Asia Seen in Much Better Position to Sustain Negative Effects From US Rate Increase
Jakarta. Asia is in a much better position to weather the possible negative impacts from the US Federal Reserve tightening monetary policy, some speakers at the 24th World Economic Forum on East Asia said on Monday.
The Fed may raise its key interest rate, the federal funds rate, to keep a check on economic growth. At the same time higher rates would make dollar assets more attractive and push investors to dump high-yielding, but riskier assets, including those from emerging markets like Indonesia.
”The rate will rise, whether it’s six months from now or nine months from now, nobody knows. But I think what Asia should do is to begin to prepare themselves for the new environment,” said John Riady, executive director at Lippo Group, who is one of five co-chairs at the WEF on East Asia.
He indicated that foreign exchange reserves for Asian countries are much higher than what they were during the 2008 global financial crisis.
In Indonesia, for example, foreign exchange reserves stood at $111.55 billion as of March. That compared to $51.64 billion as of December 2008, during the height of the financial crisis.
Latest data show that US consumer prices are rising, and that may force the Fed to raise its key rate — which has been close to zero since December 2008 — to keep inflation under control.
John also praised the recent move by China over the proposal for a new Beijing-backed international development bank, to be called the Asian Infrastructure Investment Bank (AIIB). Under the ownership structure, China wants Asian nations to own three-quarters of the bank.
Developed nations, including Britain, France, Germany, Australia and South Korea are allowed to own the rest.
Jose Isidro Camacho, vice chairman of Asia-Pacific and Singapore country chief executive officer of Credit Suisse, gives another example that Asia can finance its corporations, even at a time when global liquidity is tight.
”Asian economies have been preparing a long, long time for a situation like this. We saw that in 2008, when there was a complete credit freeze, when there was no credit happening around the world, the Asian economies continue to perform,” he said.
“The Asian economy responded quite well. The domestic financial market has grown to an extent where it’s beginning to finance more and more the financing needs of those economies.
He gave examples of Malaysia and the Philippines, where in an initial public offering it was not surprising for more demand to come from domestic investors, rather than from international investors.
GlobeAsia and the Jakarta Globe are media partners of the WEF event in Jakarta. GlobeAsia and the Globe are affiliated with Lippo.
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