- The Washington Times - Wednesday, March 5, 2003

SINGAPORE, March 5 (UPI) — Provided a war in Iraq in short and contained, the outlook for Asia's economic prospects remains favorable, David Burton, the International Monetary Fund's director for Asia/Pacific, said Wednesday.

The economic recovery should continue to gather momentum this year, with an average growth of 6 percent, excluding Japan.

Burton noted there were "sizeable downside risks" to the current outlook, but also felt that many economies in the region had the scope to use macroeconomic policies to support economic activity, if need be. "Most Asian economies are well place to ride out any turbulence," he told the Foreign Correspondent's Association and the Singapore Press Club.

Burton believed monetary policy "should generally be the first line of defense." With inflation low in most countries in the region, there is scope for further easing in interest rates, though not in South Korea where credit expansion has recently been rapid there.

Many governments could also afford higher budget deficits and introduce off-budget measure to support activity if necessary, he said. The exception would be in countries such as India, Indonesia, Japan, Hong Kong and the Philippines, were existing high budget deficits and public debt levels constrain room for such maneuver. Reducing fiscal imbalances should then remain a priority, he noted.

"Prospects for the region will depend significantly on developments in the global economy, about which there is currently considerable uncertainty," Burton said. "Global recovery remains heavily dependent on developments in the United States, and if U.S. growth were to falter there is no obvious candidate to take up the slack."

Burton noted that also the region was trying to foster intra-regional trade to reduce reliance on demand from the United States or Europe, at this stage intra-regional trade provided only a "limited counterweight" to demand from outside the region.

Looking forward, however, demand from within the region will almost certainly become an increasingly important factor, he said.

Burton noted that balance of payments positions in the region were strong, with external current accounts in surplus and international reserves generally at comfortable levels.

Turning toward specific countries, Burton was also hopeful that Indonesia would be able to keep the program "broadly on track" this year, despite the upcoming general election in 2004.

He repeated the IMF's advice to China to move gradually to a more flexible exchange rate, but added it was hard to tell whether the yuan was currently undervalued or overvalued.

He also said the Philippines needed to tackle its fiscal deficit, but also felt the current economic situation was "pretty comfortable." He pointed to encouraging signs of improving tax revenues.

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