Asean has larger buffers against capital outflows, says economist

KUALA LUMPUR (Xinhua) – Nomura Research sees Southeast Asian countries have larger buffers to cushion the impacts of capital outflow risks from global central banks’ policy normalisation.

The research house released a report Monday highlighting that the Association of Southeast Asian Nations (Asean) is much better positioned to manage a bout of capital outflows than it was in 2013.

“The biggest change since 2013 has been Asean’s efforts to build policy space to counter net capital outflows,” it said, adding that it expects Asean to rebound strongly if there is sudden capital flight.

According to the report, Indonesia and the Philippines have rebuilt foreign-exchange reserves to cover about nine months of imports, not far behind Thailand.

Besides, Indonesia and the Philippines’ progress on supply-side reforms, stable politics and generally good economic fundamentals relative to many of their global emerging market peers, has lowered their risk premium and attracted a greater share of stickier longer-term investments, including foreign direct investments.

The research house also sees room for expansionary fiscal policy given Asean’s relatively low public debt level.

“If necessary, Asean is better positioned to raise rates to support currencies given its economies are all growing strongly,” it said.