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Regional roundup: Finance in East Asia

James Seward's picture

This is the first blog entry of what I hope to be regular updates from the financial sector and related areas across the East Asia and Pacific region. So, let’s see how the New Year began in Asia.

Unfortunately, the bad news keeps coming on the economies in the region in terms of exports and industrial output. Exports and industrial production fell 6.2 percent in Malaysia in November and exports from Thailand fell 18 percent in November. Surveys of consumer confidence, business sentiment, and manufacturers across the region have all shown significant declines.

More rate cuts have taken place across the region. The most recent of which was in Indonesia, which reduced its benchmark interest rate by 50 basis points (to 8.75 percent) to encourage bank lending.

There are signs on the horizon that governments across the region are also pressuring banks to lend. In Thailand, the central bank and ministry of finance are talking with state-owned banks to extend loans, particularly to small and medium enterprises (SMEs). In China, only 30 percent of the $586 billion economic stimulus plan is to come from the central government, with the rest largely coming from the state-owned banks. The state banks are sitting on close to $300 billion in cash, so there is an expectation that this cash may be deployed at the behest of the Government under this stimulus plan.

Also, fiscal stimulus plans are also still coming out of the region. Indonesia announced a $6.5 billion fiscal stimulus plan to boost infrastructure spending. This fiscal spending will be supported by the proposed $5.5 billion in standby loans from international financial institutions, including the World Bank and Asian Development Bank. Taiwan announced a $6 billion stimulus plan for the next four years as well. Finally, the Philippines this week issued $1.5 billion in 10 year international bonds to support its spending plans. The issuance was four times oversubscribed and the yield was 600 basis points above 10 year Treasury bonds. This was the first international sovereign bond issuance in emerging Asia since June and its success may signal a wave of new issuances early this year by other southeast Asian governments.

Another positive sign in Asia came from the equity markets. The markets started the year on the upside. Emerging market indices in Asia are up by an average of 5.5 percent this year, with the Philippines taking the lead (up 9.7 percent) followed by Korea (up 8.3 percent).

Comments

Submitted by Ramesh Kumar Nanjundaiya on
After reading a very interesting observation by James Seward on the financial sector activities in the East Asian nations and this coupled with the present global economic and financial crisis which had had its effect on this region, I wonder what could be the best step forward these countries would take to weather what I call the present financial and economic 'storm' or F & E Storm. Some time during October 2008, there was a talk to form an $80 billion fund to help each other fend off the effects of the global financial crisis. What has been the progress on this front. Members of the Association of Southeast Asian Nations, Japan, China, and South Korea had agreed to provide 80 percent of the funds, and Southeast Asian nations were to manage the rest. This could be a boost to the region provided the countries take a bold step to push this forward to some action points and bring in some respite. In the last 3 - 4 months the global financial and economic crises has had such an effect in this region that this has infact changed the whole dynamics of economy, its exports, emerging market assets position. This is the time when these countries should assert and try and concentrate on sustained exports to new markets. They should work towards gaining investor confidence (what ever is left) and for this to be effective should work on further transparency in their financial markets and work towards reducing the volatility in their regional financial markets. After all their have to weather the "storm".

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