Tuesday, April 16, 2013

World Bank: Developing Asia Should Put a Brake on Easing Policies

Interesting call from the World Bank. 

From the Jakarta Globe:
The World Bank is urging developing economies in East Asia and Pacific, including Indonesia, to put a brake on monetary and fiscal policies that boost consumer demand, arguing that such actions would add to inflationary pressures as the global economy gradually recovers.

“Most countries in developing East Asia are well prepared to absorb external shocks, but continued demand-boosting measures may now be counterproductive, as it could add to inflationary pressures,” said World Bank East Asia and Pacific chief economist Bert Hofman in a report on Monday.

“A strong rebound in capital inflows to the region induced by protracted rounds of quantitative easing in the US, EU and Japan, may amplify credit and asset price risks,” he added.
Developing East Asia and Pacific include China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Malaysia, Laos, Mongolia, Myanmar, East Timor, Fiji, Papua New Guinea, Solomon Islands and other smaller island economies in the Pacific.
So the World Bank finally admits or acknowledges of the existence of the Asian-ASEAN bubbles which they couch in technical gobbledygook as “demand-boosting measures may now be counterproductive”. 

“Counterproductive” is really about capital consumption from malinvestments that will be unraveled by inflationary pressures. Mainstream terminology for this is "overheating".

This has been a dynamic I have been pointing out since last year.

The World Bank also puts into proper context  the role of capital inflows as “may amplify credit and asset price risks”. Yes this is an acknowledgement of my assertion that all bubbles are inherently domestic.

Glad to hear some forthrightness from a taxpayer funded multilateral agency.

Yet, be careful of what you wish for.

If the boom in ASEAN economies has mainly been derived from counterproductive “demand boosting measures”, then a policy brake (tightening) would translate to a reversal of such speculative, unproductive, wealth consuming activities: particularly such will likely be ventilated through economic recession, crashing markets and possibly a financial/banking crisis.

A “brake” in easing policies, for instance, will essentially expose on the underlying reality behind the supposed Philippine economic miracle labeled as “Aquinomics” along with political façade from other ASEAN nations whose economic growth has been cosmetically boosted by credit expansion.

Thus, will ASEAN politicians acquiesce to a virtual exposé of their pretentious policies that risks undermining their political privileges and of their supposed popular moral standings? 

I doubt so.

Yet more institutions appear to recognize implicitly, slowly but surely, my concerns of a coming crisis from today’s bubble policies.

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