Greek woes 'won't hit Asia much'

ADB chief economist says region's higher interest rates will keep drawing capital

Tashkent (Uzbekistan) - Capital inflows into Asia will not be significantly affected by European debt woes due to the region's higher and faster-rising interest rates, the Asian Development Bank's (ADB) chief economist said yesterday.

'It's true that the risk aversion is growing, but capital flows into Asia will not be significantly affected unless the European banking system as a whole gets hit,' Mr Lee Jong Wha told Reuters on the sidelines of the ADB's annual meetings here.

Asia's economies have been recovering much faster than the rest of the world from the global financial crisis, resulting in interest rates in the region rising faster than elsewhere, providing better investment returns without any increase in risk, he said.

Concerns about debt problems in Greece and several other euro zone economies have rattled global financial markets since late last year, sparking concerns of a repeat of massive capital flight from Asian emerging markets.

A European Union-International Monetary Fund deal to rescue Greece from its crippling debt crisis will be announced today, a Greek government source told Agence France-Presse yesterday.

'The deal is not yet signed but it will be concluded by Sunday,' the source said. 'It will be announced during (a) Cabinet meeting on Sunday...then presented in detail during a press conference by Finance Minister George Papaconstantinou.'

Greece is preparing severe measures to slash its budget deficit by 24 billion euros (S$44 billion) and unlock EU and IMF aid of up to 120 billion euros over three years. French Finance Minister Christine Lagarde also said yesterday the rescue package is expected to total between 100 billion and 120 billion euros.

Investors hope the aid deal will stop the crisis from sinking other fragile EU economies.

But the Greek government faces a battle with unions, which have been angered by the scale of the cutbacks, and social unrest could prevent Prime Minister George Papandreou from pushing through the austerity measures.

Thousands of people were gathering in Athens yesterday to protest against the spending cuts and new taxes. The public sector union has also called a four-hour strike for Tuesday, on top of a nationwide strike already set for Wednesday.

More than half of Greeks say they will take to the streets if the government agrees to the new austerity steps, according to a poll released last Friday by the newspaper Proto Thema.

ADB president Haruhiko Kuroda, echoing Mr Lee's view at a news conference in Tashkent yesterday, said contagion to Asia from Greece's debt crisis 'has been limited or almost nil'.

Mr Lee said Japan and a few other fiscally weak economies in the region may come under closer scrutiny from investors, but high domestic savings and stronger current account positions kept them in better shape than the southern European economies.

Source: Sunday Times, 2 May 2010