilateral aid packages for all three countries when the financial crisis erupted last year, but with stringent economic reform conditions attached.
International institutions insisted at the end of the year that the effects of the Asian crisis on the rest of the world economy would be limited, with strong domestic growth in both Europe and the United States helping offset any negative effect from Asia.
But this week Federal Reserve chairman Alan Greenspan signaled a change of tone, warning that the main danger now facing the U.S. economy is not inflation but deflation.
Strauss-Kahn said that several factors currently favor economic growth in Europe however, notably historically low interest rates, and that while the contribution of exports to economic growth this year will be lower than previously expected, "it will be counterbalanced by better domestic demand than initially expected."