IMF: ASIA FACES RISKS OF OVERHEATING, 'DEVASTATING' FOOD INFLATION
[PHOTO - Asia faces the risk of overheating and 'devastating' food inflation, IMF chief Dominique Strauss-Kahn warned on Tuesday. -- PHOTO: REUTERS]
MANILA, FEBRUARY 4, 2011 (STANDARD) ASIA faces the risk of overheating and "devastating" food inflation, International Monetary Fund chief Dominique Strauss-Kahn warned Tuesday.
"There are risks of overheating and even a hard landing," Strauss-Kahn said in a public lecture in Singapore, referring to the challenges the region faced.
"Food prices are rising too ... with potentially devastating consequences for low income countries."
The world economy had begun improving but was beset by problems such as high unemployment and rising prices, which could fuel crippling trade protectionism or even lead to war within nations, Strauss-Kahn said.
Rising food and fuel prices in recent months have already hit the poorer countries, and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month.
The United Nations Food and Agriculture Organization said last month that global food prices hit a record high in December, above 2008 levels when riots broke out in countries as far afield as Egypt, Cameroon and Haiti.
"The pre-crisis pattern of global imbalances is re-emerging," Strauss-Kahn said.
"Growth in economies with large external deficits, like the US, is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports," he said.
To limit the risk of overheating in their economies and prevent a "hard landing,"
Asian central banks might need to raise interest rates further, Strauss-Kahn said.
Policy makers in some countries might consider a temporary use of capital controls as fund inflows raised "financial stability" concerns.
Global imbalances were re-emerging as the world rebounded from the financial crisis, and might put the sustainability of the recovery at risk, Strauss-Kahn said.
Meanwhile, the money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt will destabilize the Middle East.
The yield on JPMorgan Chase & Co.'s ELMI+ Index of short-term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over US Treasuries to a two-month high of 2.77 percentage points on Tuesday, according to JPMorgan's EMBI+ Index.
Inflation is accelerating in seven of the 10 biggest developing countries after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities to the highest level since September 2008.
Oil rose 4.3 percent in New York on Jan. 28 and surpassed $90 a barrel on Jan. 31.
"The geopolitics is clearly a warning to investors," said David Cohen, the head of Asian forecasting at Action Economics in Singapore.
"Oil prices have spiked higher. That would be one more source of upward pressure on interest rates."
The last time short-term borrowing costs in developing nations rose this fast was the second half of 2008, when the global financial crisis and record commodity prices pushed the world economy into a recession. Bloomberg
DEVELOPED COUNTRIES ALSO AT RISK Concerns about rising debt in developed countries, meanwhile, have increased in recent months.
Ireland was engulfed by Europe's debt crisis late last year, Greece continues to struggle despite a rescue package and many market watchers fear Portugal and Spain may be next.
Last week Standard & Poor's cut Japan's credit rating and Moody's warned it may place a negative outlook on the United States unless it can reduce its gaping budget deficit.
In Asia, the worries centre around inflation and analysts say central banks in countries such as Indonesia need to respond faster to contain rising prices.
Mr Strauss-Kahn also said foreign exchange rate adjustments have an important role to play in addressing global economic imbalances and should not be resisted.
'Holding back such adjustment in one country also makes it harder, and more costly, for other countries to let their exchange rate adjust,' he said.
'For this adjustment to take place, time is of the essence, but asking for time only makes sense if there is a significant and regular move in the right direction.' Chinese policymakers were moving in the right direction by taking steps to bolster domestic demand, he noted, though the United States and many other Western countries continue to push Beijing to let its yuan currency appreciate faster.
Mr Strauss-Kahn said the IMF expected subdued growth of 2.5 per cent for advanced economies this year as high unemployment and household debt weighed on domestic demand.
'Without jobs and income security, there can be no rebound in domestic demand - and ultimately, no sustainable recovery,'he said.
Emerging markets would grow at a faster pace of 6.5 per cent, with Asia excluding Japan expanding by 8.5 per cent, he said.
'Monetary policy in the advanced economies should remain supportive as long as inflation expectations are well anchored and unemployment stays high,' while Asia may need to do more to address the threat of overheating and a possible hard landing, he said. -- REUTERS
----------------------------------------------------------
Chief News Editor: Sol Jose Vanzi
© Copyright, 2011 by PHILIPPINE HEADLINE NEWS ONLINE
All rights reserved
----------------------------------------------------------
PHILIPPINE HEADLINE NEWS ONLINE [PHNO] WEBSITE
[Non-text portions of this message have been removed]
Follow us on Twitter: http://twitter.com/phnotweet
This is the PHILIPPINE HEADLINE NEWS ONLINE (PHNO) Mailing List.
To stop receiving our news items, please send a blank e-mail addressed to: phno-unsubscribe@yahoogroups.com
Please visit our homepage at: http://www.newsflash.org/
(c) Copyright 2009. All rights reserved.
-------------------------------------------------------------
