Offshore Capitalist

APEC Wary of Withdrawing Stimulus Too Early, Too Late

Nov. 14 (Bloomberg) — Asia-Pacific leaders said the withdrawal of economic stimulus packages is all about timing: too early and the recovery stalls, too late and resultant stock and property bubbles may trigger a fresh financial crisis.

“It is premature to talk about recovery of the global economy,” Russia’s President Dmitry Medvedev said in a speech in Singapore today ahead of a meeting of Asia-Pacific Economic Cooperation leaders. Nations must coordinate their exit from anti-crisis measures “with insurance against the risk of premature or late actions,” he said.

Asia will lead the return to growth, followed by the U.S. and Europe, International Monetary Fund Managing Director Dominique Strauss-Kahn told reporters at the same meeting yesterday. Fiscal and monetary stimulus measures need separate exit strategies and timing, as policy makers seek a balance between protecting nascent growth and preventing asset bubbles.

“As our region returns to trend, exit strategies for fiscal stimulus must be carefully timed,” Asian Development Bank President Haruhiko Kuroda said yesterday. “If left too long, deficits will be unsustainable; if withdrawn too soon, the region’s recovery could be derailed.”

The value of global stocks has soared by more than $20 trillion since March, an amount 10 times larger than the emergency stimulus spending put in place. The Group of 20 nations last week outlined a timetable to rebalance the global economy, mapping ways to exit from stimulus programs, which also included coordinated interest rate cuts.

Governments are not rushing to end stimulus programs. Singapore last month extended a wage subsidy for employers set to expire this year to avoid an increase in job losses that may derail the city-state’s recovery. The U.S. is extending a tax credit for first-time homebuyers and unemployment insurance benefits.

The world is not likely to face a “double-dip” recession, Strauss-Kahn said. The cleansing of banks’ balance sheets of toxic assets is not over, and the recovery won’t be complete until that is done, he said.

via APEC Wary of Withdrawing Stimulus Too Early, Too Late (Update2) – Bloomberg.com.

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