The surprise announcement by Federal Reserve chairman Ben Bernanke on September 19 that the Fed will not taper its money stimulus programme yet came as good news for Southeast Asian countries, whose capital markets have been badly hit over the past months. The Fed’s decision was a green light for global fund managers, after fears of a change in US monetary policy resulted in a volatile summer for Asia, to redirect funds back to the region. Indonesia had been hit especially hard because of worries over its slowing economy and trade imbalances just as the fear of a rollback of US stimulus efforts, which had supported this market for years, prompted substantial outflows. The same happened in Malaysia and to some extend in Thailand and the Philippines.

Now that the immediate danger is over, the countries need to re-evaluate how resilient they really are against global capital market fluctuations. This is also important for Gulf investors who are increasingly putting funds into the region, but need to assess what direction these emerging economies are taking.

It seems that Asean countries are to some extent able to weather large amounts of capital outflows as growth in the region is supported by solid fundamentals. The countries have also made their homework by keeping foreign currency debt levels much lower as they were ahead of the Asian financial crisis in 1997-98, and official foreign reserves are kept much higher. Furthermore, most Asean countries have shifted towards more flexible exchange rate regimes, and this has contributed positively to reducing the risk of overvalued currencies and a sudden re-pricing of foreign currency debt – although some countries are still struggling, such as Indonesia and Vietnam.

In most Asean nations, financial regulatory and supervisory frameworks are now more robust and reliable.

All this indicates higher investment safety than it was just two decades ago.

Eventually, Fed tapering will happen, but Southeast Asian countries have learnt their lessons, it seems. Malaysia might rethink its massive bonds programme and leverage its foreign debt in a better way; Thailand will have to check that its monetary mechanisms are all in place and effective, and the Philippines should be careful when all three big rating agencies give green light for a capital inflow spree.

This way, Southeast Asian economies will be prepared when quantitative easing will eventually wind down, because with it a recovery in the US and later Europe will take place which will, in turn, create a positive scenario for Asean.


Did Southeast Asian countries show enough resilience against the US-led power of the global capital markets? Will the Fed decision help spur investment in Asean again? Let us know through Twitter: @insideinvestor using hashtag #gulftimes.


nOur columnist Dr Arno Maierbrugger is Editor-in-Chief of, a news portal owned by Inside Investor focusing on Southeast Asian economic topics as well as trade and investment relations between Asean and the GCC. The views expressed are his own.

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