IMF's forecast on economic recovery in 2010 optimistic : Arvind

Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics and senior research professor at Johns Hopkins University, said in a Bangkok speech that the bottom was still not in sight.

He added that many uncertainties lie ahead.

The Obama administration's US$800billion (Bt28.6 trillion) stimulus package is a good idea but there are several questions in terms of magnitude, timing and market confidence.

"It's good but … there are several 'buts'," Subramanian said, asking whether the stimulus should be bigger than it is.

He noted that riskaverse investors have shifted their focus into the US Treasury bills, which makes it easier for the US government to borrow more. This could cause the country's debt situation to balloon from the current 40 per cent of GDP to 70 per cent soon.

"Once the market sees that this can't be sustained, then investors will leave the Treasury." That would be a real problem, Subramanian said.

How the US addresses finan¬cialsector problems is limited by both political and technical constraints, he said. For exam¬ple, the idea of nationalising troubled banks has run into political constraints. For tech¬nical problems, the amount of money needed to inject into the financial system is not several hundred billions of US dollars but a trillion dollars or more.

"Whether the US system has that much money is unknown," he said.

In addition, there's the question of whether there be a further negative feedback from the recession to the financial sector, especially through the housing market, and then back to the real sector again.

The last uncertainty lies with protectionism issues, including the "buy America" campaign, subsidies to auto companies, and environmentally motivated trade restrictions.

He said that Japan suffered through its "Lost Decade" in a much better world economic environment than today. So it could use exports as a tool to get out of trouble, "which is not an avenue available now for the US, Europe and Japan right now," he said.

For Asia and Thailand, he said, "the external environment will remain weak for some time."

Asia exported its way out of recession during the 19971998 crisis with a Vshape economic recovery. But Asia cannot depend so heavily on exports this time.

Subramanian concluded that globalisation is a doubleedged sword, with higher growth in good times but greater vulnerability in bad times.

"Good domestic policies are still the key," he said.

Asia can adopt both easing monetary and fiscal policies to bolster their economies this time, while there were some dilemmas involved in managing the two policies during the 1997 crisis.

Compared to Eastern Europe, Thailand and Asia have learnt from the 1997 financial crisis and have prepared adequate cushions for the current crisis, while emerging countries in Europe still have too much foreign debt.

When asked why the US hasn't adopted a solution based on the same philosophy that the IMF strongly recommended to Asia in the 1997 financial crisis, Subramanian accepted that there was a different set of standards and advice. But, he said, "there's hope that soon the situation will force the US to follow some of policies that they haven't yet." These would include adding more money into the banking sector, and possibly nationalisation.

In the wake of the 1997 financial crisis, Thailand and other Asian countries that entered the IMF programme were told to tighten their monetary and fiscal policies by raising interest rates, getting and keeping fiscal budget surpluses and nationalising troubled banks.

He added that despite Asia's stronger fundamentals in terms of fiscal positions, inflation, lower corporate leverage and bettercapitalised banks, it is now suffering "collateral damage" due to globalisation.