IMF: borrowing is back to pre-crisis levels; Meier didn’t actually invite listeners to read between the lines of all the numbers he was presenting, but the meaning was clear to the veterans in the auditorium.
March 22, 2013 Leave a comment
IMF: borrowing is back to pre-crisis levels
22 March 2013
Author: Simon Osborne
Are we meant to cheer, or boo? Borrowing is back to where it was in 2007. In Asia, gearing ratios are back at 96%, the same level as they were pre-crisis. Is that good or bad? Was it not borrowing that got us into this fine mess? “It might be ok now, but given a few years of that trend, that view might change,” says Andre Meier, the International Monetary Fund’s resident representative in Hong Kong, at the Private Equity International Asia Forum. He adds the Chinese are gearing up, last year recording 17% bank loan growth, 80% for Trust loans, 40% for corporate bonds and 30% for entrusted loans. He looked mellow about the bank loan growth, but was that a flicker of a conservative frown for the other three? “These markets are yet to be tested in strained scenarios. For example, there has been no default yet in Chinese domestic corporate bonds.” He pointed a stern finger at a slide with vertiginous lines showing that Dim Sum Bond issuance was $25bn in 2011, $250bn now, and QFII was $75bn in 2011, $140bn now. “The average ratio of credit to GDP is higher now than it was in 1997, the boom is striking.” All those in the audience who were in high school in 1997 smiled. Yes, yes, this is all good news of boom and prosperity……….isn’t it? Capital flows in funds are rushing back to Asia at a rate of $1.75bn per week this year, compared to outflows in 2011. That money is chasing the 7.5% GDP growth that the IMF predicts for Asia in each of the next two years. However, if some “reversal” took place, (could he mean a once-in-a-century crisis that-nobody-sees-coming that now seems to happen every other year), then Asia is vulnerable, as money could be pulled out again. Non-resident holdings of Indonesian, Malaysian and Thai government debt are at 35%, 30% and 25%. Would foreigners whisk their money out of Asia if something goes wrong? Tick, that sounds plausible. He sees less tail risk in Europe, thanks to the ECB medicine in 2012, and growth being shored up elsewhere, and a slump being prevented – by the Bank of England quadrupling the size of its balance sheet, and the Fed multiplying its by 3.5x. Meier didn’t actually invite listeners to read between the lines of all the numbers he was presenting, but the meaning was clear to the veterans in the auditorium.
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