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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