ASEAN Finance Ministers to Discuss 'Hot Money'

Jakarta Globe, April 08, 2011

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Southeast Asian finance ministers meet on Friday for talks expected to focus on capital controls to shield the region’s booming economies from destabilizing “hot money” inflows.

With Europe’s sovereign debt crisis spreading to Portugal and much of the developing world’s economies still in the doldrums after the global financial crisis, Asia has become a magnet for capital seeking better returns.

But much of the foreign capital has been in the form of volatile portfolio investments which can be withdrawn just as quickly as they were injected, raising fears for stability in economies that are leading the global recovery.

“We can intervene but we don’t know exactly how to do so. In the past few days the inflows have been huge,” Indonesian central bank Deputy Governor Hartadi Sarwono told reporters on Thursday.

“The capital inflows are so massive, and they don’t just flow to Indonesia but in the region.”

Indonesia’s rupiah hit four-year highs against the greenback earlier this week and inflation is running at more than 6.5 percent, underlining concerns that the region’s more successful economies may be close to boiling point.

Indonesian President Susilo Bambang Yudhoyono is expected to open the meeting of finance ministers from the 10-member Association of Southeast Asian Nations (ASEAN) on the resort island of Bali.

ASEAN chief Surin Pitsuwan will attend, as will World Bank managing director Sri Mulyani Indrawati — a former Indonesian finance minister — and officials from the International Monetary Fund and Asian Development Bank.

Indonesia, which holds the current chair of ASEAN, has said the ministers will also discuss food security and progress toward a planned common market in the region of more than 500 million people by 2015.

The ASEAN region grew at around five percent last year, up from 1.5 percent in 2009 in the aftermath of the global credit crunch.

The block includes Brunei, Cambodia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Analysts say Asia’s emerging economies are poised for another year of solid growth in 2011 even if the impact of the catastrophic earthquake and tsunami in Japan remains unclear.

But inflation is a key concern for the region, which faces tighter monetary policies as authorities seek to temper price rises including in food staples such as rice.

The ADB warned this week that some developing economies were showing signs of “potential overheating” and said more flexible exchange rates and capital controls could help curb soaring prices.

Governments have tried a range of responses to hot money but capital controls, such as transaction taxes and currency restrictions, have until recently been scorned by economists as unnecessary interference.

In February the IMF recognized that such controls were justified in the face of destabilizing imbalances in the global economy.

In a recent report on Asian economies, Standard and Poor’s ratings agency said regional central banks might consider further capital controls and other actions to prevent risky asset bubbles.

Within Southeast Asia, it said Singapore’s growth would moderate sharply to 4.5-5.0 percent from 14.5 percent last year, Malaysia would expand 4.8-5.3 percent and Indonesia would grow 5.9-6.4 percent from 6.1 percent.

The Philippines was forecast to grow 5.1-5.6 percent from 7.3 percent and Thailand’s growth would ease to 4.0-4.5 percent from 7.8 percent.

Agence France-Presse