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IMF chief says Asian economies stronger than in 1997

By Staff
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BANGKOK, July 28 (Reuters) The International Monetary Fund said on Saturday it saw no immediate risks of a financial crisis for Asian economies hit in recent months by a heavy influx of global capital.

Asian countries should employ a combination of measures to manage huge inflows of foreign funds and exploit them for accelerating their economic expansion, IMF Managing Director Rodrigo Rato said.

''Capital inflow is certainly a worldwide phenomenon. For Asian economies, that reflects a lot of things including increased liquidity and growing attractiveness of the economies.

I believe that is good news,'' Rato told a news conference.

Since late last year, Thailand has struggled to discourage capital inflows which have fuelled the baht's rise to 10-year highs against the dollar and eroded its export competitiveness.

''I don't think right now Thailand and Asia have reasons to expect any crisis. Volatility is a problem and not desirable but that doesn't necessarily bring us to a crisis,'' Rato said.

''Macro-economic fundamentals are stronger now than they were 10 years ago. Exchange rate flexibility also plays a very important role and the integration of Asian economies into the world economy is stronger,'' he said, referring to the 1997 Asian economic crisis.

In a speech delivered to a meeting of Asian central bankers on Saturday, Rato urged China and other Asian countries to relax their currency policies.

''Greater exchange rate flexibility is not only in China's best interest but would allow other Asian countries to appreciate with less concern about competitiveness,'' he said.

''There is also the possibility of such protectionism spinning out of control with disastrous consequences for the global economy,'' Rato said.

DIFFERENT APPROACH China manages the value of its yuan currency, also called the renmimbi, within a narrow range that the United States and many European countries maintain does not represent its fair value given China's rising global economic might.

Thailand imposed tough capital controls last December to try to keep foreign capital out but has since relaxed most of them after they proved ineffective in slowing the baht's gains.

Despite active intervention and measures taken by the Bank of Thailand to stall its gains, the baht has appreciated about 7 percent against the dollar this year after rising nearly 14 percent in 2006.

The central bank adopted a different approach last week to ease upward pressure on the currency by allowing more capital outflows, a move welcomed by the IMF chief.

''Stronger currencies should not be seen as a danger. It makes easier monetary policy and makes it easier to keep inflation targets in check. It attracts more foreign confidence in the economies,'' he told reporters.

Rato said while appreciating Thailand's reasons to resort to capital controls last year, the measures were not a solution.

''Experiences show capital controls are more and more short-lived in terms of benefits for the country. They certainly have all the drawbacks if made to last longer,'' he said.

Bank of Thailand Governor Tarisa Watanagase on Saturday asked IMF officials for advice on how to cope with adverse market volatility arising from fast flows of global capital.

REUTERS PBB RS2030

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