Asia's economic miracle looks increasingly vulnerable to the end of a decidedly earthly phenomenon - five years of ultra-cheap financing sparked by the U.S. monetary policy dubbed "quantitative easing".
But the sell-off gripping emerging foreign exchange and equity markets this week has exposed an Asia that, despite amassing huge currency reserves and devising policies to insulate it from the kind of fund flight that triggered the Asian financial crisis in 1997 and 1998, has once again become susceptible to the rapid reversal of capital inflows.
Economists, bankers and investors say they caught a glimpse of Asia's possible future in June, when regional markets convulsed at a suggestion by Federal Reserve chairman Ben Bernanke that the central bank of the world's largest economy might start scaling back quantitative easing, or QE.
But the sell-off gripping emerging foreign exchange and equity markets this week has exposed an Asia that, despite amassing huge currency reserves and devising policies to insulate it from the kind of fund flight that triggered the Asian financial crisis in 1997 and 1998, has once again become susceptible to the rapid reversal of capital inflows.
Economists, bankers and investors say they caught a glimpse of Asia's possible future in June, when regional markets convulsed at a suggestion by Federal Reserve chairman Ben Bernanke that the central bank of the world's largest economy might start scaling back quantitative easing, or QE.
Those concerns have returned with a vengeance this week to batter markets in India and Indonesia.
Having failed to dismantle politically and socially knotty obstacles to growth, Asia has instead relied on low interest rates and massive borrowing to keep its economies expanding, particularly since the 2008/09 global financial crisis that prompted the Fed to start aggressively buying bonds.
But whether it's immigration and labour laws in Japan, the dominance of state enterprises in China or hurdles to foreign investment in India, each nation faces its own third rail of reform - one that stands to revive productivity and boost potential growth if resolved.
Source: Reuters
