Predictably, the IMF's update on World Economic Outlook is thick with doomsaying: sharply reduced GDP growth rates in east Asia with a possibility that these might be even lower than currently projected. Significantly, the IMF economist who released WEO said he expected east Asian countries to return to average growth levels "in a year or so" but warned that this may be unrealistic. In short, the IMF is whistling in the dark.

The return of foreign capital flows to east Asia could take as long as five years. To hasten this, IMF's standard line is that the policy response to the crisis must be adequate: that is, dear money, credit squeeze and free falling currency. High interest rates could weed out domestic enterprises; and weak currency together with an open door policy to foreign investors would ensure easy pickings of domestic companies at throwaway (dollar) prices. This is hardly a revival package: bargain hunting, to be of advantage to the buyer, must be a prolonged process.

The IMF sees east Asia cutting imports and boosting exports. This should result in a sharp decline in the trade deficit. If export industries flourish, this must exert a tremendous multiplier effect on east Asia's growth. Also, according to the IMF, the OECD countries, led by USA, will run heavy trade deficits with east Asia. This may give a supply side boost to Europe and America, belying IMF's expectations of a growth slippage in the industrialised countries. One thing is clear. east Asia will rely less on foreign investment for recovery. As regards India, it is expected to record a growth in foreign investment by 2.9 per cent of GDP against 2 per cent in 1996.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.