IMF warns Asian crisis could deepen further

IMF warns Asian crisis could deepen further

WASHINGTON (Agencies): The financial crisis in Asia could
deepen and spread in the months ahead, the International Monetary
Fund (IMF) warned on Saturday in a report urging developing
countries to brace against the economic fallout.

In its interim World Economic Outlook, the IMF slashed its
combined growth forecasts for Thailand, Indonesia, Malaysia and
the Philippines by a whopping 3.7 percentage points to 1.7
percent for 1998, and said turmoil in Asia would dampen global
growth.

It predicted growth in Japan of only 1.1 percent in 1998, and
said growth in South Korea was expected to fall to 2.5 percent
next year from 6.0 percent this year.

"Undoubtedly, people are going to feel the pain of this
adjustment," IMF chief economist Michael Mussa said at a news
conference to present the report.

In recent months, the IMF has had to put together multibillion
loans to rescue South Korea, Thailand and Indonesia after the
July 2 crash of the Thai baht currency sent economic shock-waves
across Southeast Asia.

The extent of the financial shock to hit Asia took the
international lending agency by surprise, the IMF said. Neither
economic forecasts nor asset prices in the financial markets
foretold the "depth and breadth" of the crisis to come, it said.

While acknowledging that some of its previous forecasts for
the region were "too optimistic", the fund said it repeatedly
warned authorities in Asia about the risks. But to no avail.

"When economic conditions remain generally good and when
private foreign capital is flowing at a record pace and on very
attractive terms, it is easy to believe that the good times will
continue," the report said.

The report said Asia's raging financial crisis threatens to
put a damper on global growth but there is no reason to be overly
pessimistic about the world economy's prospects.

The fund added overall world output would still grow by a
buoyant 3.5 percent next year -- 0.8 percentage points below its
previous forecast in October and 0.6 points below this year's
estimated rate of expansion.

For those countries already affected, the IMF said economic
reforms must not be put off.

The crisis has already led to a dramatic slowdown in private
capital flows to emerging economies in all regions, with the
sharpest drop in Asia, the IMF said.

Painful adjustments will need to be made in emerging markets
around the world, the fund said, as fiscal policies are
tightened, domestic investment and consumption are compressed,
imports decline, and economic growth slows or, in some cases,
turns negative.

The IMF said capital flows to developing countries would
remain low in the months ahead as investors become more cautious
and as borrowers postpone new issues because of the high cost of
accessing the international capital markets.

As the crisis drags on, the IMF said other developing
countries are more likely to be drawn in.

"Many countries are vulnerable to reversals of market
sentiment," the IMF said. "It is therefore critical that
countries take the necessary steps to reduce their
vulnerability."

Though bleak in the near-term, the IMF said investor sentiment
toward emerging markets would begin to turn around in the course
of 1998, and that countries hard hit by the Asian crisis, after a
significant slowdown in growth next year, will see a pickup in
1999.