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."