IMF Says Asia Has Room for Stimulus

(The Wall Street Journal, SINGAPORE)—Asia so far has proved resilient to the European debt crisis and slowing global growth, and countries in the region have room to take growth-boosting steps in case of a sharp downturn, the International Monetary Fund said.

"In the event of a further slowdown in the global economy, our sense is that most economies in Asia have room for a strong policy response," said Anoop Singh, director of the IMF's Asia and Pacific Department.

China and many export-dependent economies in the region could loosen fiscal policy, while Japan's central bank could boost its asset purchases, he said, adding that efforts to trim external surpluses would reduce exposure to outside risks and support global growth.

He warned that an intensification of the debt crisis in Europe could cut two percentage points off global growth. "We are still certainly worried about the risk of contagion from a further deterioration in global financial conditions," Mr. Singh told a briefing that was webcast to Asia.

European leaders agreed Monday on a pact to move to closer fiscal union and to sign off on the details of a 500 billion euros ($657 billion) permanent bailout fund for the euro zone. But continuing uncertainty about Greece's debt restructuring and investor concerns about whether Portugal will require another bailout highlight the need for Asian economies to be prepared.

Asian nations are moving to bolster an emergency fund in case of a dire scenario, such as a euro-zone breakup. Asia's three largest economies and Southeast Asian countries are expected to agree by May to double an emergency fund from its current level of $120 billion, Wei Benhua, director of a new Singapore-based office that controls the fund and monitors risk throughout the region, said in an interview.

Mr. Wei said even a doubling probably wouldn't be enough insurance against a true crisis, but multilateral groups like the IMF will continue to serve as a backstop for the fledgling regional fund.

Analysts and officials hope emerging Asia will remain a key driver for the global economy, with the IMF tipping it to be the fastest-growing region in the world.

Mr. Singh said the IMF doesn't expect a "hard landing" in China, with growth likely to remain well above 8% this year and the next. "There are risks, but they're not systemic. I don't think they will derail growth," he said.

On Japan, Mr. Singh said the IMF believes Tokyo wants to continue gradually raising the consumption tax, to about 15% after 2015.

Prime Minister Yoshihiko Noda has vowed to push ahead with a plan to raise the 5% sales tax to 8% in 2014 and then to 10% in 2015, and to submit legislation to parliament by the end of March.

But the proposal's chances of its passage are slim. The main opposition party is demanding Mr. Noda first dissolve parliament for a snap election. Many members of the prime minister's Democratic Party of Japan also are against the increase.