Stability and growth vital to attract foreign funds

JAKARTA (JP): In Indonesia and other emerging markets, political stability and rapid economic growth would help woo global funds, chief financial market analyst at Lehman Brothers, Stephen D. Slifer said here yesterday.

Slifer said that investors in the United States and other developed countries continued to look favorably on Southeast Asia due to a perceived political stability in the region.

"When you are going to invest in emerging countries, you first look at stability. As long as Southeast Asia can present a stable image to U.S. investors, it should continue to attract their funds," Slifer told journalists here.

Slifer was visiting Indonesia on tour to a number of key Asian markets.

He declined to comment on future political stability in Indonesia.

But he stressed that leadership changes would determine future stability in some countries in the region.

He cited the current transition in China's political leadership as a case in point.

"It is important to see how smoothly that goes... Already there are political problems in the West of China. That obviously makes investors nervous," Slifer said.

"It is also true with Russia. What happens if (President) Yeltsin dies," he added.

Indonesia faces similar uncertainties. Speculation over succession -- just who will follow President Soeharto -- is common among foreign investors in Jakarta.

Slifer contended that with a well established political system, such as that in U.S., the transition of leadership should not be destabilizing.

Slifer advised that besides political stability, Southeast Asian nations should continue to pursue rapid, export-led economic growth.

Economic growth in recipient markets of Southeast Asian exports, such as the U.S., would be mutually beneficial, he said.

"Hopefully, we can sustain a sound economic performance and provide market access for everyone, rapid growth can be maintained and capital will continue to flow from the US and other developed countries," Slifer said.

Slifer predicted that the U.S. economy would grow by 3 percent this year, with inflation steady at 2.4 percent -- lower than the market consensus of 3 percent.

Slifer cited a strong dollar, with reduced import costs, and a rapid fall in oil prices as contributing factors to lower inflation.

The analyst also challenged the belief that rapid economic growth would encourage the U.S. Federal Reserve to further tighten interest rates.

Last month, the Fed raised interest rates by a quarter- percentage point for the first time in more than two years.

Slifer claimed that currently high growth rates are an anomaly, having more to do with favorable weather than an overheating market.

Investors, nevertheless, remain nervous, believing that the current growth rates are cyclical, and thus expect the Fed to raise interest rates.

Slifer, however, contended that this was not a typical business cycle as for the first time in over three decades, the U.S. government had implemented responsible fiscal and monetary policies.

Thus, he said, the Fed may further increase interest rates, but would do so only mildly, by .25 to .50 but not a whole 1 or more percent because this would trigger a recession.

Slifer predicted that with a good performance this year, the U.S. market would continue to attract funds from Japan, Europe and some emerging markets.

Deterred by the current banking crisis in Japan, and uncertainty Europe with the impending monetary union, investors in the two would eventually turn to the U.S. market, Slifer said. (rid)