"The challenge facing policymakers is how best to limit these downside risks while promoting an orderly resolution of the imbalances in the global economy over the medium term," the International Monetary Fund (IMF) said in the latest issue of a report called World Economic Outlook.
The IMF said the global slowdown made worse by the Sept. 11 terrorist attacks on the US, the world’s biggest economy, made emerging markets more vulnerable to further unexpected developments, and a significant danger of a deeper and more prolonged slowdown remains.
This despite the response of many countries, especially the US, to ease macroeconomic policies, along with the abatement of oil prices should help support activity and confidence.
The IMF said emerging markets need to go further back and attend to underlying structural problems that have made their economies rely heavily on exports to the US and other major markets.
Among ASEAN countries, the IMF said the Philippines’ economic managers should push through with its reform agenda, including measures to attract investors to the equities and financial markets, while sticking to its fiscal targets.
The IMF said that because of the large budgetary shortfall of the Philippine government in the past few years, the easing of the monetary policy has been affected because the Bangko Sentral ng Pilipinas has to look out for inflation while keeping watch that interest rates are at the level that would still encourage economic activity.
In Indonesia, the IMF said market sentiment has improved following the recent peaceful resolution of the political crisis, along with the recent tightening of fiscal and monetary policy and the new government’s intention to accelerate reforms.
However, major challenges remain, particularly in addressing concerns about fiscal sustainability and accelerating progress with bank and corporate restructuring.
While several countries, including, Korea, Malaysia, Taiwan and Thailand, have recently introduced sizable packages to support growth, in others, notably Indonesia and the Philippines, room for maneuver is constrained by high levels of government deficits or debt, the IMF said.
The IMF said adding to the Philippine’s vulnerability is the weakness of the banking system and the corporate sector.
Of particular concern to the IMF is the Philippines’ growing budget deficit over the year and which this year is targeted at P145 billion. Last year, government projected a deficit of P60 billion but this was later upped to P120 billion and finally ballooned to P136 billion.
IMF resident representative in Manila Sean Nolan said that for the country to stay on track on the road to economic recovery, the government should stick to its fiscal targets and move ahead with its reform agenda.
Nolan said the Philippines would have had a better coping mechanism had it paid attention to improving its economic fundamentals after the Asian financial crisis in 1997 such as large current account supluses, higher reserves, reductions in short-term external debt, and widespread adoption of flexible exchange rates.
The large deficit for instance, was accumulated during the normal times, Nolan added.
The IMF said the task for policymakers both in advanced and in developing countries would be among others, to have an aggressive monetary policy response following the attacks on the US. —— Rocel Felix