Indonesia Finance Minister Dr Muhammad Chatib Basri yesterday cautioned that emerging markets could end up being punished by the US Federal Reserve’s (Fed) move to cut down its bond buying programme this year.
He said emerging economies and currencies will suffer if the Fed continues with its plans to scale down the US$85 billion (RM283.23 billion) bond purchasing strategy to prop up the American economy.
“We in the emerging economies don’t want to be punished because of US tapering. The rupiah fell 20% since the announcement was made. Buying comes from emerging markets. To have growth in advanced countries you need the demand, so tapering should be done carefully,” Chatib said in Petaling Jaya yesterday.
He was the guest speaker at the Tan Sri Jeffery Cheah Distinguished Speakers Series in Bandar Sunway on the topic of “The Challenge from Quantitative Easing (QE) to Economic Management in South-East Asia: Indonesia’s Experience”.
South-East Asian currencies and stock markets benefitted from the bond-buying programme or QE policy as foreign capital flowed to the lucrative emerging markets last year.
But events turned topsy-turvy when the US decided to change its QE policy, which witnessed exodus of capital from the emerging markets, thus bruising currencies and equity markets since late last year.
Chatib said the Indonesian economy, home to 240 million people, is in a better position to face any financial risks, unlike in the 1998 Asian financial crisis where it had to depend on the International Monetary Fund to bail out its economy.
“We will not impose any capital control, we are not in the same position as we were in 1998 (Asian financial crisis), our banking system is in a healthy condition and there is political stability now. Capital will come if there is good macroeconomic policy and when inflation is under control,” he added.
Indonesia is targeting economic growth of 6% in 2014. Chatib also said Asean should be more focused to face economic challenges and link up to the global production and supply chain to remain competitive.
“Future buyers will come from advanced countries like Europe, the US and China. We (Asean) need to be part of the global supply chain. The problem with Asean is there are passengers at the back seat but the driver does not know where to go,” he said.
Chatib said it is not a good time to introduce a single currency for Asean because its member economies are at various differing levels of growth.
“We need to look at what is happening in the EU (European Union). There are divergent economies in Asean, we need to be careful.”