Stability and growth vital to attract foreign funds

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.
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