Capital inflows as fact of life

“This is fundamentally a desirable process reflecting the strength of emerging-market countries and part of a global rebalancing which must take place if the world economy is to go back to health,” said Olivier Blanchard, the IMF’s chief economist.
Emerging markets stand to attract more inflows, given the IMF’s 2013 growth forecast of 5.3 per cent, compared with the 3.3-per-cent global average.
Since the gross domestic product of Japan – Thailand’s second-largest export market – is expected to expand 1.6 per cent, the baht yesterday climbed again. According to CIMB Thai Bank, the baht ended at 28.80-82, the highest level since 1997.
Japan’s recovery is expected to boost the Thai export sector, which suffers from weak global demand.
At a press conference, Blanchard highlighted capital-inflow management as one of the challenges emerging economies are facing.
Fundamentally attractive prospects in emerging-market countries, together with low interest rates in advanced economies, are likely to lead to continuing capital inflows and exchange-rate pressure in many emerging markets.
Inflow recipient countries are urged to accommodate the underlying trend to reduce volatility of the flows when they threaten macro or financial stability. With recovery in the United States and renewed worries in the euro area, “while some tail risks have decreased, it is not time for policy-makers to relax”.
Monetary-easing policies are “for the most part appropriate, that this is the major lever we have to push demand, get out of the slump, have a recovery going”.
While showing support for Japan’s new policies, he admitted that this could create bubbles.
“For the moment we do not think that this is a major issue on a macro scale, and we think that in most cases it can be handled by supervision and by the appropriate macro-prudential tools.”