World Bank and IMF see eye to eye on Asia (fwd)

[Robert Weissman <rob@essential.org>]

Straits Times
August 31 1999
World Bank and IMF see eye to eye on Asia
Still room for expansionary policies in the region as economic recovery has
not taken hold yet, officials say
By RAVI VELLOOR and ALVIN CHEW
SPEAKING with one voice after their open policy clashes at the height of
the
Asian financial crisis, the International Monetary Fund (IMF) and the World
Bank said yesterday that Asia should continue expansionary monetary
policies
against the backdrop of a fragile economic recovery.
In an interview with The Straits Times on the sidelines of the Manila
Framework Group discussions, World Bank vice-president for Asia Pacific
Jean-Michel Severino noted that there were several risks to the recovery,
including sluggish private investment and uncertain external demand for
Asian
exports.
"Obviously, fiscal sustainability issues are important, especially the
issue
of mounting public debt. But we are not at the stage where recovery is
self-sustaining. Private investment will move only when there is financial
and corporate restructuring.
"Until we get there, there is room for fiscal stimulus," he added.
Echoing this, Mr Severino's IMF counterpart Hubert Neiss told reporters
separately that it is "too premature to declare victory as the recovery is
still not broad-based enough".
Business investments were still weak, he pointed out. Credit flows remained
low because banking systems were damaged and corporate balance sheets were
still being restructured.
"At the moment, the macroeconomic policy stance of all countries is the
right
one, namely an expansionary one to support the recovery process," Mr Neiss
said.
Observers said the twin Bretton Woods institutions were speaking the same
language after their chief economists clashed openly last year over the
proper economic approach to be prescribed to the stricken Asian economies.
The Manila Group appeared to endorse the positions taken by the Bank and
the
Fund.
The forum brings together finance and central bank deputies from the
Asia-Pacific for regional economic surveillance discussions, to focus on
managing the recovery process and to reform the international financial
architecture.
The chairman's summary of the 1-1/2-day meeting which ended yesterday
noted:
"To secure the recovery, it was agreed that there is considerable scope for
continued fiscal stimulus until private-sector demand strengthens further."
The group recognised that "for a sustained, broad-based recovery, there is
a
need for determined follow-through on structural reforms".
"While banking restructuring is advancing, these gains should be reinforced
by further progress in corporate restructuring," the summary added.
Mr Severino identified corporate and financial sector restructuring as the
"soft spots" in the recovery process.
"They should be the engine but we do not have it yet," he said in the
interview.
"There is a lot of work to be done. Asset restructuring has hardly started.
It's not that we are pessimistic, the process is long and difficult to
establish."
Until domestic demand revives strongly enough, Asian recovery is perceived
to
be at risk from any sudden slowdown in the US economy.
Asked about this, Mr Neiss said a slowdown was generally expected because
the
US economy had for the past couple of years grown above its historical
trends.
"A slowdown in the US economy will not be a big problem for Asia. It will
not
damage Asia's recovery," he said. "However, there is always a risk that the
slowdown will not be smooth but it will be abrupt and excessive and, in
that
case, that could have serious implications for Asia's recovery."
As for Japan, he said participants at the Singapore talks had asked Tokyo
for
an "aggressive monetary policy" to check the rising yen.