{
  "title": "Asia: The Challenge of Capital Inflows",
  "publication": "IMF Blog, May 18, 2010",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2010/05/18/asia-the-challenge-of-capital-inflows",
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  "summary": "Author: Anoop Singh",
  "sections": [
    {
      "heading": "Context and near-term outlook",
      "content": "- Author: Anoop Singh\n- Date: May 18, 2010\n- Asia has been leading the global recovery and is expected to continue doing so in the near term.\n- Asia’s rapid growth helped output return to pre-crisis levels relatively quickly and has attracted large capital inflows into the region.\n- Portfolio and cross border banking flows have rebounded sharply as financial conditions normalized.\n- Growth projections suggest Asia is expected to outperform advanced countries, implying continued attraction of significant capital inflows, conditional on:\n  - fallout from the euro zone sovereign debt crisis being contained, and\n  - the recent spike in global risk aversion abating."
    },
    {
      "heading": "Benefits and downside risks of large capital inflows",
      "content": "- Benefits:\n  - Can help boost much needed infrastructure development.\n  - Can help develop service sectors.\n  - Can support increased foreign and domestic investment when combined with reforms.\n- Risks and policy dilemmas:\n  - Persistent and large capital inflows can be a double edged sword.\n  - Risks of overheating and runups in asset prices that may leave the region vulnerable to outflows and asset price busts.\n  - Excess liquidity has been rising across Asia, in part fueled by strong inflows and resistance in many countries to letting exchange rates appreciate.\n  - Inflationary pressures have emerged in some countries, and inflation expectations have increased."
    },
    {
      "heading": "Asset price developments and evidence",
      "content": "- Stock markets:\n  - So far, stock price runups appear generally contained.\n  - Stock prices are not out of line with historical norms in most countries, based on price-to-earnings ratios.\n  - Concern: equity analysts may be overly optimistic regarding future earnings growth.\n- Property markets:\n  - Lingering concerns that property prices have been rising too fast, especially in China and Hong Kong SAR.\n  - These property price trends have been seen in localized pockets in specific countries and don’t appear to be a nationwide phenomenon.\n- Bubble formation timing:\n  - Analysis in the Regional Economic Outlook finds that it can take 11 quarters for a stock price bubble to develop and burst and even longer for a property price bubble."
    },
    {
      "heading": "Policy responses and recommendations",
      "content": "- Prudential measures:\n  - Policymakers in the region have already put in place prudential measures to slow the runup in asset prices, particularly in the property market.\n  - These measures are already beginning to work.\n- Other policy tools:\n  - Allowing more exchange rate flexibility to slow down capital inflows.\n- Structural reforms to mobilize inflows productively and support rebalancing:\n  - Increase product and labor market competition.\n  - Level the playing field for foreign investors.\n  - Ensure contract enforcement.\n  - Reduce administrative bottlenecks.\n- Medium-term objective:\n  - Use capital inflows, along with reforms, to increase investment in key sectors and support rebalancing the economy toward domestic demand to maintain medium-term growth momentum.\n\nSource: Asia: The Challenge of Capital Inflows, Anoop Singh, May 18, 2010.\n\n---\n\n\n References\n\n- Regional Economic Outlook\n\nSource: https://www.imf.org/en/blogs/articles/2010/05/18/asia-the-challenge-of-capital-inflows"
    }
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    "Authors: Anoop Singh",
    "Published: May 18, 2010",
    "Author: Anoop Singh",
    "Date: May 18, 2010",
    "Asia has been leading the global recovery and is expected to continue doing so in the near term.",
    "Asia’s rapid growth helped output return to pre-crisis levels relatively quickly and has attracted large capital inflows into the region.",
    "Portfolio and cross border banking flows have rebounded sharply as financial conditions normalized.",
    "Growth projections suggest Asia is expected to outperform advanced countries, implying continued attraction of significant capital inflows, conditional on:",
    "Benefits:",
    "Risks and policy dilemmas:",
    "Stock markets:",
    "Property markets:",
    "Bubble formation timing:",
    "Prudential measures:",
    "Other policy tools:",
    "Structural reforms to mobilize inflows productively and support rebalancing:",
    "Medium-term objective:",
    "[Regional Economic Outlook](http://www.imf.org/external/pubs/ft/reo/2010/APD/eng/areo0410.htm)"
  ],
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