IMF warns Asia's economic recovery still 'precarious'
IMF warns Asia's economic recovery still 'precarious'
TOKYO (AFP): Asia is returning to growth but it is a "precarious recovery" and several weaknesses still remain across the region, the IMF's head of Asian operations warned Wednesday.
The Fund forecasts growth in most nations across Asia this year but is concerned about poor business investment, said Hubert Neiss, director of the International Monetary Fund's Asia-Pacific operations.
"Our outlook is basically positive but we have to be careful," Neiss told a seminar in Tokyo.
"It is a precarious recovery but could be durable if the present strategy is continued," he said.
Monetary and fiscal policies still needed to be expansive, with low interest rates and significant budget deficits. More corporate restructuring was needed.
Both Thailand and South Korea would grow this year and in Indonesia, the third country supported by IMF loans during the currency crisis, the economy would shrink only one percent, he said.
"A recovery while established is not really broad-based and there are still a number of weaknesses in the economy, in particular business investment," Neiss said.
Another concern was the rise in the value of the Japanese yen, which could put an end to recovery in the world's second largest economy and an engine of growth for Asia.
"A further rapid appreciation of the yen could well put an end to recovery as has happened once before," he said. "It is an important risk."
The Japanese yen has surged to seven-month highs against the dollar, as foreign investors pour money into Japan hoping to catch the wave of recovery.
At 1 p.m. (0400 GMT) the yen was trading at 109.38-40 to the dollar, against 110.17-20 yen here late Tuesday.
But Neiss said the IMF was otherwise encouraged by signs of a recovery in Japan. The Fund will likely upgrade its growth forecast for Japan for the current calendar year from 0.25 percent to 0.5 percent, Neiss said.
"However none of us is willing to go out on a limb and declare it (a recovery) all there," he said.
In China the Fund expects growth to continue, although at a slower rate than in previous years. But Beijing will not devalue the yuan in the near future, Neiss said.
"There will be no devaluation in the near future, that is the firm intention of the Chinese government," he said.
"The Chinese government is in a strong enough position to keep the renminbi (yuan) stable with a very comfortable reserve position."
More important in China were problems with demand and structural reform. "Consumption is weak as people save more in anticipation of an uncertain future. Foreign investment is much lower than it used to be," he said.
"Thorough reform has to take place to continue growth in the future."
In fact most countries in Asia had taken the reform steps needed to revive their economies. The use of capital controls in Malaysia made little difference to bringing a recovery, Neiss said.
"The effect of the controls by Malaysia has been largely exaggerated," he said.
"Taking Malaysia out of the crisis has come through other areas, macroeconomic and structural. Controls only played a marginal role."
China: 6 or 7%; Indonesia: -1%; Japan: 0.25 to 0.5%; Malaysia: 2.5%; Philippines: 2.25%; Singapore: 3.5%; South Korea: 6.5 or 7%; Thailand: 2.5%; Vietnam: 4.5 or 5%