Fed Tapering, 'Watershed Moment' for Southeast Asia
13 November 2013 21:50 WIB
TEMPO.CO, Jakarta - The United States Federal Reserve’s (The Fed) plan to curb stimulus actions has raised concerns over its impact on Southeast Asia.
Southeast Asia faces a "watershed moment" as expectations the Fed will begin tapering its asset purchases means policymakers can no longer rely on cheap credit, HSBC said.
The growth story in Southeast Asia appears "less shiny and glossy in bright daylight" since talk of the Fed’s tapering began, said Leif Eskesen, HSBC's chief economist for the Association of South East Asian Nations (ASEAN) in a note.
The ASEAN-five, or Malaysia, Thailand, Indonesia, Philippines and Vietnam, need to do the "heavy lifting" of economic reforms to make the region "the serious alternative to China and India that we think it deserves to be," he said, adding that it is important to start reforms soon as it will take time for their positive impact on growth to be felt.
Eskesen said that each country has its own structural issues, many centering on infrastructure needs, education and the labor market. Several also need to bring down fiscal deficits to make way for more productive spending.
Global financial firm Morgan Stanley also highlighted the need for economic reforms in Southeast Asia.
"The sharp fall in external demand during the global financial crisis led policy makers in the region to turn towards domestic demand as an engine of growth. However, this boost to domestic demand was driven largely by expansionary monetary and fiscal policies and hence lacked a productive dynamic," Morgan Stanley said in a note last week.
CNBC NEWS | SETIAWAN