IMF rules out Mexican-like crisis hitting Asian countries
IMF rules out Mexican-like crisis hitting Asian countries
SINGAPORE (AFP): The International Monetary Fund (IMF) yesterday ruled out fears that the burgeoning current-account deficits of Asia's rapidly growing economies are exposing them to a Mexican-type economic crisis.
The IMF's first deputy managing director, Stanley Fischer, said most of the Asian economies riddled with deficits enjoyed economic growth rates exceeding that of Mexico before the country plunged into crisis in early 1995.
"There is a very big difference between what is happening in Mexico, where you had big balance of payments deficits with a growth rate of three percent, versus what is happening in Asia where you have big deficits but very rapid growth rates," Fischer told reporters here.
Mexico was plunged into economic chaos after devaluing the peso in December 1994 during a balance of payments crisis.
The crisis triggered fears of a similar devaluation in Asia, with currencies of deficit-hit nations, including the Thai baht, the Philippine peso, the Hong Kong dollar and the Indonesian rupiah coming under speculative attack after the Mexican unit's fall.
Since the Mexican crisis, the current-account deficits of many Asian developing economies have ballooned even further on the back of increasing imports of inputs to fuel their industrial growth and a widening gap between savings and investment.
According to Japanese research house Nomura, the combined current-account deficit of developing Asia, excluding China, was projected at US$19.3 billion in 1995.
It warned that domestic banks were under pressure to provide funding for the region's current-account deficits because the shortfalls were not always covered by long-term capital inflows.
Fischer said rising deficits and how they could be financed boiled down to one major factor -- how fast an economy was growing.
Borrowing
"If you are growing fast, you can afford to borrow more. If you are growing slowly, you should be borrowing less," said Fischer, who headed the department of economics at the Massachusetts Institute of Technology before taking up the IMF post in 1994.
He said that it was the combination of an eight-percent current-account deficit growth with a three-percent economic growth that made the Mexican situation unsustainable.
Fischer said the IMF, which injected $17 billion to keep the Mexican economy afloat, was glad to see the central American nation getting back to its foot again.
"The Mexican economy started growing at the end of 1995 and we are seeing financial stabilization now. The peso has been strengthening, interest rates are coming down, Mexico has been able to borrow abroad," he said.
But Fischer said the IMF was beefing up its own strength to deal with possible Mexican-like situations.
Asked whether the IMF would set up a separate fund to assist countries which faced problems like that of Mexico, he said: "We won't have a separate fund in the IMF but we are trying to increase our total resources so that we can deal with future problems."
Fischer gave a talk earlier to Asian central bankers and private economists on challenges to central banking during a symposium organized by the Monetary Authority of Singapore, the de-facto central bank.
The Bank of Japan's deputy governor Akira Nagashima said during a panel discussion at the symposium that the Mexican crisis showed that economic growth of developing countries could not rely excessively on short-term capital inflow.
"This is because they carry the risk of a sudden liquidity crisis once market sentiment changed," Nagashima said, suggesting that East Asian nations whose financial markets were not fully developed could introduce measures to control such inflow of funds to minimize any possible negative effects.
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