Policy Alert #41 | December 29, 2012
As the United States confronts a looming fiscal cliff, whether and how it is resolved will have an impact on the global economy and on Asian economies. Today’s Policy Alert highlights recent Indian, Chinese and South Korean commentary on the U.S. economy, reflecting anxiety and impatience.
INDIA
- The Indian Express noted that, “”For India, the timing of the cliff is particularly poor. The economy has already plummeted to a 5.5 percent rate of growth in the first quarter,” and it remains to be seen whether unfavorable international factors can be counterbalanced by improvements in the domestic Indian economy.
- The Economic Times reported that if the U.S. does go over the fiscal cliff, contagion affects will slow India’s fiscal year 2014 growth to 5.1%.
- Another worry is concrete policy measures that could affect Indian industry, including U.S. domestic opposition to outsourcing IT jobs.
CHINA
- The People’s Daily seized the chance to lash out at US leadership as a great power. In a commentary titled “U.S. has no right to frequently disturb the world,” the paper said that “Although the U.S. is unlikely to really fall off the fiscal cliff, it has frequently disturbed the globalized world due to domestic political infighting, which reflects the problems concerning the U.S. political system and lack of responsibility as a major power.”
- In less emotive terms, another analysis in the paper predicted that if the U.S. does fall off the fiscal cliff, turbulence in global markets will induce depreciation of the Chinese yuan.
SOUTH KOREA
- In South Korea, investors are taking a “wait-and-see” approach to the U.S. budget talks:
- Lee Seung-woo, an analyst at Daewoo Securities stated, “The fiscal cliff woes have widely dominated the stock market…investors are afraid of another double-dip recession stemming from a possible fiscal cliff. Therefore, the index will move up and down in accordance with the negotiations in Washington.”
- The South Korean central bank has increased its gold holdings, aimed at “diversifying foreign reserves and investment risks,” according to Lee Jung, head of the investment strategy team at the Bank of Korea’s reserve management group. He added that gold makes it possible to effectively counter rapid changes in international financial markets.
- The Joongang Daily questioned how effective American foreign policy could be, given its inability to resolve the impending fiscal cliff. “The deepening political polarization in the U.S. and a possibility of administrative paralysis stemming from extreme rifts in the overall political spectrum raises a serious question about the efficiency of America’s democracy to the world.”
