Transcript of April 2020 Asia and Pacific Department Press Briefing

April 15, 2020


CHANGYONG RHEE, Director, Asia and Pacific Department, IMF

KEIKO UTSUNOMIYA, Senior Communications Officer, Communications Department, IMF


MS. UTSUNOMIYA: Hello, everyone. Welcome to the press briefing on Asia and Pacific. I’m Keiko Utsunomiya from the IMF’s Communications Department.

I know it is very early in Asia and quite late in many other parts of the world, so thank you for taking your time and joining us today in this extraordinary and challenging time.

As you can see, we are doing things differently. Some of you have already submitted questions in advance. Thank you. But I would like to encourage all of you to participate in our discussion by submitting questions online.

Let me introduce today’s speaker. I’m here with Mr. Changyong Rhee. He is the Director of the IMF’s Asia and Pacific Department. He will give short opening remarks before we take questions from you. Changyong, the floor is yours.

MR. RHEE: Thank you, Keiko. Good evening and good morning to those joining from Asia. I hope you and your family are doing well and stay healthy. I would like to thank doctors, nurses, and first responders all across the world for their hard work to make us stay safe.

Let me start by summarizing our key messages. These are highly uncertain and challenging times for the global economy and the Asia Pacific region is no exception. The impact of the coronavirus on the region will be severe, across the board, and unprecedented. Asia’s growth rate in 2020 is expected to 0 percent. This is worse than the growth rate during the Global Financial Crisis and even during the Asian Financial Crisis. Actually, Asia has never experienced zero growth rate in the last 60 years. That said, Asia’s current growth still fares better than other regions.

For 2021, there is hope. If containment policies succeed, we will see a rebound in growth. However, it is highly uncertain how this year will progress.

This is not a time for business as usual. Asian countries need to use all policy instruments in their arsenal.

Let me expand on these points, starting with the question of why Asia’s growth slowdown is much sharper than during the Global Financial Crisis.

First, unlike during the Global Financial Crisis, Asia’s real sector, especially the service sector, is being hit hard by containment measures.

Second, advanced economies’ slowdown, they are major trading partners with Asia, is much more severe. The U.S. growth rate is ‑5.9 percent; Euro Area growth rate will be around -7.5 percent. And you can imagine what kind of impact it has on Asia’s export sector.

Third, China’s slowdown. As you know, China’s growth did not change very much in 2009. The growth rate was 9.4 percent thanks to their enormous stimulus packages, which amounts to about 8 percent of GDP at the time. But we cannot expect that magnitude of stimulus in China. And this time China may not be able to bail out Asia’s growth rate.

Now let’s move to the country forecasts. The substantial downward revisions in 2020 are across the board. China is expected to grow by 1.2 percent in 2020. We expect a rebound in economic activity later this year. This is because China is emerging from this outbreak first. Nonetheless, there are clear risks. The virus could come back and the normalization could take longer.

In Japan, real GDP is expected to decline by 5.2 percent in 2020 with a sharp deterioration of external demand.

For Korea, we anticipate growth in 2020 to be at -1.2 percent. The negative impact on growth is relatively smaller than in most other advanced economies, reflecting their effective strategy to flatten the infection curve, which has avoided a major production shutdown.

In India, growth has been revised down to 1.9 percent for Fiscal Year 2020. India entered the pandemic turmoil in the midst of a credit crunch-induced slowdown, and its recovery path becomes more uncertain. Despite the short-term economic slowdown, the government implemented a nationwide lockdown and we support this India’s proactive decision.

In Australia and New Zealand, growth in 2020 is projected to be minus 6.7 percent and minus 7.2 percent, respectively, reflecting significant economic disruption from social distancing, lower commodity prices, and lower foreign demand‑‑ a fall in external demand.

We revised down ASEAN-5 growth to minus 1.3 percent. The impact from reduced tourism, disruption of trade and manufacturing sector, and the spillovers from financial markets are currently significant.

For the frontier economies, such as Cambodia, Laos, Myanmar, and Vietnam, their export and tourism-driven economies are likely to be significantly disrupted even though they seem to be at the beginning of the epidemic curve.

Pacific Island countries and small states, their growth is expected to contract by about 2.3 percent. These countries are among the most vulnerable given the limited fiscal space as well as comparatively underdeveloped health infrastructure.

So now let’s move to our policy recommendations. This is a crisis like no other. A full arsenal of policies is needed to respond to the virus shock.

The first priority should be to support and protect health sector. Targeted support to hardest-hit household and firm is needed. We need to protect people, jobs, and industries directly, not just through financial institutions.

The pandemic is also affecting the financial market functioning. Use monetary policy and macroprudential policy and regulation flexibly to provide ample liquidity to viable industries and small and medium enterprises.

For emerging markets with a limited fiscal space, they might need to consider how to use central bank balance sheets flexibly to help small and medium enterprises through risk sharing with the government.

External pressure needs to be contained. Countries should seek bilateral and multilateral swap lines and financial support from the multilateral institutions. There can be a role for capital flow measures to secure external sector stability as a prerequisite to use more aggressive domestic policies in preventing lasting social and economic distress.

Targeted support combined with domestic demand stimulus in a recovery phase will help to reduce scarring, but it needs to reach people in smaller firms.

I will conclude by saying a few words on the role of the IMF. So far 17 Asian countries have expressed their interest in our two emergency financing instruments, the Rapid Credit Facility and the Rapid Financing Instrument.

I would like to take this opportunity to convey our thanks to Japan and China for their generous contributions to the Catastrophe Containment and Relief Trust (CCRT) initiative.

Thank you and now to your questions.

MS. UTSUNOMIYA: Thank you, Changyong. Again, we encourage you to submit questions online. I would like to take this question from Hong Kong. He’s asking, can the economies of Asia recover on their own, even if the rest of the world, such as the U.S. and Europe, are in recession? And, secondly, should governments in Asia implement capital controls to contain outflows?

MR. RHEE: Okay. I think it would be very difficult to imagine that Asia can recover on its own without seeing the global slowdown of the, you know, this virus spread. And the virus does not discriminate the boarders and if the virus continues to spread out abroad, then Asian countries it will be very hard to ease their containment measures, which has a still large impact on their domestic activity.

And also, I want to emphasize that many Asian countries has export-oriented structure and in this year, the slowdown of Asia’s trading patterns, advanced economies, with the gross rate we are expecting -6.1 percent, which is really negative. You can see how it will affect Asia’s export sector in the recovering process.

As for you question about capital controls, if this is a normal period, I should say that the country has to be very careful using capital flow measures because we do not have very concrete evidence whether the capital measures can have, you know, effectiveness, especially in controlling the capital outflows. But this time is unprecedented. I think many Asian countries will be forced if the situation becomes aggravated first to use large stimulus packages despite their limited policy space and despite that they do not have international currencies. So, when they actually rely on large stimulus packages, they have to worry about its possible negative impact on their external sector especially the FX market. So, I think in this time, I think, there is room for the capital flow measures to contribute to secure external sector as a prerequisite for the many Asian economies to use their more aggressive domestic policies to prevent this large lasting impact on the economic structure and help the poor and the affected peoples.


MR. RHEE: But I would emphasize, if they want to use these capital flow measures, it should be temporary, and it should be implemented with a clear active policy (inaudible).

MS. UTSUNOMIYA: Okay. Relatedly, Asia has long had a surplus of a domestic savings over investment, but much of those savings were invested with financial institutions in the U.S. and Europe, which then we reinvested back into Asia from where they are now fleeing. Do you see any evidence that this pattern is changing and that the domestic saving investment balance is improving in Asia?

MR. RHEE: I think the answer to this question is two aspects. One is that he is asking whether the saving-investment gap has narrowed, and I think the answer yes as demonstrated by the currency surplus, which is basically the saving and investment gap. In this currency surplus in Asia was about 5 percent of GDP in 2007 before the global financial crisis, but now it, reduced to the 2 percent level. China’s currency surplus was 10 percent at the time. Now it is lower than 1 percent. So, the saving-investment gap itself is declined.

But as for the second question whether, the recycling of Asian investment within the region and whether the dollar dominance has been reduced, I think actually it is not. Actually, the trend was reversed. After the global financial crisis, I can say that the dollar dominance in the region has actually increased partly because of the, the strength of the euro was weakened and also, after the global financial crisis, this capital market in China rightly so has slowed down. So, for example now, many Asian Central Bank hold dollar as a reserve about 60-70 percent and also, more than 80 percent of the Asian’s export are actually denominated dollar. So, dollar invoicing is quite significant. So, the dollar dominance continues.

MS. UTSUNOMIYA: Another question. Which sectors in Asia’s Pacific Region is expected to hold strong even in the current economic climate?

MR. RHEE: I think it would be difficult to find which sector actually holding strong, but I think it’s easier to find which sector affected negativity most. I think the service sector especially tourism. Airline industry was hit very hard. As for the manufacturing sector in Asia, we see some evidence that the manufacturing sector has not been much affected yet. And in China after February, we see sign of recovery in manufacturing activity too, but I think that trend will not last given, as I mentioned, the quite significant slowdown of global economies and we are expecting that the global trade will shrink by close to 11 percent this year so manufacturing sector will be hit hard again.

So, I think, except a few companies such as who sells the medical product, medicines, and some IT related teleconference related products, they may get some boost, but otherwise I think there is no winner in this crisis.

MS. UTSUNOMIYA: I would like to go into country specific questions. First, on China. How do you comment on China’s fiscal and menagerie policies in response to the COVID-19 pandemic? What more do you suggest policymakers to do as the country gradually reopens its economy? Also, how do you see China’s role in global economy in this difficult time?

MR. RHEE: I think China policymakers have reacted very strongly to the outbreak of the crisis and their monetary policy and the fiscal policy rightly so tried to contain the virus first and then reduced its impact on the economy vital sector and support the recovery and so far they announced their announced fiscal packages is around 3 percent GDP, but I think they have more policy space if the situation become aggravated. They have more room to use more monetary and fiscal policies.

But, on the other hand, whether they have to do it really depends on the progress of its containment measures globally as well as domestically so probably they can adjust their policies depending on how this containment progresses.

As for China’s role, international, you know, society, I think China can play a very important role especially this time because we need international policy coordination in coping with coronavirus. For example, many low income countries need a lot of help and China can provide financial support through a debt standstill and providing liquidity to low income countries through their swap lines and also, China is a very important medical supplier in the world so China can contribute to secure essential medical supplies to these low income countries.

MS. UTSUNOMIYA: On Japan, Prime Minister Abe has compiled a massive stimulus package to deal with the immediate economic fallout from the Coronavirus pandemic. How does the IMF assess the package? Is it enough, too much, anything left out?

MR. RHEE: Yeah, I think on April 7 we saw the Japanese government announce quite big fiscal packages and policy packages, which amounts to 20 percent of GDP. And among them we believe that 10 percent is pure fiscal policy and the other 10 percent is loan and other quasi fiscal activities through the financial sector.

And, you know, many people ask this question. Japan has a high debt over GDP ratio, close to 250, whether they have room to increase further their debt in the fiscal stimulus. I think this is not a normal time. And in order to contain the spread of the disease and, you know, to save the viable sector, I think Japan and any other country need to some emergency measures, otherwise the fiscal cost can be a lot larger later.

So, I think, yes, definitely it is important for Japan to maintain and do the fiscal consolidation in the medium-term. And after the situation becomes normalized, they have to do it, but at this moment I think I am very happy to see very aggressive and proactive fiscal packages in Japan.

MS. UTSUNOMIYA: Okay. Next question is on Korea. In the early stage of spreading Covid-19, South Korea had recorded one of the highest numbers of confirmed cases. Even with that, the IMF projection of GDP growth of South Korea would be only -1.2 percent. Relatively small contraction compared to other G20 countries.

Could you explain the reason for it?

MR. RHEE: Yeah, I think so. -1.2 percent is really a shock to Korean people who have never experienced negative growth in their history. But I think the main reason why the growth slowdown in Korea is smaller than other advanced economies is because they contained the virus relatively quickly and then that allowed them to have a partial lockdown compared with other complete lockdowns in many advanced economies, which allowed some economic activities to move back quickly in the recovery phase.

But I think still, whether considering Korea's heavy export-oriented structure, I think their recovery heavily depends on the growth prospect of the global economy.

MS. UTSUNOMIYA: One more question on Korea. The Korean government is planning to use cash transfer as disaster relief policy, but with low unemployment rate there is a question whether South Korea needs this as part of a stimulus package. What is your view?

MR. RHEE: Actually, I think I got a lot of these questions. After U.S. introduced this general cash transfer policy as a part of their program, I got a lot of question from our authorities in the region whether they have to do this general cash transfer in their own countries. It's not just for Korea, many other Asian countries asked the same question.

In my view, whatever -- you know, whether the U.S. does something does not necessarily mean that that policy is good for many Asian countries. U.S. has a dollar, international currency, and they have more policy room to do many other policies together. But on the other hand, many Asian economies do not have international currency, and then also many countries have limited policy space. So, in their cases I think a targeted approach and make a decision about the priorities of the policy is very important. Even if they need to use a cash transfer, I think using cash transfer in a targeted way to protect poor and vulnerable segments of the population, to protect their livelihood, is important, rather than giving the general cash transfer to all people.

And then also, more than anything else at this moment, how to prevent temporary liquidity problem to develop into the solvency problem is key. If many small and medium enterprises and, the self-employed people are now -- have seen a big drop of their revenues. And if this continues, many of them will bankrupt and that will cause massive unemployment. If that happens, the fiscal cost will be much larger. So instead of boosting general aggregate demand at this moment, maybe targeting to the sectors and people who are hit hard and protecting the jobs, and then prevent the, you know, the liquidity problem going into the bankruptcy problem, that should be a priority at this moment.

MS. UTSUNOMIYA: Let's move onto India. How do you see the measures being taken by the Indian Government to address the challenges and save the economy? What are your recommended steps that India needs to take, both in the short and medium-term?

MR. RHEE: You know, as I mentioned in my opening remarks, we welcome the Indian Government's proactive decision to have a significant lockdown to prevent the spread of the disease. I think that can cause significant , drop in economic activity. The growth rate will go down definitely, but I think that's a very wise and important decision to minimize the long-term cost of this disease spread.

The Indian Government and Central Bank already announced some fiscal stimulus as well as monetary policy easing that is in the right direction. Whether that is enough, I think that depends on how this containment policy, which was just adopted, how successful it will be.

So, I think the government will definitely adjust the scale of their stimulus packages depending on to see how this containment policy will work. And then if -- I hope they can be successful, but if the situation becomes aggravated, then I think in the short-term, they have no other choice but to use more fiscal and monetary policies to contain the slowdown of the economy.

And I think after this Coronavirus crisis is stabilized, then definitely they have to go back to the structural reform for more inclusive growth in India, such as focusing on infrastructure. But that one I think still they have room to take care of the first task first.

MS. UTSUNOMIYA: Okay. On ASEAN countries, What is the economic impact of Covid-19 among ASEAN countries? And what is the situation in Thailand in particular?

And then I would like to take one more from Indonesia. IMF has revised Indonesia's GDP growth forecast to 0.5 percent for 2020 and 8.2 percent in 2021. What are the main factors that make recovery very robust?

MR. RHEE: Okay. I think ASEAN countries -- depending on the countries, we see the different cycle of this pandemic curve. But in general -- except Singapore, which is affected early -- many ASEAN countries are in the early stage of this pandemic curve, but they are very cautious, and they are now introducing more preemptive lockdown and then also aggressive policies.

But on the other hand, by structure, ASEAN economies are more service oriented and also tourism, particularly in Thailand, accounts for a large part of the economy. So even before the, you know, virus spread in that region, they were quite hit very hard. That is the main reason why we revised our Thailand growth rate to -6.7 percent this year.

But, on the other hand, Thailand has policy spaces and so far, they announced about 3 percent of GDP fiscal packages. But last week I heard that they announced a second phase of the fiscal stimulus, which amounts to about close to 9 percent of GDP. We need more details to check the exact size, but I think they are proactively reacting to the current situation of the spread of the disease in their region.

Indonesia, I think, also did a lot of, you know, proactive policies. Central Bank announced many loan programs, lending programs, and they are using more fiscal resources to fight the Coronavirus. So, they are in -- policy wise they are in the right direction.

Whether they will have a V-shaped recovery, in general I think many people ask, you know, you're showing V-shaped recovery in Asia, but I don't think this is really V-shaped recovery because what we are assuming at this moment is that the growth in 2020 in many Asian countries sharply drops. Technically speaking, it will rebound. But most of the Asian cases, if you compare the pre-crisis growth rate and then the level of the GDP 2021, despite this high growth rate, in 2021 we are actually assuming the real
-- the level of the GDP in 2020 will be lower than the pre-crisis forecasted GDP level before the crisis.

Having said that, also I think there is an upside risk and a downside risk in our growth forecast. Upside risk, the forecast is very hard this time. So, for example, if a vaccine is developed quickly, then I think we can have early recovery and then there can be huge upside potentials. But on the other hand, we are assuming that the peak of the virus spread will be reached in the second quarter of this year globally, and then globally the recovery process -- not just one country, globally start from the second half of hits year. If this assumption is not true because of the heavy dependence on exports, Asia's growth forecast that we are assuming may be too optimistic.

So, at this moment, I have to say that it's very hard for us, a pure economist, to actually focus on what's going to happen in the future.

MS. UTSUNOMIYA: Next question is on Singapore. Singapore has set aside about 12 percent of its GDP to fund covid-19 support measures, and it is dipping into its past reserves. How does the IMF view Singapore’s fiscal stimuli and how do you see Singapore’s recovery path?

MR. RHEE: You know actually I think I can understand why this question comes from. As a person who knows Singapore economy well, I think this 12 percent of expansion fiscal policies never heard of in Singapore who emphasize always sound and conservative macro management. They never run the fiscal deficit in a large amount.

But I think as I mentioned many times in this press conference, this is unprecedented time, and if you compare with fiscal package magnitude, with the advanced economies, and Singapore’s 12 percent, this 12 percent is basically in line, or even lower end of what Europe and the U.S. is now currently doing. So, I think temporary increase of fiscal stimulus package to coping with this current risk is unavailable.

And then this is very lucky for Singapore to have that policy space thanks to their very conservative economy management in the past.

Whether this large fiscal stimulus package will guarantee the recovery of Singapore, that will be very hard to say, as I mentioned, because Singapore is a very open economy and it depends not only on what they are doing but also how the whole global economy will change. And unless this virus is contained globally, it will be very difficult to say Singapore alone can recover.

At the same time also we see some sign of domestic situation is a little bit deteriorated, so having containing domestically this virus spread again is also another challenges for many Asian countries, including Singapore.

MS. UTSUNOMIYA: Let’s turn to the Pacific. Why are Australia and New Zealand taking larger hits to real GDP through 2020 than other parts of advanced Asia?

MR. RHEE: Yeah, I think their slowdown is larger than other parts of Asian countries, but quite comparable with other advanced economies, U.S. and Europe.

But I think the main reason of larger slowed revision is, I can think of three factors. One is that these two countries, Australia and New Zealand, their dependence on service sector is larger. For example, tourism and education. Many foreign students are studying in Australia and New Zealand. So, service sector is hit harder.

And also, I think commodity price decline has a heavy toll in Australia. And third, their dependence on China. And Australia and New Zealand export is heavily focused, you know, linked to China. And then you know that China was hit hard in the beginning of the year. So, Australia and New Zealand economy slow down already started before the start of the global slowdown.

MS. UTSUNOMIYA: Okay. Nepal. What is your assessment on the covid-19 impacts on Nepal’s growth momentum, and what’s your view on the government’s relief package?

And secondly, the cabinet decided to stop negotiations with the Fund to secure financing support. Can you update us on where things are?

MR. RHEE: Like many other countries, Nepal economy is affected by its own domestic containment measures. And then but at the same time they have seen the sharp decline or remittances and also the tourism arrivals. So, it hit very hard too.

But government, rightly so, focused on more expansionary policies to help the health sector and then also poor segment of the population. But they actually need more fiscal resources to combat this, you know, for the escalation of the crisis.

So, we are very happy that we received a request from the Nepal government for our RCF, Rapid Credit Facility. So, I hope that we can process it very quickly, and at the same time this week or last week we provide Nepal debt relief about $4 million from our catastrophe containment and relief fund.

MS. UTSUNOMIYA: A similar question from Maldives, and where things are on the negotiation with the IMF to draw U.S. $30 million. And secondly, what are your suggestions for reviving our tourism industry and diversifying the economy of the Maldives?

MR. RHEE: Okay. I think we receive the request for Maldives, you know, RCF program. And then it’s about $29 million, not $30 million. I hope that we can go to the Board sometime very soon, next week or week after. So, we want to process it quickly.

As for the question about diversification, in our last Article IV missions, our team discuss about the several ways to diversify their economy, including to make agriculture sector more adapted to the, you know, the tourism sector. And then also some fisheries, investment in fisheries to increase the value added or as export. And to do that I think the, some fundamental structure reform such as increase education quality and then also the energy stability in the region. Those kind of reform agenda has to be continued.

MS. UTSUNOMIYA: We have a question on Sri Lanka. Has Sri Lanka made any request for debt relief or any special corona funds? Also, what is the status of the current program review?

MR. RHEE: Yeah. We received a letter from Sri Lanka government about our Rapid Financing Instrument, you know, the program, RFI program. So, we are now starting to review it. And we are now discussing with the government whether they want to switch their previous program into our new Rapid Facilities. So, we will discussed this, this week.

MS. UTSUNOMIYA: So, our last question is from Cambodia. What is the economic impact of the pandemic to Cambodia, and imperatives to sustain its economy?

MR. RHEE: Yeah. I think Cambodia, you know, is at the early stage of the pandemic curve at this moment, like other Asian economies. But they have seen, seen the effects already. For example, like I heard that they already see that 60 percent decline of the tourist arrival, and then also majority of their garment industry, which is basically the driving force of course, has seen that their order is already cancelled form Europe and U.S. So, I think the economy will be hit hard.

So, we revised down their gross rate to minus 1.5 percent. But if you see just minus 1.5 given the all others are relative, you may say um, but you remember that their gross rate prior to the crisis we expect their gross rate to be 7 percent. So, actually, it’s like more than 8.5 percent decline compared with our pre-crisis forecast. So economy is hit very hard.

And unfortunately, unlike many of the advanced economies Cambodia’s policy space is relatively limited. So I think it’s very important, Cambodia government is doing their best, but it’s very important, it’s not just for Cambodia problem, many frontier economies in Asia given their relatively rare of their policy spaces, they have to really focus on where to prioritize and then also the work they have to, you know, who they have to protect first. And at the same time, I think this is one of the reasons why the international community has to provide more resources for those countries.

MS. UTSUNOMIYA: Okay. This concludes our briefing today. I received many emails and notices that audio of this briefing at the beginning was not working for many people. But we will make sure that recorded video will be made available as soon as we can. And the transcript will be made available as well.

Sorry we could not take all the questions that you submitted for us. We will try to take, get back to you as much as possible bilaterally.

On behalf of all of us at the IMF, please stay safe. We are all in this together. And see you all next time, hopefully in person.

Thank you.

MR. RHEE: Thank you.

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IMF Communications Department

PRESS OFFICER: Keiko Utsunomiya

Phone: +1 202 623-7100Email: