On May 18th the Asian Development Bank (ADB) released its annual Asian Capital Markets Monitor report, which investigates the performance and outlooks for the equity, bond and currency markets in emerging economies. According to the report, several factors have cumulatively increased the risk of Asian economies facing sudden high levels of investment capitals, leading potential destabilization of currency and financial markets.

Amidst worries of a continued national debt crisis in Greece and the Euro-zone, international investors have been paying greater attention to Asian economies. The interest has been further increased by the area’s swift and secure return to a positive economic condition after the international economic crisis. The ADB claims that the increased capital inflows could trigger significant upwards pressure in national currency, leading to volatility in valuation and the financial markets. Additionally, national inflation, which among emerging Asian economies is widely considered to be manageable, could be caused to increase. Cumulatively, sudden burst in overseas investment capital might lead to limitations in short and mid-term growth potential for emerging Asian economies.

The ADB recommends that Governments of vulnerable economies take action now to ensure that appropriate national policies are ready for potential investment inflows. Suggested policy considerations consisted of sound macro-economic management, flexible foreign exchange regimes, increased resilience of national financial systems, along with temporary and targeted capital controls. The suggestion of capital controls is especially aimed at nations which expect capital inflows to be transitory with significant destabilizing effects on exchange rates, and with uncertain national macro-economic policies.

Under the ADB’s classification, the emerging Asian economies consist of the People’s Republic of China, Hong Kong, India, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Taipei, Thailand and Vietnam.

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On April 26th the IMF published a previously unreleased transcript of a speech given by Naoyuki Shinohara, Deputy Managing Director of the IMF, at the 14th ASEAN Finance Ministers’ Meeting, held on April 8th 2010 in Nha Trang, Vietnam. The speech focused on the key economic challenges the IMF perceives as facing ASEAN member nations. According to the Deputy Managing Director, to see strong economic growth, ASEAN members must overcome the fragile external economic environment, the potential for surges of inward capital flows, and the need to expand private domestic demand over the medium term.

Naoyuki Shinohara said that Asian nations are showing greater levels of economic recovery and fiscal stability, when compared to advanced economies. Cumulatively, the ASEAN members are projected to increase economic output by 5.5 percent over the 2010 year. Despite the positive outlook, ASEAN economies are highly reliant on external economic factors. The IMF does not expect credit conditions across the US and the Euro-Zone to normalize until 2011, and the Deputy Managing Director warned that ASEAN members need to balance this factor into the timing of their 2009 stimulus package withdrawal policies. He advised that policymakers should consider taking precautions to allow for agility in any present decisions, to cope with unforeseen economic shifts.

According to Naoyuki Shinohara, ASEAN economies face the unique challenge of possible spikes in foreign capital inflows. As the international economy recovers, it is conceivable that ASEAN nations will see higher than expected investment. In preparation for such eventualities, policymakers have been advised to tighten fiscal regulations, allow for greater flexibility in exchange rate in decision making, create macro- and micro-level policies to handle the spikes, and begin accumulating fiscal reserve to use as a safe-guard.

A warning was given to ASEAN Governments that pre-crisis fiscal policies favoring expansion of exports over the growth of local private consumer demand need to be addressed. The Director gave broad directives for ASEAN economies to instate reforms to improve private investment, raise productivity in services, and improve the overall private sector consumer demand.

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The Thailand Ministry of Finance issued a press release on March 29th announcing the revised growth projections and positive future outlook for economic expansion. In the new Government estimate Thailand’s annual economic growth rate is expected to reach between 4 percent and 5 percent in 2010. Satit Rungkasiri, Director-General of the Thailand Fiscal Policy Office (FPO), stated that the upward revision was spurned by both national and international factors: the better than expected levels of private internal consumption and better export performance of the national economy, and the faster-than-expected recovery of major international trading partners’ economy. On account of the expanding domestic economy and external drivers, Satit Rungkasiri said that the Government considered Thailand to be in a highly balanced position and not too reliant on any one aspect for its economic recovery. The Real Consumption Growth Rate has also been revised upwards to 4.3 percent, mainly due to increased performance of the agricultural sector of the economy and better national employment levels.

The latest report also shows an expected drop in 2010 unemployment levels to 1.3 percent, compared to 1.5 percent in 2009. The national trade balance is projected to decrease to USD 4.8 billion, from USD 19.4 billion in 2009. The current account is expected to reach 2.4 percent of GDP, 0.9 percent lower than previously projected.

As the same time, Ekniti Nitithanprapas, Director of the Thailand Macroeconomic Policy Bureau, stated that increased growth and consumption will drive inflation to an estimated 4.0 percent. A significant portion of the inflation increase has also been attributed to an expected increase in oil prices and oil based services.

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The Thailand Government’s fiscal stimulus measures and tax base extension efforts will see tax collections “easily” surpass the THB1.097 trillion target set by the Revenue Department for the financial year ending September 30th, 2010. The rapid upsurge in revenue has been laid down to Thailand’s improving economic situation and extended efforts to raise the profitability of the country’s taxation system.

Following several months of growing collection figures and healthy economic indicators, Thailand’s Finance Ministry raised the country’s 2010 economic growth target to 3.5 percent, in the last days of 2009. Further, Value Added Tax (VAT), a proxy for household consumption and economic health, has grown by 8.91 percent over government’s targets, in the first two month of the fiscal year. According to Winai Wittawatkaravet, Thailand’s Revenue Director-General, other key tax collection indicators such as withholding taxes for personal income and taxes on interest earnings have also seen improvement in recent months.

Enhancements to tax system efficiency and profitability are expected to play a vital role in Thailand’s tax collection growth. Tax base expansions are estimated to net at least 324,000 extra tax payers by the end of the year. Further adding to efficiency efforts, the Revenue Department has initiated a project to link its databases with those of other state agencies in an effort to improve information cross-checking and decrease evasion.

Amongst the Government’s other plans to increase tax collections special scrutiny will be paid to businesses using accountants with histories of tax evasion, and gathering information on internet businesses through local internet providers.

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