SE Asia to rely on external financing

SE Asia to rely on external financing

HONG KONG (Reuter): Southeast Asian economies will rely increasingly on external financing for growth in the next decade but some economies could be volatile during periods of uncertainty or speculation, said Janet Henry, an Asia-Pacific economist with the Economist Intelligence Unit.

"Indonesia stands greater risk here," Henry told a country- risk seminar.

Henry said that as U.S. interest rates fell, Indonesia was at particular risk of overheating, especially since foreign investors parked money there to seek higher returns.

The flow of hot money into Indonesia could generate inflationary pressures, she said.

However, Henry pointed out that some Asian economies had taken proactive measures to slow down their rapid growth so as not to trigger inflationary pressures.

She singled out Malaysia as showing signs of voluntarily slowing down its double-digit economic growth. "It's slowing down, it's got to slow down...it's shown itself to be willing to control (capital) inflows," she said.

But Henry said growth prospects in Indonesia, Thailand, Malaysia and the Philippines continued to be good and massive foreign capital was needed.

Over the next decade, Indonesia will need US$16 billion in external financing, Malaysia and Thailand US$15 billion each and the Philippines US$7-8 billion, she estimated.

"Large debt repayment is expected over the next few years," she said, adding that government savings in these countries would not be enough to meet future needs.

The World Bank estimates that East Asian economies will require US$1.5 trillion over the next decade to finance infrastructure development.

Henry said there was growing regional cooperation between the southeast Asian states, such as in the "growth triangle" of Singapore, Indonesia and Malaysia.

"Singapore has its surplus current account, Malaysia has the labor and Indonesia the land," she said.

But she added it was premature to assume that an economic bloc like the European Union was being established in Asia.