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ASEAN ANALYSIS  Asean Affairs  20 October 2010

G20 meeting prospects are dim

By  David Swartzentruber
AseanAffairs     20 October 2010

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Prospects that the G20 meeting in South Korea this weekend will result in a solution to the dramatic capital inflows into Asean countries, especially Thailand, Indonesia, Malaysia and Philippines, and the global economic imbalances grow dimmer by the day.

The latest news from Brazil is that Finance Minister Guido Mantega and Henrique Meirelles, the Brazilian central bank governor, will be “no-shows” at the financial powwow. Their regrets come after Brazil again increased taxes on foreign bond purchases to 6 percent, the third hike in the tax rate that started at 2 percent.

Among Asean countries that have recently adopted this growing popular tool to slow down capital inflows, Thailand stands out as it s currency appreciation is highest in Asia, second only to China, with Malaysia a close third.

The game plan of the emerging economies is to place themselves out of the line of fire in the U.S. and China standoff.

Even host South Korea has taken steps to limit its currency, the won, from rising too rapidly. Speculation that a withholding tax on foreign investors’ bond holdings and further limits on currency forward trading are circulating in Seoul.

Although little new is expected to come out of the G-20 confab, observers say that the significance of the meeting is that emerging economies that have long taken unilateral actions are now part of a structure that encourages them to assume responsibilities in a multilateral context. However, that assumption is more of a hope than an actuality, as it is expected these emerging economies will continue to protect their economies from unbalance.

In its twice-a –year report, the World bank warned that the capital inflows are similar to the ones that triggered the 1997 Asian financial crisis.

Indonesia is the only Asean member of the G-20.

Paul A. Ebeling, Jnr

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