Investors eying SE Asia deficits

Investors eying SE Asia deficits

SINGAPORE (Reuter): Global investors continue to watch current
account deficits in Southeast Asia and will punish those with low
foreign direct investment, high imports and lackluster export
performance, UBS Global Research said yesterday.

In its weekly report on East Asia, UBS said investors question
the sustainability of current account deficits in Southeast Asian
countries, ranging from 4.5 percent of gross domestic product
(GDP) in Indonesia to 9.2 percent in Malaysia.

But as long as foreign direct investments were financing these
deficits, investors would relax a little, it said.

The UBS report said both Malaysia and Thailand would have to
cope with reduced long-term inflows.

Malaysia, in particular, needed to convince skeptics that with
only 50 percent of its current account deficit financed by
foreign direct investment (against 100 percent in 1994), that it
would get its "domestic house in order", the report said.

"Maintaining domestic policy credibility via sufficiently
tight fiscal and monetary policies and a helpful exchange rate
stance" will be important to Thailand and Malaysia, the report
said.

With Indonesia, investors are also expected to monitor export
growth, which averaged only 12.3 percent year-on-year for the 11
months ending November 1995.

"The policy challenge is most stark in Indonesia. Unlike the
others, export growth has to improve and to that end the rupiah
must continue to depreciate to be competitive," the report said.

UBS said it expects a depreciation rate of 5.3 percent in the
rupiah this year.

"We do not expect any of the external deficits of these
Southeast Asian economies to drop rapidly. As they are all likely
to borrow more than they used to in this context, lackluster
export performance will be punished by investors. The greatest
risk of this is in Indonesia," the report said.