Policy makers in Asia face the Russian disaster from a stronger position than when the volatile emerging markets around the world in 1997-98. With the current account deficit shrinks, cheap oil and higher reserve in their favor, the largest Southeast Asian and South Asian countries can see that the situation is similar to 2002, when the disaster in Argentina and Turkey failed to trigger a crisis in the region.
While the market has not been affected - Indonesia and India buy their currencies this week after they glide - a shift in policy and domestic demand can help. With a swelling middle class clamoring for a better home, transportation and entertainment, companies in this region have a homegrown source of growth, and local capital markets more to turn for financing.
Countries including Thailand, Malaysia and Indonesia have started the era of structural reforms since the Asian financial crisis, taking steps to reduce government spending and deficits, accumulate reserves, raising interest rates and improve governance. That helped the region withstand the impact of the crisis Turkey in 2001 and Argentine standards, then the largest in the world, in 2002.
Currency reserves, external liabilities of developing countries in Asia accounted for 16 percent of gross domestic product last year, compared with about 34 percent in 1998, according to data from the International Monetary Fund.
"Every Asian central banks have moved to international standards in reporting reserves, and policy makers have also reduced the accumulation of foreign debt and the rules of the currency mismatch between the company tightened," said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong . Most economies have a stronger policy credibility, with the new government in India and Indonesia are also more likely to deliver reform, he said.
Crude oil slump to five-year lows has also given India, Malaysia and Indonesia room to unload energy subsidies this year because they are taking steps to strengthen the position of the current account.
Fuel Subsidy
With a stable debt ratio, an increase in demand, lower oil prices and the Federal Reserve's rate of price increases, "Asia appears more than able to ride out any attack weak investor sentiment that may arise in the next few months," David Carbon, managing director of DBS Group Holdings Ltd. for economic and currency research, said in a report today.
President of Indonesia Joko Widodo has cut fuel subsidies and is considering an overhaul of the price system for decades. Lower demand for fuel imports will help to reduce the trade and current account deficits and current account deficits are smaller will reduce investors' concerns about the funding gap, said Tamara Henderson, an economist at Bloomberg LP in Singapore.
In India, a new central bank governor and the new government has improved the economic position. The country is counted among the "Fragile Five" along with South Africa, Indonesia, Turkey and Brazil in the face of current account deficits and currency plunged last year after the Fed signaled the bond purchase program will end.
Adequate ammunition
Raghuram Rajan, a former chief economist of the IMF who took the helm of the central bank in September 2013, offered for dollar swap proposed by the bank to prop up the exchange rate, pushing the benchmark rate to 8 percent, and adopting policies to slow consumer inflation -Price 6 percent in January 2016 .
Narendra Modi's election as prime minister in May, and plans to overhaul the economy and reduce the budget deficit should also help attract more foreign capital, said Shubhada Rao, economist at Yes Bank Ltd. in Mumbai.
"India, for six to 12 months, has built a sufficient level of ammunition to be able to withstand the financial market turmoil," he said. While there will be a phase of volatility, "India has done well in strengthening the domestic fundamentals on a relative scale and increase foreign exchange reserves to be able to intervene and when the situation warrants it."
Thailand low government debt, a strong external balance sheet and liquidity strength, political uncertainty continues, Standard and Poor's said yesterday. A military coup in May led to the formation of the government-run there, while in Indonesia, thousands of people took to the streets to protest against rising fuel prices.
Relatively low foreign exchange holdings in Indonesia increased its fragility: back up just enough to cover 6.6 months of imports, central bank figures show that less than 10.7 months to 8.4 months in the Philippines and Malaysia. Indonesian bond risk has increased by 34 percent in the last two weeks and foreign funds have attracted 18.2 trillion rupiah ($ 1.4 billion) of local currency government bonds this month, heading out the most since June 2013.
"Risk-off sentiment will be temporary and ultimately investors will seek higher yields," said Dian Ayu YUSTINA, Jakarta-based economist at PT Bank Danamon Indonesia. "Unless Russia collapsed, in terms of the impact of contagion would be great."
Policy makers say they are ready to act: Bank Indonesia has said "bitter" medicine of rate increases still need to be taken, while Governor Amando Tetangco Philippines said "all the tools that open" there should be signs of extreme market volatility or potential contagion.
Developing Asia will grow 6.2 percent next year from 6.1 percent forecast in 2014, the Asian Development Bank said this week. Lower oil prices could mean upside surprise in 2015, because most of the region's economies are oil importers, he said.
"Drawing a parallel between the late 1990s and is now a little bit wrong," HSBC said Neumann. "Reserves are higher, more fiscal space, and external payments position is much stronger should be enough to see the area through this financial storm."
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