Asia Is Not Facing ‘Hot Money’ Risk: IMF’s Singh

Asia is not facing the risk of “hot money” inflows as the region is better positioned to deal with an influx of capital compared to in the past, said Anoop Singh, IMF Director for Asia & the Pacific.

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“Asia has experience dealing with (hot money inflows). Asia is building a framework so that when money comes back, it goes into sustainable areas needed for sustaining growth in the medium term, and away from speculative hot money,” he told CNBC on Tuesday.

Singh was responding to concerns about speculative capital, or the so-called “hot money”, flooding into Asia as a result of recent liquidity measures announced in the West. The first four weeks of the year have seen a surge in investment into emerging markets, which last week recorded its highest injection of equity and bond funds since April, at $4.4 billion.

Excess central bank liquidity had been blamed for the flow of speculative funds into Asia back in 2009-2010, some of which were withdrawn in 2011, contributing to the slump in markets.

Singh believes authorities in Asia have learnt from that experience, and will channel fund inflows into sustainable areas of growth, averting potential market instability.

“In many parts of Asia, more investment is needed, more infrastructure investment is needed. When capital comes back to Asia I think you will find that Asia has built up its capacity to handle stronger capital inflows – that is their objective,” he said.

Speaking about the broader economic conditions in Asia, Singh said the region as a whole will remain resilient this year despite major external risks, particularly the euro zone debt crisis.

While a slowdown in exports will occur as a result economic turmoil in Europe, emerging economies in the region will continue to remain “growth leaders” this year, he added.

“Asian investment and consumption is holding up. That means that growth is still relatively strong. We have emerging Asia remaining growth leaders,” he said.

He noted that the recent pull back in funding by European banks as a result of the debt crisis and new capital requirements is no longer a worry, as Asian and non-European banks are stepping in to fill the funding gap.

Discussing the outlook for China, he believes Beijing will be able to execute a soft landing for Asia’s largest economy and achieve growth above 8 percent in 2012.

“We are not seeing any hard landing, we think China's growth is going to remain right well above 8 percent, this year and next year. We see inflation in China that has been a risk coming down, we see the property risks being addressed,” Singh said.