IMF cautions Asian economies against export-led growth

Mumbai: Asian countries must reduce their heavy dependence on exports if they want to sustain the robust turnaround after the 1997-98 financial crisis, David Burton, director of IMF''s Asia-Pacific department, said.

"Asia continues to rely heavily on net exports as an engine of economic expansion," Burton said, adding, "Over time, greater reliance on domestic demand will be needed to assure a more balanced and sustainable pattern of growth."

Burton was speaking at the Singapore Press Club on the challenges facing Asia 10 years after the financial crisis, which erupted after the Thai baht plunged on July 2, 1997.

One way to address the problem would be to bolster foreign investment, which hasn''t recovered strongly in the region - except for China - following a sharp drop 10 years ago.

"While pre-crisis levels of investment were certainly excessive, the limited recovery is puzzling," Burton said.

The Thai crisis was the result of a sudden outflow of foreign capital from Thailand, which had sustained investment in property and other projects, leading to a rapid devaluation of the Baht. Panic spread through Indonesia and South Korea to the entire region and recession followed.

The crisis has mainly been to a lack of transparency and weaknesses in the corporate and banking sectors, Burton said. In many cases, large unsecured loans were given to businesses with political connections, he pointed out.