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Asian ministers say no to coordinated control on 'hot money'

Southeast Asian finance ministers said today there was no need to coordinate on the massive inflow of foreign capital into the region, which has raised fears of destabilising economies.

world Updated: Nov 30, 2010 19:58 IST

Southeast Asian finance ministers said on Tuesday there was no need to coordinate on the massive inflow of foreign capital into the region, which has raised fears of destabilising economies.

The "hot money" has nudged most Asian currencies higher, making their exports more expensive on the global market as the US allows the dollar to weaken and China keeps a tight rein on the yuan.

Ministers from the 10-member Association of Southeast Asian Nations (ASEAN) meeting in Kuala Lumpur said a region-wide structure to tackle the speculative cash was not necessary at the moment.

"The issue is quite peculiar in respective countries," Malaysia's Second Finance Minister Ahmad Husni Mohamad Hanadzlah told a joint news conference at the end of the one-day meeting.

"At this juncture within ASEAN, we don't see it as not manageable," said the minister in comments echoed by his counterpart from the Philippines.

"Right now there is no need for that coordinated structure. Within ASEAN, we allow the markets to determine our exchange rates at this point, we don't see that as an issue," Philippine Finance Secretary Cesar Purisima said.

The influx of funds has also led to steep gains in stocks and property prices, fuelling fears of inflation and speculative bubbles that could burst if the money exits in haste.

It prompted individual central banks to act to cool down their markets, including Thailand which moved to stem capital inflows after a 10% jump in the value of the baht over the past year, by slapping a tax on foreigners investing in bonds.

"Hot money" refers to short-term speculative funds that move speedily across borders in search of quick gains, and is criticised for adding to instability in global financial markets.

ASEAN secretary-general Surin Pitsuwan said Southeast Asian countries were rather "puzzled" with the influx of funds and struggled to gauge the impact from the monetary stimulus policies taken by the United States.

"I think we are not quite sure what we are dealing with," he said.

"In 1997 (the financial crisis), it was the hedge fund that comes in to speculate on our currencies. This time it is a government policy that pump the money into the system."

"While not coordinating, we are certainly looking at the issue with a great deal of interest," the ASEAN chief told the news conference.

Hammered by the financial turmoil that began in 2008, the United States, Japan and Europe are moving to weaken or cap their currencies in a bid to make their exports more competitive in the global market.

But because growth in the developed world is anaemic and unemployment high, a large chunk of the money is heading to emerging markets, including in Asia, where it stands to gain better yields.

According to the Washington-based Institute of International Finance (IIF), net private capital flows to emerging economies are projected to reach 825 billion dollars this year, or more than two billion dollars a day, up from 581 billion dollars in 2009.

ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.