MONTHS before Lehman Brothers sank into bankruptcy, its chief said the bank’s capital position had never been stronger. The past six years have been unkind to those predicting that crises were contained.
Even so, policymakers in Asia are confronting Russia’s debacle from a stronger position than when emerging markets were roiled around the globe in 1997-98. With shrinking current-account deficits, cheaper oil and higher reserves in their favour, the biggest Southeast and South Asian economies may see a situation more akin to 2002, when disasters in Argentina and Turkey failed to trigger crises in the region.
While markets haven’t been unaffected — Indonesia and India bought their currencies this week after they slid — policy shifts and domestic demand may help.
With a swelling middle classes clamouring for better homes, transport and entertainment, companies in the region have homegrown sources of growth, and deeper local capital markets to turn to for financing.
“Good policies are being made quickly across Asia,” said Glenn Maguire, Asia Pacific chief economist at Australia & New Zealand Banking Group Ltd. “A number of economies have reduced budget subsidies and the decline in oil prices is an incredibly powerful tonic for the region’s economies.”
Nations including Thailand, Malaysia and Indonesia have embarked on a period of structural reforms since the Asian financial crisis, taking steps to reduce government spending and deficits, accumulating reserves, raising interest rates and improving governance. That’s helped the region withstand the fallout from Turkey’s crisis in 2001 and Argentina’s default, then the world’s largest, in 2002.
Asia-Pacific nations have accumulated about US$7.3 trillion (RM25.37 trillion) of reserves they can deploy to support their currencies. External liabilities of Asia’s emerging economies accounted for 16 per cent of gross domestic product last year, compared with about 34 per cent in 1998, according to data from the International Monetary Fund.
The slump in crude to five-year lows has also given India, Malaysia and Indonesia room to start dismantling energy subsidies this year as they take steps to strengthen current-account positions.
“Every Asian central bank has moved into international standards in reporting reserves, and policymakers have also reduced the build-up of external debt and tightened rules on currency mismatches among companies,” said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong.
Developing Asia will grow 6.2 per cent next year from an estimate of 6.1 per cent this year, the Asian Development Bank said this week. Lower oil prices may mean an upside surprise next year, as most economies in the region are oil importers, it said.
“Drawing parallels between the late 1990s and today is a little bit misplaced,” said HSBC’s Neumann. “Higher reserves, more fiscal space, and a far more robust external payments position should be enough to see the region through this financial storm.” Bloomberg