IMF to Asia: Stimulus measures will have to go

MANILA, Philippines - Asian nations should brace for the withdrawal of their stimulus measures any time soon, the International Monetary Fund (IMF) said, as the region continues to grow well despite the prevailing crises abroad.

The region is expected to grow “close to six percent” this year, IMF Managing Director Christine Lagarde said ahead of the scheduled release of the organization’s latest World Economic Outlook tomorrow.

 â€œI dare not imagine where the world economy might be today without Asia. The region has been the consistent global growth leader Lagarde said in a speech. Copies of the speech were sent to reporters yesterday.

“We expect the region to grow by close to six percent this year— an enviable performance by any measure,” she added.

Resilient domestic demand had been boosted by easy monetary policies that in turn have helped make acquiring credit to finance economic activity cheap. This has offset weak trade gains due to crises abroad.

Stimulus measures unveiled by some markets, Lagarde said, have also worked well for the region to withstand the global financial crisis, but the time has come to think about withdrawing such on fears they may stimulate a credit crisis.

Central banks should be the first ones to move, she said, noting that the low interest environment in most Asian economies such as Hong Kong has caused property costs to rise beyond reasonable levels.

Asset bubbles are not the only problems as some nations also need to go back to “fiscal balances” during the pre-crisis period— something which has taken a backseat for a while as pump priming became necessary.

“Here, the IMF can help by offering timely analysis and advice— early warning— on risks emerging in different parts of the world as well as the potential ‘spillover’ effects for Asia,” Lagarde explained.

She said improvements have been noted on “substantial portions” of the global economy and that growth continues to strengthen in Europe and the US.

With this in mind, Asian central bankers should be vigilant about the capacity of capital inflows to reverse back to developed markets and their potential to cause turmoil in the financial markets.

“Macroprudential measures will help to safeguard financial stability and can also help manage potentially volatile capital flows,” Lagarde said.

Focus should also be given on making sure growth is distributed across the population, with the IMF head saying economic expansion is only “durable” when income inequality is addressed.

Lagarde cited the need to invest in people’s health and education, the environment by fighting climate change and investments as pillars for the fulfillment of the “Asian dream.”

“As the region goes from success to success, I believe that Asia’s leadership in the global economy will go from strength to strength,” she said.

“Asia has transformed the idea of economic cooperation and partnership. And five years into the crisis, we can see how costly the absence of effective cooperation can be. The rest of the world can learn a lot from what Asia has achieved,” she added.