Stimulus programmes are working, for now

"In order to make good investment decisions you have to have a view of the macro situation," said Professor Altman at the two-day AsianInvestor/FinanceAsia Distressed and Troubled Asset Investing Summit held in Tokyo, which attracted more than 200 delegates.

Altman was moderating a panel discussion that took a step back and looked at the bigger picture. The panel members discussed the impact of the fiscal stimulus programmes of three nations -- China, Japan and the US. While they analysed the macro issues of today they also referenced the Asian financial crisis of 1997-98, which was a common approach throughout the conference. Ed Gilbert of Shinsei Bank perhaps explained the tendency to compare today to earlier crises best; he referenced Mark Twain, who wrote: "History does not repeat itself but it does rhyme."  

The conclusion as to whether or not the stimulus programmes are working now was a bit hedged. From our vantage point right here, right now, it looks like the governments have done the right thing... but time will tell.

Warren Alderige, managing director of Pacific Harbor Group, noted that this time around, as opposed to the crisis of 1997-98, Japan's banking system is in better shape, the savings rate is better, there are low-to-zero interest-rate policies in Japan and a quasi moratorium for small companies with debt. "The government has done a good job in terms of keeping things moving forward."

And James Rice, managing director of K2 Advisors, pointed out: "By virtue of the fact that Asia came through the earlier crisis it sits a bit differently now and that puts it in better stead than the US."

Japan's economy expanded 1.2% in the July to September period -- a 4.8% annualised pace. That was the second quarter of expansion.

And Altman noted that China was likely to grow at about 5% to 6% without any stimulus package, but now, as a result of government spending, it is growing at 9% to 10%, "so in the short term, it has worked".

But  they all acknowledged potential problems, ranging from inflation, which Gilbert noted was already visible in parts of the Hong Kong and China property markets, to the difficulties of putting a stop to the stimulus spending programmes. At some point, particularly as the US compounds its deficit, you have to shut off the tap. To this crucial question, there was no clear-cut policy solution proposed.

Gilbert, who is general manager of the principal transactions group of Shinsei Bank, pointed out that the US Tarp spending was initially supposed to buy back mortgaged-back securities. "But it morphed. When we exit it [the stimulus spending] it will be more or less the same. It's an evolution. What works in the US may not work in Japan or China. But because of the stimulus at least you have an environment to work in. Without it, you might not have had an environment at all."