IMF: Asia Woes Threaten Near Future (fwd)

[Robert Weissman <rob@essential.org>]

IMF: Asia Woes Threaten Near Future

By Harry Dunphy
Associated Press Writer
Monday, April 13, 1998; 11:07 a.m. EDT

WASHINGTON (AP) -- Asia's financial turmoil will slow down global economic 
growth this year, but the threat to future advances appears limited so far, 
the International Monetary Fund said today.

Countries in Asia that were hardest hit are not likely to recover until 
1999, and Japan, the chief engine of growth in the region, hovers on the 
brink of a recession, the study said, with zero growth forecast this year. 
The United States will continue to lead the world economy, although it can 
expect a big increase in its trade deficit.

The IMF's extensive semi-annual assessment, the ``World Economic Outlook'' 
projects global growth in 1998 at 3.1 percent compared with 4.1 percent in 
last October's report. Its prediction for 1999 is 3.7 percent.

The report came in advance of a meeting Wednesday of the finance ministers 
of the Group of Seven leading industrialized countries. The IMF and its 
sister institution, the World Bank, also are holding their spring meeting 
later this week.

The IMF, which assembled multibillion-dollar bailout packages for Thailand, 
Indonesia and South Korea last year, said ``considerable uncertainty remains 
about resolution of the (Asian) crisis, one of the worst in the postwar 
period. Its effects ``were more severe than they initially appeared,'' the 
report said.

But it said the resulting slowdown in world economic growth will be less 
severe than the ones caused by oil shocks in the mid 1970s and early 1980s.

Reasons for the mild impact include solid consumer spending in most 
industrialized countries and the limited spillover of the Asian crisis in 
Latin America and other regions.

Over the next five years, the report said, ``global economic growth is still 
projected to exceed the average rate'' of 3.75 percent in the past 
quarter-century.

In the United States, the IMF predicted the economy, which grew at 3.8 
percent in 1997, will expand by an inflation-adjusted 2.9 percent in 1998 
and 2.2 percent next year, compared with a 1998 forecast of 2.4 percent made 
last October.

With the U.S. trade deficit ``likely to widen substantially,'' the report 
said, the dollar might come under pressure, releasing one of the brakes that 
has been restraining inflation.

Troubles for the dollar, combined with increases in oil prices and continued 
wage growth, might force the Federal Reserve Board to ``significantly 
tighten'' interest rates.

The report said U.S. economic performance last year was ``exceptionally 
favorable with the fastest growth in nine years, the lowest inflation in 32 
years, unemployment falling to its lowest level in 24 years and virtual 
balance in the federal budget for the first time since the early 1970s.''

Giving President Clinton's position a boost, the report said anticipated 
U.S. budget surpluses should be used to shore up the Social Security system 
to protect it from ``the deterioration expected in the next decade.''

Contrasting the rosy U.S. picture, the report said Japan is likely to 
stagnate this year unless urgent measures are taken to stimulate the 
economy. Japanese Prime Minister Ryutaro Hashimoto announced such steps 
Thursday, ordering larger-than-expected tax cuts and increased government 
spending.

The IMF forecasts negative growth rates for the three biggest victims of the 
Asian crisis -- Thailand, Indonesia and South Korea -- and said Malaysia and 
the Philippines would be hurt to a lesser extent.

In Europe, the IMF said one group of countries -- Britain, Denmark, Finland, 
Ireland, the Netherlands and Norway -- continue to expand economically and 
should reduce the risk of overheating. It said Germany, France and Italy, 
facing record unemployment, need to maintain their recent modest economic 
growth by stimulating consumer spending.

The report welcomed measures taken by Brazil, Argentina and Russia to 
protect themselves from Asia's crisis spreading to their countries.



c Copyright 1998 The Associated Press