India, others must buck up on governance: IMF report-card
29 April 2013
The International Monetary Fund today once again warned of asset bubbles forming in emerging Asian economies like India, Greater China, the Philippines, and Thailand.
These MIEs (middle-income economies) must improve government institutions and liberalise rigid labour and product markets if they wish to reach the income levels of economically developed countries, IMF said in its Regional Economic Outlook for Asia and the Pacific.
"Emerging Asia is potentially susceptible to the 'middle-income trap,' where economies risk stagnation at middle-income levels and fail to graduate into the ranks of advanced economies," the IMF said in Singapore.
"The Asian MIEs are less exposed to the risk of a sustained growth slowdown than MIEs in other regions. However, their relative performance is weaker on institutions," the international funding agency noted in an observation that is perhaps more relevant to India than the others in the region.
The Asia-Pacific region is of course likely to lead the global economic recovery; but it must tighten governance to become a lasting leader, the IMF suggests.
"While the external risk of severe economic fallout from an acute euro area crisis has diminished, regional risks are coming into clearer focus. These include some ongoing buildup of financial imbalances and rising asset prices," the report said.
IMF director for the region Anoop Singh said at the Singapore news briefing that the international lender was monitoring credit ratios and output levels in Asia closely as conditions could deteriorate rapidly.
He said regional authorities needed to respond early and decisively to potential overheating.
The IMF report said India, the Philippines, China and Indonesia needed to improve their economic institutions.
At the same time, India, the Philippines and Thailand are also exposed to a larger risk of growth slowdown stemming from sub-par infrastructure.
Malaysia and China were the highest-ranked developing Asian countries in an IMF chart measuring institutional strength. Indonesia, India and the Philippines were at the bottom.
IMF defined institutional strength as demonstrating higher political stability, better bureaucratic capability, fewer conflicts and less corruption.
For many developing Asian economies, there remains ample room for easing stringent regulations in product and, in some cases, labour markets, the report commented.