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IMF: Asia Pacific economies must preserve stability of banking systems

Posted on: June 19, 2009

Bernama – Thursday, June 18

KUALA LUMPUR, June 17 (Bernama) -– The Asia Pacific economies must preserve the stability of their core banking systems if they want to keep away from the current recession, says an economist with the International Monetary Fund (IMF).

History has proven that recessions could be more longer and deeper with more permanent losses if the banking sectors end up being impaired, said Dr. Prakash Kanan, Economist, Research Department of IMF, U.S.

He said that the banking sector in Asian economies on average were relatively sound though losses going forward could be large.

“The banking sector on average in Asian economies is relatively sound though the policy maker should be aware that this kind of panache speedback look between the real economy and finance sector could end up with large corporate sector losses feeding through to the banking sector,” he said.

“So, therefore, going back to the beneficial role of fiscal policy, we find that strong macro response is key.”

Dr. Prakash said this at a forum entitled, “From recession to recovery: how soon and how strong?” organised by the Institute of Strategic and International Studies, here today.

He said previous recessions have shown that fiscal stimulus and monetary policy have significant impact in reducing the duration of a recession associated with financial crisis, as well as in strengthening the economic recovery.

“However, we do believe that a sustained recovery will need to await for an improvement in the global economy. Even then, the growth rate of Asian exports could be structurally lower than it was for the last few years,” he said.

Dr Prakash said the economies need to have more realistic growth strategy in the medium-term although the amount of the current stimulus packages in the economies are much larger than in the previous crisis episode.

“We feel that the growth in advanced economies is going to be less consumption and less credit driven, therefore, Asia will need structural reform to durably rebalance its economies more towards the domesic sector if it wants to maintain high rates of growth,” he added.

The global economy is currently experiencing its deepest downturn since the second world war.

Some 15 advanced economies are currently in recession and the situation is likely to be long-lasting and severe with the recovery expected to be sluggish.

Global growth is projected to decline by 1.3 percent this year. — BERNAMA



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