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Gold/Mining/Energy : At a bottom now for gold? -- Ignore unavailable to you. Want to Upgrade?

To: William JH who wrote (1508)	8/6/1998 12:34:00 PM
From: Vieserre	Read Replies (1) \| Respond to of 1911

One of a number of such reports, also see Yellin 1497: SINGAPORE, Aug 4 (Reuters) - Government policy makers across Asia are steadily changing direction as a new threat emerges to their already embattled economies -- the prospect of serious deflation. Since mid-year the authorities have been loosening the tight monetary policy screws in place since the peak of the Asian crisis, and making plans to boost government spending to try to head it off. In taking this new direction, analysts say, governments have been given a green light by the International Monetary Fund. "Deflation is the watchword in Asia at this point," said Tim Condon, regional economist at Morgan Stanley in Hong Kong. No less a figure than Chinese Premier Zhu Rongji openly admitted the existence of deflation in China's economy just this week. "In view of the current situation in which there is deflation, the central government has decided to take more active fiscal policies to raise more capital and strengthen infrastructure investment," Zhu told a local newspaper on Monday. Economists define deflation as a sustained reduction in the general level of prices. It is often, though not always, accompanied by declines in output and employment. This is certainly happening across Asia now and governments appear to have decided that, since exports are not going to provide the needed stimulus to avoid deflation, they have to step in. "It's a question of economic survival," said Chia Woon Khien, head of Asian research at SE Banken in Singapore. Over the past few weeks finance ministers and central bank governors regionwide have been announcing broadly similar measures. Taiwan cut commercial banks' reserve requirements, resulting in a drop in passbook deposit rates by half a percentage point. The move was designed to spur the economy and bolster money market liquidity. Malaysia cut its central bank intervention rate by 50 basis points to 10.5 percent, effective on Monday, leading at least one bank to cut its base lending rate. It had already announced a major fiscal stimulus package amounting to around three percent of GDP. South Korea's Finance Minister Lee Kyu-sung said he planned to lower interest rates steadily and said the country plans to expand fiscal spending to create jobs. Thailand's central bank governor, Chatu Mongkol, said this week there was room to stimulate the economy via monetary expansion and lower interest rates. The Thai government is also in meetings with the IMF this week at which it has said it plans to seek permission for a much larger budget deficit. The government wants to double the fiscal deficit to two percent of GDP from a planned one percent target. It's likely the IMF will agree. Even in Singapore's secretive money markets, some dealers say the authorities have been adding liquidity at the short end over the past couple of weeks by selling the Singapore dollar in a bid to get domestic interest rates down. The government announced a $1.2 billion economic stimulus package at the end of June. The only major country not being threatened by deflation at the present time is Indonesia. This week it posted an inflation rate for the year to July of nearly 70 percent, although output and employment are certainly declining. Analysts say the switch to expansionary economic policies is inevitable but worry that it may not be enough. "We're seeing countries go from extremely tight economic policies to moderately tight ones. But it still may not be sufficient to boost domestic demand," said Morgan Stanley's Condon. Condon also warns that the price for such policies would normally be a further weakening in currency rates leading to a worsening of the situation for countries with large amounts of foreign debt. But SE Banken's Chia said many of the economic problems that led to the original currency crisis, such as inflexible exchange rate systems and high current account deficits, have now largely disappeared and there is now much less reason for speculators to sell down Asian currencies.