Asian nations are grappling with a surge in capital inflows that may lead to overvalued currencies or asset price bubbles in the rapidly growing region, the IMF warned on Wednesday.
"The one issue that countries have been wrestling with [is] coping with surges of inflows -- this time not so much outflows but inflows," IMF Asia-Pacific director David Burton said at a Washington forum marking the 10th anniversary of the Asian financial crisis.
The 1997 crisis caused a severe recession and political upheaval in the region.
Displaying a chart depicting volatility of capital inflows in the region, Burton said there had been some episodes where "these have exceeded two standard deviations from their normal behavior."
"This could give rise to concerns in particular that surges in inflows could create problems -- putting upward pressure on currencies, at times strongly, provide additional, sometimes unwarranted, loadable funds to the financial sector, also potentially force asset price bubbles, perhaps also create risk that these funds would flow out very suddenly as fast as they come in," he said.
Gross inflows in Asia reached nearly eight percent of GDP last year, higher than the peaks of the mid-1990s, and surges in inflows in some cases have at times been associated with strong pressures on exchange rates or asset prices.
Burton said there could be temptations by governments to try to address these concerns by imposing some form of capital controls but cautioned that they could cause problems.
He cited as an example Thailand's capital controls imposed late last year which were seen as as counter productive.
"What was thought to be surging capital inflows in the last quarter in Thailand was actually a surge in the current account surplus," he said.
Burton said there was "no magic bullet" to dealing with surging capital inflows, "which are a feature of the global financial landscape and something countries probably have to live with."
A combination of exchange rate flexibility with perhaps some limited intervention to smooth out volatile exchange rates could act as short term measures, he said.
Strong monetary policy frameworks that can help keep inflation expectations in check as well as policies aimed at strengthening risk management and developing domestic financial markets are also recommended.
Jomo Kwame Sundaram, the UN's assistant secretary general for economic development, said at the sidelines of the forum organized by the Woodrow Wilson Center that there was a critical need for "a financial system and a macro-economic policy which is counter cyclical."
"For example, when things are going well, you do not allow it to form a stock market bubble or property bubble," he said.
Furthermore, he said, the financial system for particularly developing nations should encourage and finance economic expansion rather than becoming a "constraint" to growth.
"A lot of financial interests are very against inflation and they always want to minimize inflation and when they try to minimize inflation too much, the effect of that slows down the economy," he said.
‘NO SECURITY RISK’: The Railway Bureau reassured the public that the technicians’ activities were limited to technical guidance and did not involve sensitive systems The Railway Bureau yesterday said it had invited eight Chinese technicians to assist with an airport MRT construction project. The bureau issued the confirmation after an Internet user said Chinese nationals had entered the construction zone of Taiwan Taoyuan International Airport’s Terminal 3 project. They asked why “individuals from an enemy state” were allowed access to such a major national infrastructure project, which raised serious concerns over Taiwan’s industrial safety, sensitive systems and information security. The bureau’s Northern Region Engineering Branch Office said subcontractor Taiwan Handle Industrial Co (台灣手把工業) of the Taoyuan airport MRT’s “Contract No. CU05 Project A14 Station Civil, MEP &
The National Chungshan Institute of Science and Technology yesterday showcased its locally developed variants of the Vision 60 robotic patrol dog, which it plans to deploy on the nation’s outlying territories in the South China Sea. The variants were produced under the Joint Lab project — created by the institute and domestic companies — and assembled with domestically produced motors, lenses and artificial intelligence (AI) systems alongside licensed tech from the US, Missile and Rocket Systems Research Division deputy director Jen Kuo-kang (任國光) told the media event at a military base in Taipei’s Dazhi (大直) area. Taiwan has built up its strengths
TIT-FOR-TAT: The US allegedly revoked the visa of a Chinese national working at Xinhua News Agency in the US in response to Beijing’s expulsion of Vivian Wang The Presidential Office yesterday condemned China for expelling a New York Times correspondent from Beijing following the newspaper’s interview with President William Lai (賴清德), saying the move highlighted Beijing’s suppression of press freedom and its threat to international news media. Taiwan has noted a series of recent incidents in which Beijing used similar tactics to “threaten and pressure international media outlets and journalists,” Presidential Office spokeswoman Karen Kuo (郭雅慧) said in a statement. “This concerns not only press freedom and freedom of expression, but also the safety of journalists, and Taiwan and relevant partners are paying close attention to the situation,” she
NOT IMMEDIATE: Taiwan has a chance to appeal the proposed 10 percent tariff before it starts, while other countries face a 12.5 percent tariff from the trade office Taiwan is among 60 economies determined by the US to have failed to impose or enforce a ban on the importation of goods produced with forced labor, according to a notice released on Tuesday by the Office of the US Trade Representative (USTR), which proposed imposing an additional 10 percent or more tariff on them. The USTR in a statement said that following an investigation, it had determined under Section 301 of the Trade Act of 1974 that the failure of the 60 economies to impose and effectively enforce a prohibition on the importation of goods produced with forced labor is
RSS