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

Tired of Waiting, South Africans Demand Change ‘Now’

With chronic poverty and lack of basic services largely fueling recent xenophobic attacks, many in Rainbow Nation say it’s time for government to act More

Challenges Ahead for China's Development Plans in Pakistan

Planned $46 billion in energy and infrastructure investments in Pakistan are aimed at transforming the country into a regional hub for trade and investment More

'Forbidden City' Revisits Little Known Era of Asian-American Entertainment

Little-known chapter of entertainment history captured in 80s documentary is revisited in new digitally remastered format and book More

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.
Cinema That Crosses Borders Showcased at Tribeca Film Festivali
X
April 24, 2015 4:09 AM
Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video Cinema That Crosses Borders Showcased at Tribeca Film Festival

Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video UN Confronts Threat of Young Radicals

The radicalization and recruitment of young people into Islamist extremist groups has become a growing challenge for governments worldwide. On Thursday, the U.N. Security Council heard from experts on the issue, which has become a potent threat to international peace and security. VOA’s Margaret Besheer reports.
Video

Video Growing Numbers of Turks Discover Armenian Ancestry

In a climate of improved tolerance, growing numbers of people in Turkey are discovering their grandmothers were Armenian. Hundreds of thousands of Armenians escaped the mass deportations and slaughter of the early 1900's by forced conversion to Islam. Or, Armenian children were taken in by Turkish families and assimilated. Now their stories are increasingly being heard. Dorian Jones reports from Istanbul that the revelations are viewed as an important step.
Video

Video Migrants Trek Through Western Balkans to Reach EU

Migrants from Africa and other places are finding different routes into the European Union in search of a better life. The Associated Press followed one clandestine group to document their trek through the western Balkans to Hungary. Zlatica Hoke reports that the migrants started using that route about four years ago. Since then, it has become the second-most popular path into Western Europe, after the option of sailing from North Africa to Italy.
Video

Video TIME Magazine Honors Activists, Pioneers Seen as Influential

TIME Magazine has released its list of celebrities, leaders and activists, whom it deems the world’s “most influential” in 2015. VOA's Ramon Taylor reports from New York.
Video

Video US Businesses See Cuba as New Frontier

The Obama administration's opening toward Cuba is giving U.S. companies hope they'll be able to do business in Cuba despite the continuation of the U.S. economic embargo against the communist nation. Some American companies have been able to export some products to Cuba, but the recent lifting of Cuba's terrorism designation could relax other restrictions. As VOA's Daniela Schrier reports, corporate heavy hitters are lining up to head across the Florida Straits - though experts urge caution.
Video

Video Kenya Launches Police Recruitment Drive After Terror Attacks

Kenya launched a major police recruitment drive this week as part of a large-scale effort to boost security following a recent spate of terror attacks. VOA’s Gabe Joselow reports that allegations of corruption in the process are raising old concerns about the integrity of Kenya’s security forces.
Video

Video Japan, China in Race for Asia High-Speed Rail Projects

A lucrative competition is underway in Asia for billions of dollars in high-speed rail projects. Cambodia, India, Indonesia, Malaysia Thailand and Vietnam are among the countries planning to move onto the fast track. They are negotiating with Japan and the upstart Chinese who are locked in a duel to revolutionize transportation across Asia. VOA Correspondent Steve Herman in Bangkok has details.
Video

Video Scientists: Mosquitoes Attracted By Our Genes

Some people always seem to get bitten by mosquitoes more than others. Now, scientists have proved that is really the case - and they say it’s all because of genes. It’s hoped the research might lead to new preventative treatments for diseases like malaria, as Henry Ridgwell reports from London.
Video

Video Bible Museum Coming to Washington DC

Washington is the center of American political power and also home to some of the nation’s most visited museums. A new one that will showcase the Bible has skeptics questioning the motives of its conservative Christian funders. VOA religion correspondent Jerome Socolovsky reports.
Video

Video Armenia and Politics of Word 'Genocide'

A century ago this April, hundreds of thousands of Armenians of the Turkish Ottoman empire were deported and massacred, and their culture erased from their traditional lands. While broadly accepted by the U.N. and at least 20 countries as “genocide”, the United States and Turkey have resisted using that word to describe the atrocities that stretched from 1915 to 1923. But Armenians have never forgotten.
Video

Video Afghan First Lady Pledges No Roll Back on Women's Rights

Afghan First Lady Rula Ghani, named one of Time's 100 Most Influential, says women should take part in talks with Taliban. VOA's Rokhsar Azamee has more from Kabul.
Video

Video Keeping Washington Airspace Safe Is Tall Order

Being the home of all three branches of the U.S. federal government makes Washington, D.C. the prime target for those who want to make their messages and ideas heard. Unfortunately, many of them choose to deliver them in unorthodox ways, including from the air, as a recent incident clearly showed involving a gyrocopter landing on the Capitol’s West Lawn. VOA's George Putic has more.
Video

Video New Brain Mapping Techniques Could Ease Chronic Pain

From Boulder, Colorado, Shelley Schlender reports that new methods for mapping pain in the brain are providing validation for chronic pain and might someday guide better treatment.
Video

Video Hope, Prayer Enter Fight Against S. Africa Xenophobia

South Africa has been swept by disturbing attacks on foreign nationals. Some blame the attacks on a legacy of colonialism, while others say the economy is to blame. Whatever the cause, ordinary South Africans - and South African residents from around the world - say they're praying for the siege of violence to end. Anita Powell reports from Johannesburg.

VOA Blogs