Transcript

Transcript of a Press Briefing on the Asia Pacific Regional Outlook

April 12, 2014

SPEAKERS:
Changyong Rhee
Director, Asia and Pacific Department, IMF
Markus Rodlauer
Deputy Director, Asia and Pacific Department, IMF
Jerry Schiff
Deputy Director, Asia and Pacific Department, IMF
Nigel Chalk
Deputy Director, Asia and Pacific Department, IMF
Hoe Ee Khor
Deputy Director, Asia and Pacific Department, IMF

Moderator:
Keiko Utsunomiya, Communications Department, IMF

Webcast of the press briefing

[Start at 8:16 a.m.]

MS. UTSUNOMIYA: Good morning.

Welcome to this Briefing on Asia and Pacific.

I am Keiko Utsunomiya from the Communications Department. With me here are--- Mr. Changyong Rhee, Director of the IMF's Asia and Pacific Department; he is in the middle.

On his right is Mr. Markus Rodlauer, Deputy Director of the APD, Asia and Pacific Department; he is also a Mission Chief for China.

Changyong's left is Mr. Jerry Schiff, Deputy Director and Mission Chief for Japan.

On his left, Mr. Nigel Chalk, also Deputy Director; he oversees the work on India and also regional surveillance.

On my immediate left is Mr. Hoe Ee Khor. He oversees the work on ASEAN and the Pacific Islands.

Changyong will give short opening remarks before taking questions.

MR. RHEE: Thank you, Keiko.

Good morning. It is my great pleasure to have a chance to brief you on economic prospects for the Asia Pacific Region for 2014. This is my first briefing in the IMF, so I am thrilled.

We will discuss in more detail the economic outlook for the Region at the end of April when we release the Regional Economic Outlook in Hong Kong, but today let me first highlight three key messages.

First, we believe the Asia Pacific Region will continue to remain the most dynamic in the global world, although the growth rate in 2014 will not be as stellar as it was a few years ago. But the Region is well-positioned to capitalize on the recovery of advanced economies, and the growth momentum will continue.

Second, external risks, which were heightened after the announcement of QE tapering last May, have receded quite a lot, and emerging economies in Asia are doing relatively better than emerging economies in the other Regions, partly due to their strong market fundamentals but also partly due to their swifter response to the mini financial turmoil after the QE tapering announcement.

Third, despite this continued growth momentum, I think this is not time for complacency in Asia. It is time in Asia for vigilance and reform. As you know, after the global financial crisis, many Asian economies used lots of ammunition, so the policy space for many Asian economies has been narrowed quite significantly, and internal imbalances have been widened, too.

So, without reform, I think Asia becomes slightly more vulnerable. So continued reform effort is very important not only to maintain its growth momentum but also to secure short-term financial stability.

Let me explain these points a little bit more.

We believe that the Asian economies' growth rate will edge up to 5.4 percent in 2014 and 5.5 percent in 2015, slightly up from 5.2 percent in 2013. The main driver of this growth is definitely improvement of external demand due to the recovery of advanced economies.

But this general picture masks increasing diversity across the Region. For example, in China, we believe that China's growth rate will be around 7.5 percent this year, lower than the 7.7 percent of last year, but it should be regarded as a desirable adjustment to a more sustainable growth path.

In Japan, we believe the growth rate will be 1.4 percent this year, and the consumption tax increase in April will definitely reduce the growth rate in the second quarter; but the fiscal stimulus plan and also the recent rise in the wage rate in Japan together with the signal of increasing investment and export will make Abenomics on track if the third arrow, the structural reform, continues.

In India, the growth rate will improve to 5.4 percent, leading the recovery of the South Asian economy, but the inflation rate will be more likely to remain as high as 8 percent.

In Korea and the newly-industrialized economies in East Asia, the recovery will be led by the improved export demand in the Region due to the recovery of the advanced economies, and the growth rate will be expected to increase from 2.8 to 3.7 percent in this year.

We believe that the ASEAN economies will be a new growth pole, and their growth rate will be stable at 5.0 percent in 2014. Philippines and Malaysia will do relatively well, with growth rates of 6.5 percent and 5.2 percent, respectively. Indonesia's growth rate will be around 5.4 percent, and their financial conditions will be much improved together with the improvement of their current account last year.

Unfortunately, in Thailand, political tension has hurt growth sentiment, and we forecast their growth rate will be as low as 2.5 percent, but I think it is well below their potential rate. Their growth rate should be above 5 percent, but this political tension takes a toll on the growth rate.

Frontier economies such as Myanmar and Cambodia will continue to catch up, and their growth rates will be 7.8 percent and 7.2 percent, respectively.

Pacific Island countries and Small States will pick up to around 3.5 percent and will then accelerate further in 2015 to 4.6 percent, led mostly by gas export revenue in Papua New Guinea, and Papua New Guinea's growth rate will lead the growth rate in the Region.

And actually, I am pleased to announce that today the APD will release its new quarterly bulletin, the Asia and Pacific Small State Monitor. I hope you can pick that up after this press conference.

So, overall, I think that Asia's growth prospects are still resilient, and we expect that it will continue to be a growth pole of the global world. But I think we cannot be complacent, because there are still several downside risks for Asian economies.

The first risk is a sharper than expected tightening of advanced economies' monetary policy--QE tapering. I emphasize "sharper than expected" because overall, QE tapering will be in conjunction with the growth in the United States, so QE tapering and the U.S. recovery can have a positive impact; but disorderly and unexpectedly tightening of monetary policy may have a negative impact in Asia through the capital outflows from the Region and increased borrowing costs. That implies that good communication from advanced economies' central banks seems to be a very important policy coordination issue for the Asian Region.

Second, internally, the risk is that there may be slower than expected growth in China and China and Japan.

In China, as many people worry about, there are impending issues of how to handle shadow banking, non-bank intermediation in financial markets, and that has to be addressed quite promptly.

And in Japan, unless it is matched by efforts at structural reform, I think that Abenomics-related measures could be less effective, and that could be a risk factor.

The third risk is domestic and global political tensions. That could hamper trade and the Region's growth. Thailand is one example, and the recent heightened tension between China and Japan and East Asia could be another factor if not handled rationally.

There are several small frontier economies which have experienced rapid credit build-up after the global financial crisis, and that also has to be addressed promptly.

How should policy respond to these risks?

In general, on monetary policy, I would rather emphasize more individual characteristics than the overall stance. On the overall stance, I think Asia has to maintain its relatively accommodative monetary policy stance. But in China, I think most important is to rein in credit expansion. China's growth rate may go down slightly lower than the 7.5 percent we are forecasting, but I think we should think of that as a desirable adjustment to a more sustainable growth path --I think the government understands this problem very well, so we don't need to about it too much at this moment, and Premier Li Keqiang today also mentioned that they don’t need a strong stimulus plan for coping with short-term volatility. I think that is the right stance. They may sacrifice the growth rate a little bit, but on the other hand, how to rein in the expansion of credit growth, especially outside the banking sector, seems to be a very important task to secure their long-term stability.

In India and Indonesia, I think the effort has to be continued to make inflation expectations firmly on a downward path, and tightened monetary policy may be necessary to strengthen external balances to secure short-term financial stability.

In many of Asia's frontier and developing economies with large fiscal deficits and which experienced rapid credit expansion, I think the effort has to be doubled to rein in the credit expansion and correct external imbalances.

In Japan, inflation and inflation expectations have continued to rise steadily toward the 2 percent target, and we believe the current accommodative monetary policy stance remains appropriate for a while.

On the fiscal policy side, gradual consolidation remains appropriate for most countries in Asia. Asia's fiscal deficit and debt situation is much better than any other Region, but it is also true that Asia uses less ammunition --if you consider rising inequalities and Asia’s problems of lack of proper social security safety nets, then you can expect that we will have demand coming for the fiscal side and maintaining the fiscal soundness and strength of the Asian economy seems to be a very important priority that we have to address.

Asia has also relied very much on macro-prudential tools, but we have to understand that macro-prudential tools are not a substitute for good macroeconomic policy and flexible exchange rate policies but should remain as part of the toolkit in case we need to mitigate the impact of increased volatility in capital flows and financial markets.

But on the other hand, what kind of macro-prudential policies will be effective at the time of the capital outflows--at this moment, we are worrying about capital outflows rather than inflows--seems to be a very interesting and important issue for Asian economies.

Finally, I would emphasize that more than anything else, this is time for structural reform in Asia, because in the short term, compared with last year, financial market instability seems to be a little bit improved, but on the other hand, Asia has a long list of structural reforms, and the agendas vary across countries. But these reforms are essential not only to secure the long-term economic growth momentum but also to stabilize the short-term financial instability.

Let me give an example.

Why were India and Indonesia attacked in the mini financial turmoil last year? Many people point out the fiscal deficit and the current account deficit, and they mention the fiscal deficit due to many entitlement programs and also the regulations and slowness of infrastructure investment--these kinds of things. That cannot be addressed by monetary and fiscal policy. In order to address those issues which relate to short-term financial market stability, reform has to continue.

In conclusion, in general, I believe that Asia's growth momentum is set to continue. Asia will remain the most dynamic Region of the world. But we need to be vigilant for the short-term macroeconomic conditions, partly due to the QE tapering in advanced economies, and also restore the growth momentum and enable Asia to remain the most dynamic Region in the world.

So it is time for vigilance and reform in Asia.

Thanks very much.

MS. UTSUNOMIYA: Thank you, Changyong.

Now we will open the floor for questions, and we welcome questions from those who are participating on line as well.

Please identify yourself and your affiliation.

The gentleman in the middle.

QUESTION: My question is what will be the driving force to reaching the Myanmar growth forecast of 7.8%, and another is the future state of the IMF program in Myanmar after concluding the staff-monitored program in this country?

MR. RHEE: In terms of growth prospects in Myanmar, I think Myanmar continues to receive large capital inflows at this moment, and many reform agendas have already been discussed with the IMF and many other donor countries.

Last year, because the sanction stage was not cleared completely, there were many foreign investors waiting for the signal to come in. So I think the growth forecast is 7.8 percent, and I think it is reflecting the new capital inflows and accelerated economic investment from abroad.

So I think the growth rate itself is not an issue, but rather the issue is how to handle this large increase in capital inflows wisely, how to handle these capital inflows and use them for more infrastructure development, and also not to repeat the same mistake that many Asian economies have experienced in the early stage of development, which is real estate-driven growth. For example, when there is capital coming in, real estate prices go up, and income inequality can rise. And how to make these capital inflows contribute to inclusiveness seems to be a very important agenda together with the macroeconomic stability issue.

So, at the IMF we are in close contact with the Central Bank of Myanmar on exchange rate reform and inter-bank markets to move to a more market-liberalized, market-oriented monetary policy stance.

So we have lots of TA (technical assistance) going on with Myanmar, and I think we will continue that effort.

Hoe, Jerry, do you want to add?

MS. UTSUNOMIYA: Can I take a question from on line that is related to Myanmar?

"Today, you forecast that Myanmar will grow by 7.8 percent. What impact does the loosening of sanctions have on that, and does the IMF think that continuing political tensions around the Rohingya issue, given that the IMF has just noted political tension in Thailand, will have any impact in Myanmar?

MR. RHEE: First of all, as I mentioned, the 7.8 percent may be, if I had to say, the upside potential of growth because of the large capital inflows. We expect that more capital will come in as long as the reform agenda of the Myanmar Government continues.

So, last year, as I mentioned, the sanction status was not completely clear, so capital inflow was relatively controlled, but as reform continues, I think you can expect more capital coming in.

But one uncertainty is, as you mentioned, the political uncertainty around ethnic group issues, but I think the government will handle that problem--we hope, wisely. And as I mentioned, inclusive growth in terms of regional and ethnic groups is very important for long-term growth. Especially this year, the IMF has a good study about the impact of income inequality on long-term growth, and we share the view that extreme inequality is a negative factor in securing long-term growth.

I hope that Myanmar does not go through the same pattern as Asia, actually, where, in the early stage of growth, rising income inequality accompanied the Asian growth model, but if you address this issue in the early stages, you don't need to go through the same mistake, and we hope that Myanmar will address this issue wisely.

QUESTION: First of all on China, what is your evaluation of the reforms that have been and will be carried out and also the impact of those reforms on the speed of economic growth in the short term?

Also on Japan, the IMF has repeatedly said that Japan needs a long-term plan in order to address its fiscal problems and also the high level of debt. That has been talked about for over half-a-year, so has that kind of plan been put in place?

MR. RHEE: Two or three weeks ago, I accompanied MD Lagarde to China and had an opportunity to talk with high-level authorities. And I was impressed that they are really fully committed to the reform agenda. The reform agenda can vary widely, but I can assure you that at the leaders' level, they all understand that reform is an essential element for China to maintain its growth momentum and to become a high-income country by avoiding the "middle-income trap."

What also impressed me was that they understand the difficulties of reform; they understand that some reforms, like rebalancing, may cause the growth rate to moderate. But I think they believe that their growth target of 7.5 percent this year, and maybe a slower growth rate in the future, is still high enough to maintain good employment in China.

So I got the impression that as long as they can secure a certain level of employment for the new comers, they are willing to accept the lower growth and focus more on the quality of growth through reform. And if you ask what kind of reform they mentioned, the Minister of Finance was very keen on fiscal reform for inclusive growth, and the central bank is very keen on financial market liberalization, liberalizing rates and introducing a deposit insurance scheme, and also reining in shadow banking and nonbanking activities. And there are many other social reform issues such as building safety nets.

So the agenda is quite broad, and the Minister of Finance mentioned that in his own department, there are 200 bills to pass within this year, so it looks like they are very serious on the reform. But we all expect that it will not be an easy path--it will be a bumpy path--but the IMF hopes to contribute technically to their reform efforts.

Markus?

MR. RODLAUER: No, thank you.

MS. UTSUNOMIYA: And on Japan?

MR. RHEE: Right; Japan.

I think this is not a place just to give my own views. Jerry?

MR. SCHIFF: Could you repeat the specific question?

QUESTION: The IMF has repeatedly said that Japan needs a long-term plan to address its fiscal problems and the high level of debt. It has been about six months--over six months--so how is that plan going right now? Is it in place now?

MR. SCHIFF: No, I would still highlight that as a need in the sense of needing a concrete plan to show and convince their citizens and the international community that they will be able to bring debt-to-GDP to a declining path over time on a gradual basis.

But it is important to emphasize that on April 1, they did take a very important step which was to raise the consumption tax from 5 to 8 percent. That was a very politically difficult decision, but they went ahead with it. There is a plan in place to implement the second stage of the consumption tax increase later in 2015 from 8 to 10 percent. That will be another important piece.

But we think that those two steps, while important, do not allow the government to meet the broader objective yet of bringing the debt-to-GDP ratio down, so further steps will be required, and we look forward to discussing that with them.

QUESTION: I am from Indonesia. Our focus for this year is about 5.5, that is higher than the IMF's forecast. My question is: Is it possible for us to achieve our forecast, and if possible, for what reason?

Second, as you mentioned before, we do so many things to improve our current account. I want to know your opinion--are we on the right track?

Thank you.

MR. RHEE: I think you just mentioned your government forecast at 5.5 this year, and our focus is 5.4. So I am very sorry we don't have that much detailed machinery to differentiate between 5.5 and 5.4, but in general, I think that both the Indonesian Government and we are relatively optimistic--actually, we believe that the Indonesian economy is right on track from the recovery from last year's mini shocks.

One reason for the fast recovery is, we believe, the right policy response of the Indonesian Government. The Indonesian Government tightened monetary policy, increased interest rates a little bit, and also tried their best to improve the current account to give a signal that this time, it is different from 1997, and that effort has continued.

At this moment, I think you face an election, and what is most important is whether the new government will continue its reform agenda. And the Indonesian Government actually made big progress by cutting the fuel subsidy last year ahead of any other Asian economy, and that was a very difficult task because it has implications for a high inflation rate ahead of the election and this very politically sensitive time. But the Indonesian Government was bold enough to do it, and still the subsidy and fiscal reform agenda is very important.

Likewise, I think the Indonesian Government is currently trying to improve infrastructure. Mostly, they are trying many things to diversify their industrial structure. Those things will definitely very importantly contribute to the next phase of growth, as I mentioned.

So, at this moment, what the monetary policy can do in the short term--I think we should not over-exaggerate. They did a terrific job, and now they provide ground for the relatively better stability, short-term stability, in the financial market, and now it is time for them to focus on the medium-term reform agenda, and I hope that after the election, this reform will continue.

QUESTION: My question is about Taiwan. I notice that this time, the World Economic Outlook report has revised downward Taiwan's projection from 3.8 to 3.1 percent. Could you tell us the reasons for the cut, and do you think that Taiwan now has a long-term growth model issue?

Mr. Rodlauer: We don't really follow Taiwan very closely or even discuss with the authorities there. The growth projections this year mainly rely on the official data that come out and I don't think are very different from what we hear from market analysts, so we don't really go into great depth, and we cannot really go into great depth, in analyzing the Taiwanese economy.

MR. RHEE: If I could just add, I think that, actually, this is an improvement. Last year, the growth rate was 2.1 percent, so 3.1 percent is quite an improvement.

I think one major factor is the slowdown of the Chinese economy. We think it is a desirable aspect to more sustainable growth from China's point of view, but on the other hand, China's slowdown actually has an impact on Taiwan's economy. But on the other hand, the advanced economies' exports are recovering. So, overall, it is 3.1 percent, which is better than the 2.1 percent last year, so I wouldn't downplay the 3.1 percent achievement very much. If you look at the per capita income level, it is quite a high level, so I think you should not see 3.1 percent as low, because if you look at the advanced economies at this moment, the growth rate is much lower.

QUESTION: I have a question on China's shadow banking. I think it is very wise for the Fund to suggest that China has to get rid of or remove the implicit guarantee for the very big amount of the wealth management products which are a very big part of shadow banking. But given that the amount of wealth management products is huge, and also given that some trusted companies are highly leveraged, as high as 30 times, the question is how to get rid of this implicit guarantee without triggering a spiral of default and triggering a kind of systemic panic in China.

Second and relatedly, local governments are heavily indebted in China now, and their related assets, some are good, some are very bad. It seems to me that the Chinese authority tries to shift the risk from the local governments to the central government by setting up a special vehicle in China Development Bank to fund the needs of infrastructure and also urbanization of China but does not really want to solve the stock of local debt in a holistic agenda.

Do you suggest resolving this problem at the same time as opening a new front for fundraising for urbanization?

MR. RHEE: Regarding how to avoid the moral hazard problem, I think this is the most difficult question that China has to address. It is not just for China. I came from Korea, as you know, and we had very similar problems in the 1980s, and it was not easy. We had a trust problem, we had a trust fund, and we could solve this problem by experiencing small-scale financial turmoil and also by trial and error.

So I think we should not say it is an easy task, but on the other hand, the Chinese Government's recent effort to introduce a deposit insurance system--which is actually trying to show explicitly what deposit is insured and what trust account is not insured--that kind of signaling is very important as a first step. But on this, the trick is how not to trigger massive loss of confidence.

So at this moment, I think the Chinese Government is trying some default, which I think is the right direction--we should not give the impression that every investment is 100 percent secure--but on the other hand, as you mentioned, if this is messy, it can create a vicious circle. So I would rather say that this is not a theory; this is more how you handle the situation by trial and error. And I think we will work together closely with the Chinese Government to see how we can handle this problem.

But most importantly, we need a determination that the current system, which actually gives implicit guarantee for almost all products, cannot be continued. So, under this general agreement, I think the strategic approach can be devised in many different ways.

MR. Rodlauer: On the local government finances, as you know, we did this analysis carefully last year, and the government itself came out with its own audit in the fall, and the numbers are very much consistent between theirs and ours.

We are not so much concerned about the current level, as you know, which is about 35 percent of GDP. And if you look at the audit in more detail, not all of that--certainly by far not all of that--is debt that is down the drain and cannot be repaid. In fact, more than half of that is for projects that seem to be commercially viable.

So, overall, it is not the level--it is the trend that concerns everybody, because the trend, of course, has been rising very fast since the 2007-2008 stimulus, and the augmented deficit, if you count all this local government spending, is rather high and therefore has to come down gradually. So it is how you move the trend to something more sustainable, and that requires, as the government has very clearly stated, not just an issue of reorganizing the financing of those projects but comprehensively reordering the finances of local governments, giving them adequate resources on the revenue side and also reorganizing the spending in a way that it clearly distinguishes between commercial projects that are viable, reorganizing the financing--as the Finance Minister has often said, moving from the back door to front-door financing--allowing local governments that are truly viable and commercially strong to borrow in the market with market discipline, reorganizing the financing of other projects, maybe centralizing somewhat more the control over the quality of those investments. But in no way would you want to slow down all local government investment and financing, of course, overnight.

So it is really a question of how to reorganize this in a much more rational way, and I think that's the way they are going forward.

The stock at this point is not something that is concerning us too much. That looks manageable. Certainly in international comparison, it is still very much in the range of manageable levels.

QUESTION: Putting all the shadow banking together, do you see any risk that a liquidity problem will occur when you try to deal with this kind of debt of local governments?

MR. RHEE: I think I am less--we are concerned; it is a problem. But on the other hand, I do not want to exaggerate that too much, because most of the local debt and Chinese Government debt is local debt, local currency debt, rather than external debt.

So I do not want to encourage them, but on the other hand, if necessary, to protect their financial market stability, we cannot assume that China cannot do the QE while the other countries can do that. So I think that in some sense, given that it is not external, foreign currency denominated debt, it is mostly local debt, we believe that if necessary, there is room for the Chinese Government to react. But on the other hand, if it is getting bigger and bigger, the problem will not be manageable.

That is why we are emphasizing that even by sacrificing growth rate a little bit, it is important to rein in the credit expansion by local governments and the non-banking sector at this stage.

MR. Rodlauer: Yes, and what I wanted to say also is--you alluded to a possibility of resolving the entire stock of government debt to get this off the books. I think the government has already quite clearly stated that this is not what they want to do, this is not the right way to go, because as soon as you remove the whole stock from the books of certain local governments, it just opens the floodgates to new borrowing unless you are really able to reorganize the flow in a way that is much more rational.

So the authorities I think do not intend to remove in one stroke the existing and restructure it, because I think it is important not to create new moral hazard by doing that.

QUESTION: [Inaudible; off-mike.]

MR. Rodlauer: I think we support the idea of not immediately removing with one stroke all the debt from the government books, because that would create new moral hazard. I think the key is really to reorganize the flow in a way that is more rational and sustainable.

MS. UTSUNOMIYA: Next, please.

QUESTION: The forecast that the IMF gave for Vietnam was 5.6 percent for this year. It is kind of slowing down compared to before and also slower compared to the other economies in the Region as well. So I just want to know the main reasons why Vietnam is kind of lagging behind; and also, how do we solve these challenges to achieve better and higher economic growth in the future?

MR. RHEE: Vietnam's economy had slowed down even before the global financial crisis because of its own internal problems. Vietnam was a little bit overheated after the very strong growth rate in the last decade, and its state-owned enterprise debt problems and fiscal problems, and then, very high inflation.

So Vietnam in the last couple of years has been doing macro adjustment programming. So I would rather not place Vietnam with the other Asian economies. It started a macro adjustment program earlier. Now, I think it is seeing improvement from the past few years of the adjustment program.

So I think it is natural for me to say that Vietnam's growth rate is not as high as, say, 10 percent in the last decade, but I hope it can be a more sustainable growth path. Potentially, the growth rate can be higher than this level, but at this moment, Vietnam has to focus more on completing its homework on the SOE reforms and reduce the fiscal deficit and then having a sound banking system, recapitalization of banks. So, still, the reform effort has to continue, and in that process, I think we cannot expect Vietnam's growth rate to jump to the previously high rate of 10 percent.

MS. UTSUNOMIYA: We have time for one more question.

QUESTION: On Bangladesh. Just a few days ago, the IMF said that the economic growth rate will go below 6 percent, and that will be for the first time in many years. I wonder if you could share with me some concerns about the Bangladesh economy this fiscal year and next fiscal year.

MR. RHEE: I think that Bangladesh's economic growth rate in 2011-2012 was also 6.0, 6.1.

Last year, it was 5.8. So 6.0 seems to be--it is not that much different from the last few years. So I think we are not very much concerned by this 6.0 percent growth rate, and I think that is not a very low level, either, but I think that in Bangladesh--this year and especially last year, due to the political conflict, the growth rate was a little bit lower, but now it seems like things are going normally, so I hope they can get back to the higher-than-6 percent growth path. But I would rather focus more on the reform agenda, diversification, rather than just the textile industry and the banking problems.

So I hope that you don't think that 6.0 is bad performance. Overall, if you believe that the entire advanced economies' growth rate is much slowed down, how can Asia maintain the growth path of the previous few years which was very high, 7 or 8 percent, in your country?

We have to admit that Asia remains a growth pole, but I do want to emphasize that we have to look back a few years ago, when all the growth rates were quite high, and by believing we can go back, we might actually over-stimulate our economies.

So I think that 6.0 percent at this moment seems to be a reasonable number.

Let me say that Nigel will move to the U.S. Desk, so he is in a perfect position to evaluate the impact of QE. He is a European and will be in charge of the U.S. Desk and worked for the Asian Department, so he is in a well-balanced position, and we can ask his view on the QE tapering on Asia.

MR. CHALK: I guess our view on tapering is that tapering is basically done. Looking ahead, I think the main issue is the increase in interest rates in the U.S. which will come next year. That is certainly going to need to be communicated well and has a potential to create volatility.

But as Changyong said, for most of Asia, what we have seen over the past year has been--particularly in the countries that were vulnerable in 2013--pretty big efforts at addressing current account problems, addressing fiscal problems, bringing down inflation.

So, overall for Asia, we see that they are very well-placed to withstand another round of capital flow volatility--and particularly in a much better place than they were in 2013.

MR. RHEE: Thank you. So we will keep asking you on QE.I am sorry to add, but on the other hand, I am a new Director in APD, so in my new term, I want to emphasize that Asia is more than China, India and Japan. I think there are many other developing Asian countries which are gaining momentum and will be new growth poles. So I will ask Hoe to talk about the general prospects of ASEAN economies.

MR. KHOR: Thank you, Changyong.

I think Changyong has already addressed the question about Indonesia, but on ASEAN-4 as a whole, or ASEAN-5, I think the Region has done pretty well. They have basically weathered the Fed tapering very well, especially in Indonesia, after it took the measures in June by raising fuel subsidies and also letting the exchange rate become more flexible and allowing bond yields to rise.

That has greatly strengthened the macro fundamentals for Indonesia, and going forward, I think we are quite confident that they will be able to weather any turbulence quite well.

For the other ASEAN countries, we all know that Philippines was the second-best-performing economy last year. Philippines is doing well because of very strong remittance inflows and also the BPO (business process outsourcing) is doing very well. And going forward, we expect the economy to continue to do well. I think the Governor recently expressed concern about the need to begin to tighten with the Fed tapering, and I think that is very proactive, and we strongly support that.

And for Malaysia, they have also taken measures to consolidate their fiscal, which is very important, because I think the market is concerned about the high debt stock.

So, again, we see very proactive actions being taken by the various authorities in the Region to strengthen the macro fundamentals.

Thailand unfortunately is going through political difficulties, and that has affected the growth rate, so the growth rate is much lower this year. But we expect that once the government is in place by the second half of this year, growth will rebound very strongly.

I think one of the remarkable things about Thailand is that it is very resilient to shocks, and we think that once the political situation is clearer, the economy will rebound very strongly.

So, overall, we are actually very comfortable that for the four major ASEAN countries, the macro fundamentals are very good, and what they need to do going forward is structural reform, as Changyong pointed out earlier. With stronger macro structural reform, they can probably raise the potential growth rate from about 4 percent, 5 percent, maybe by one percentage point. So I think that that is the agenda going forward for most of the ASEAN countries.

Thank you.

MS. UTSUNOMIYA: This concludes the briefing by the IMF's Asia and Pacific Department.

See you all again soon, when we release the Regional Economic Outlook in Hong Kong later this month.

Thank you.

[Concluded at 9:01 a.m.]