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)


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

Video Americans, Tourists, Reflect on Meaning of Thanksgiving

VOA garnered opinions from several people soon after November 13 Paris attacks, which colored many of their thoughts

Video Thais Send Security Concerns Down the River

In northern Thailand, the annual tradition of constructing floating baskets to carry away the year’s bad spirits highlights the Loy Krathong festival

Video Tree Houses - A Branch of American Dream

Workshops aimed at teaching people how to build tree houses have become widely popular in America in recent years

This forum has been closed.
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.
Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continuesi
Ayesha Tanzeem
November 25, 2015 10:46 PM
One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continues

One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Islamic State Unfazed by Losses in Iraq, Syria

Progress in the U.S.-led effort to beat Islamic State on its home turf in Iraq and Syria has led some to speculate the terror group may be growing desperate. But counterterror officials say that is not the case, and warn the recent spate of terror attacks is merely part of the group’s evolution. VOA National Security correspondent Jeff Seldin has more.

Video Taiwan Looks for Role in South China Sea Dispute

The Taiwanese government is one of several that claims territory in the hotly contested South China Sea, but Taipei has long been sidelined in the dispute, overshadowed by China. Now, as the Philippines challenges Beijing’s claims in an international court at The Hague, Taipei is looking to publicly assert its claims. VOA’s Bill Ide has more from Beijing.

Video Syrian Refugees in US Express Concern for Those Left Behind

Syrian immigrants in the United States are concerned about the negative tide of public opinion and the politicians who want to block a U.S. plan to accept 10,000 Syrian refugees. Zlatica Hoke reports many Americans are fighting to dispel suspicions linking refugees to terrorists.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs