News / Asia

    Strong Asia Recovery Dogged by Worries of Risky Capital Flows

    A man walks near a display at a Metlife insurance office in Mumbai, India (File Photo)
    A man walks near a display at a Metlife insurance office in Mumbai, India (File Photo)

    Multimedia

    Asia rebounded strongly from the global financial crisis. But as international investors move large amounts of capital into Asian economies, concerns mount about inflation and volatility. Economists say Asia's experience in the 1997 financial crisis has left it stronger to withstand the challenge.

    With low interest rates in the U.S. and Europe, international investors are moving billions of dollars into Asia, seeking higher returns.

    Nalin Chutchotitham, economic research specialist at Kasikornbank in Bangkok, expects foreign capital to keep coming in the short term.

    "The positive side of things is that capital cost in Asia has become cheaper because of these capital flows coming in," said Nalin.

    That allows companies to expand and create new jobs.

    And it also helped pushed up the value of Asian currencies, making imported raw materials cheaper. However, the downside of that is that a stronger currency makes a country's exports more expensive, which worries business leaders in Asia's export-driven economies.

    But economic authorities across the region warn of larger risks caused by these funds. Too much money chasing assets pushes up inflation. In China, the government has vowed to keep prices under control after inflation in November reached its highest level in more than two years.

    Capital flight is also a major concern. After a similar investment boom in the mid-1990s, worried investors in many Asian economies suddenly pulled out their money, causing currencies to plunge and companies to go bankrupt. Thailand, Indonesia and South Korea were among the worst hit.

    "Everybody would like to see money come into the country," said Kobsidithi Silpachai, who heads the economic research unit of Kasikornbank. "But what type of money is it? Is it short term? Is it here for the long haul?"

    Money that is short term, so-called hot money, is what worries economists, bankers and policy makers. Short-term money generally goes into stocks or bonds, and it can move out of a country quickly. Long-term investments in factories, farms and infrastructure, on the other hand, are seen as less volatile.

    Siwage Dharma Negara, an economic analyst at the Indonesian Institute of Sciences, worries that the kind of money flowing into Indonesia these days is speculative.

    "If you look at the financial data, what dominates the inflow of capital is basically the portfolio part, which is the stock market, government bonds, and also central bank certificates, but they're all not directly linked to the real economy," said Siwage.

    Although there are concerns about the flow of money, economists and banking regulators say that Asia learned lessons from the crash in 1997.

    Frederico Gil Sander, an economist at the World Bank in Thailand, says reforms made after the 1997 financial crisis left Asian economies stronger to withstand volatility.

    He says many Asian governments, like Thailand, have piled up massive foreign currency reserves as buffers against capital flight and foreign exchange volatility.

    "If all the funds that came in from the last six months decided to leave tomorrow, they would be no pressure on the exchange rate, it would be very marginal pressure because the central bank has plenty of reserves to meet those capital outflows," said Sander.

    Also, in much of Asia, banks now are better regulated and there is less foreign-currency debt than in the 1990s.

    Still, some governments are considering measures to prevent capital flight, including minimum investment holding periods or new taxes. But Sander says these controls should not penalize long-term investments.

    "Any measures have to think very long term, about not dissuading these types of capital inflows, not creating an impression to foreign investors that there is uncertain regulatory environment," he added.

    In China, the government is trying to absorb excess money in the financial system by ordering banks to limit lending, holding more reserves and possibly raising interest rates again.

    As Asian governments take steps to tamp down inflation and limit destabilizing fund flows, economic growth in the region is expected to slow in 2011. However, economists and market analysts say the region will remain attractive to international investors.

    You May Like

    US Internet Giants, EU Reach Deal to Combat Online Hate Speech

    Facebook, Twitter, Google and Microsoft commit to ‘quickly and efficiently’ act to clamp down on use of social media to incite violence, terror

    Video Tunisia’s Ennahda Party Begins a New Political Chapter

    Party now moves to separate its political and religious activities; change described by party members as pragmatic response to political and economic challenges facing Tunisia today

    Virtual Reality Fine-tuned at Asia Tech Show

    Microchip designers hope to improve resolution for users of systems that can turn your bedroom into the ocean floor

    This forum has been closed.
    Comments
         
    There are no comments in this forum. Be first and add one

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Tech Startups Showcase Wares at Amsterdam Conferencei
    X
    Serginho Roosblad
    May 30, 2016 5:11 PM
    More than 20,000 tech enthusiasts, entrepreneurs and lovers of digital technology came together in Amsterdam recently at the Next Web Conference to discuss the latest developments in digital technology, look to the future and, of course, to connect. In recent years, there has been an explosion of so-called startup businesses that have created devices and applications that have changed the way we live; but, as Serginho Roosblad reports for VOA, there are pitfalls for such startups as well.
    Video

    Video Tech Startups Showcase Wares at Amsterdam Conference

    More than 20,000 tech enthusiasts, entrepreneurs and lovers of digital technology came together in Amsterdam recently at the Next Web Conference to discuss the latest developments in digital technology, look to the future and, of course, to connect. In recent years, there has been an explosion of so-called startup businesses that have created devices and applications that have changed the way we live; but, as Serginho Roosblad reports for VOA, there are pitfalls for such startups as well.
    Video

    Video US Military's Fallen Honored With Flags

    Memorial Day is a long weekend for most Americans. For some, it is the unofficial start of summer -- local swimming pools open and outdoor grilling season begins. But Memorial Day remains true to its origins -- a day to remember the U.S. military's fallen.
    Video

    Video Rolling Thunder Rolls Into Washington

    The Rolling Thunder caravan of motorcycles rolled into Washington Sunday, to support the U.S. military on the country's Memorial Day weekend
    Video

    Video A New Reading Program Pairs Kids with Dogs

    Dogs, it is said, are man's best friend. What some researchers have discovered is that they can also be a friend to a struggling reader. A group called Intermountain Therapy Animals trains dogs to help all kinds of kids with reading problems — from those with special needs to those for whom English is a second language. Faiza Elmasry has more on the New York chapter of R.E.A.D., or Reading Education Assistance Dogs, in this piece narrated by Faith Lapidus.
    Video

    Video Fan Base Grows for Fictional Wyoming Sheriff Longmire

    Around the world, the most enduring symbol of the U.S. is that of the cowboy. A very small percentage of Americans live in Western rural areas, and fewer still are cowboys. But the fascination with the American West is kept alive by such cultural offerings as “Longmire,” a series of books and TV episodes about a fictional Wyoming sheriff. VOA’s Greg Flakus recently spoke with Longmire’s creator, Craig Johnson, and filed this report from Houston.
    Video

    Video Chinese-Americans Heart Trump, Bucking National Trend

    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Reactions to Trump's Success Polarized Abroad

    What seemed impossible less than a year ago is now almost a certainty. New York real estate mogul Donald Trump has won the number of delegates needed to secure the Republican presidential nomination. The prospect has sparked as much controversy abroad as it has in the United States. Zlatica Hoke has more.
    Video

    Video Drawings by Children in Hiroshima Show Hope and Peace

    On Friday, President Barack Obama will visit Hiroshima, Japan, the first American president to do so while in office. In August 1945, the United States dropped an atomic bomb on the city to force Japan's surrender in World War II. Although their city lay in ruins, some Hiroshima schoolchildren drew pictures of hope and peace. The former students and their drawings are now part of a documentary called “Pictures from a Hiroshima Schoolyard.” VOA's Deborah Block has the story.
    Video

    Video Vietnamese Rapper Performs for Obama

    A prominent young Vietnamese artist told President Obama said she faced roadblocks as a woman rapper, and asked the president about government support for the arts. He asked her to rap, and he even offered to provide a base beat for her. Watch what happened.
    Video

    Video Roots Run Deep for Tunisia's Dwindling Jewish Community

    This week, hundreds of Jewish pilgrims are defying terrorist threats to celebrate an ancient religious festival on the Tunisian island of Djerba. The festivities cast a spotlight on North Africa's once-vibrant Jewish population that has all but died out in recent decades. Despite rising threats of militant Islam and the country's battered economy, one of the Arab world's last Jewish communities is staying put and nurturing a new generation. VOA’s Lisa Bryant reports.

    Special Report

    Adrift The Invisible African Diaspora