Strong yen helping Asian stability

Strong yen helping Asian stability

HONG KONG (Dow Jones): Most of Asia's crisis countries are now stabilizing, with the Indonesian rupiah's recent gains a particularly encouraging sign, according to Stanley Fischer, first deputy managing director of the International Monetary Fund.

The official said the strength in the yen is among the factors aiding Asian economies, adding that Japan could even post positive growth this year. A lot of the risks of Chinese yuan devaluation, for example, have been sidestepped because of the stronger Japanese currency, he said.

Fischer spoke from Washington by teleconference to reporters in Hong Kong and Singapore.

"It does seem the Asian crisis countries are stabilizing or have stabilized," according to Fischer.

In forecasting how recovery can come about, Fischer said "the answer depends to some extent on Japan and it depends on what happens in what happens in Europe and the United States.

"We forecast a very modest growth for Japan if it would undertake resolute fiscal expansion. And if the strengthening of the yen stays there it would allow them to undertake more aggressive monetary expansion by buying a lot more assets and putting more liquidity in the economy," he said.

With that external environment, "the Asian economies can begin to grow again. They will need export markets. But they are also growing based on domestic demand that comes from the very low interest rates they now have, and Indonesia will have when it stabilizes, and from the fiscal expansion that is coming. It can't be too big because they can't finance themselves, but there are large fiscal deficits in those countries. And it will come from the fiscal restructuring in those counties," Fischer said.

He added that the size of Asian fiscal deficits are appropriate, and could be bigger in some countries, suggesting he was talking about South Korea.

It's not going to be a jump up (in growth), but I think it will be sustained and increasing," Fischer said.

"There are encouraging signs, there's a long way to go. Some of this is based on the strengthening of the yen.

The Japanese Diet's banking legislation was "extremely well received because the amounts are very large. It's a big plus," he said. He noted other encouraging signs such as talk that income tax rates could come down and that the government will avoid reducing public spending. "That was a concern," Fischer said.

Fischer said one of the difficulties for the fund now is convincing Asian governments to permit their budget deficits to widen, particularly in support of social safety nets.

"The financial stabilization is very clear in Thailand and Korea. But developments in the last few days are also encouraging. When ministers say the currency is too strong, it's a welcome relief from the problems the have had to deal with for a few months.

"We expect that Thailand and Korea will grow early next year. The Philippines is doing well. It's growth is slowing. But we hope and they hope for growth next year," Fischer said.

He said Indonesia faces a budget deficit this year of 8 percent of gross domestic product, but the level could decline if the currency remains strong. He said the IMF is hoping for a deficit of 5 percent of GDP, but "it's not there yet." And he said Thailand still has room for fiscal expansion."