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."