PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

22 March 2010

1 IMF Said That Advanced Economies Are Facing Acute

Debt Challenges

2 China Accused US of Politicising Renminbi

3 India Raised Interest Rates By 25 Basis Points To

5.0%

Tracking The World Economy...

Today’s Highlight

IMF Said That Advanced Economies Are Facing Acute Debt Challenges

The International Monetary Fund (IMF) said that advanced economies are facing with acute challenges in tackling high
public debt. Stimulus measures account for about one-tenth of the projected debt increase, and rolling them back won’t
be enough to bring deficits and debt ratios back to prudent levels. All G7 countries, except Canada and Germany, will
have debt-to-GDP ratios close to 110% by 2014, compared with 75% at end-2007. Already in 2010, the average ratio
in advanced economies is expected to reach the levels seen in 1950, after World War II, while the government debt ratio
in some emerging-market nations has also reached a worrisome level. Rising public debt may lead governments to seek
to eliminate it through inflation or even default if they fail to carry out fiscal measures in time to control it.

Inflation is clearly not the answer as a moderate increase in inflation would have a limited effect, while accelerating
inflation would impose major economic costs and create significant risks to a sustained expansion, warned IMF. Instead,
growth-enhancing reforms such as liberalisation of goods and labour markets, as well as the removal of tax distortions
should be pursued vigorously. The bulk of the needed debt reduction should be focused on reforms of pension and health
entitlements, containment of other primary spending and increased tax revenues and improving both tax policy and tax
administration measures, according to the IMF.

Asian Economies

China Accused US of Politicising Renminbi

◆ China warned the US against imposing sanctions over the value of the renminbi, arguing that the
exchange rate issue has been politicised and that a rise in protectionism threatens the global economic recovery.
Tensions over China’s currency are mounting, with the US President facing increased calls from US lawmakers to
step up pressure on China for keeping its exchange rate artificially low. Five senators last week introduced
legislation to make it easier for the US to declare currency misalignments and take corrective action. The Treasury
Department will decide in April whether to label China as a currency manipulator. Chinese renminbi has been
unofficially pegged to the US dollar since July 2008.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 22 March 2010

◆ The US trade deficit with China narrowed to US$37.3bn in January, from a record deficit of US$67.8bn in August
2006. The decline in China’s trade surplus, however, failed to appease US. China is still maintained a large trade
surplus with the US because of curbs on exports by the US to China, including technologies and parts that
China wanted, according to China’s Commerce Minister Chen Deming. China said that they have contacted the
US Commerce Department on buying helicopter engines to aid rescue efforts after the Sichuan earthquake in 2008,
but was told to wait for permission from the US defense department. China bought Russian engines instead since
it did not heard any feed back from the US Commerce Department thereafter. China also scrapped plans for a
few large-scale purchasing delegations to the US this year because what companies wanted to buy wasn’t what
the US was willing to sell.

◆ Separately, a growing number of US companies feel unwelcome in China, according to a new survey by
the American Chamber of Commerce in China, as measures aimed at squeezing foreign technology companies out
of the vast government-procurement market start to bite. The survey of Amcham’s members adds to evidence
of a darkening mood among multinational companies in one of their most important global markets.

India Raised Interest Rates By 25 Basis Points To 5.0%

◆ The Reserve Bank of India, in an unscheduled move, raised its key policy rate by 25 basis points to 5.0%.
The move is aimed at normalising the country’s monetary conditions as economic growth is picking up momentum
and inflation rate is heading up. Indeed, the Reserve Bank of India also left the door open for a further increase
in its April policy review. The central bank said that “it will continue to monitor macroeconomic conditions,
particularly the price situation, and take further action as warranted. India’s inflation rate, as measured by
wholesale prices, accelerated to 9.9% yoy in February, the fastest in 15 months and from +8.6% in January.
Similarly, real GDP picked up to 7.9% yoy in the 3Q, before easing to +6.0% in the 4Q. The government expects
the country’s economy to expand by 8.2% in the next fiscal year, compared with 7.2% in the year to 31 March.

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