Effects of an Unconventional Monetary Policy: Quantitative Easing (qe) to Emerging Countries in Asia

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2.1.2 Negative Effects

According to the results of capital flow out, the weaknesses of the basic economic factors in some country as can be seen from the very weak currency value and from the political chaotic that affects over the ability and uncertainty of the policy (Morgan, 2011). Lastly, IMF has showed the concern in the conference of G20 group and mentioned on the political situation in Thailand with suggests for rushing in solving the economics of the emerging countries with trouble (Haynes, 2013).

But the opinion from most of the analysts see that the basic economic factors in emerging countries overall is in good picture and can be the key mechanism to drive toward the growth of world economics. They see this challenge as the transit period that we shall resolve and sustain; it is the short term problem (Rao and Ramakrishnan, 2014). For Thailand, we are in this group with more weaknesses especially, the impact of the politic toward economics and policy so, we have to be careful and cannot ignore on this subject. To prevent the situation to develop to the point that the investors “change their mind” and withdraw the money from the country and lead to more weaknesses until it becomes the crisis (Chen et al., 2012).

However, the report of IMF in the conference of G20 during February 22-23, 2014 had clearly stated that the recovering of global economics still weak with the negative risk and one of an important risk is the sustainability of the economics of emerging countries where currently be impacted from the capital flow out, higher interest rate, and very weak currency values (Zumbrun, 2013a). This resulted from the cut off QE measure by the Federal Reserve (Fed); the economic slowdown in China and uncertainty of the politic situation in some countries. Such as Ukraine and Thai that found with the amount of capital flow out from the emerging market in the first two month of 2014 either from the security and bond market with the higher amount than the numbers of mutual amount of the capital flow out throughout the last year. The big amount of capital out flow leads to the concern on the recurring of the economic crisis (Eichengreen and Gupta, 2013).

According to Mattoo et al. (2012), QE measurement has been accepted to help making the financial market return to the normal condition and reduce the tail risk in the world financial system. But the effectiveness of QE in economic stimulation is still unable to clearly prove. While many parties either the academics or some committees in Fed itself begin to play more attention to the risks that may occur from the use of this measurement for too long. One of the risks is the accumulative risk without stability in financial sector (Carbaugh, 2013). As the Fed buys a lot of properties and hold the interests at low level for long time; this may dramatically increase the price of properties in the market over than the basic factor. This may lead to bubble condition in some type of properties. Besides, cost that lower than normal in the financial institution may lead toward the standard of loan that too loose or the investment on risk property without careful and result on the sensitivity of the financial institution sector. This risk has a chance to occur in the group of emerging countries in Asia (Zumbrun, 2013b).

Besides, QE is the cyclical problem solving measurement but the real root that leads to the crisis from the structural problems that accumulate for a long time in the financial institute section (Krishnamurthy and Vissing-Jorgensen, 2011). As the FED guarantees to act as the lender of last resort, it causes the problem on moral hazard and reduces the motivation of public and private sector especially, the financial institution to conduct the structural evolution for the real problem solution.

Another risk is the efficient of normal financial policy which resulted from QE that reduce the ability of the normal financial policy to seize at the price prediction. Since QE is compared to the cancellation of the former goal such as inflation goal that seized by normal financial policy (Haynes, 2013). Besides, as the financial institute and the investors that familiar with the special financial relax condition for a while, the transit into normal financial policy may result on the confusion of market on the signal of FED that may distract the ability of interest ratio policy to control the financial condition (Morgan, 2011).

2.2 QE tapering effects to Emerging Countries in Asia

From the study of effects from QE measurement above, it can lead to the implication of the QE tapering effects evaluation in a level whether how it will result on the emerging countries. In the past period, news and information especially, the speech from the chairman of Fed and the recovery of US economics results on the investors to interpret on the possibility that Fed may cancel the QE faster than anticipated by the market (Kenny, 2014). This results on the clearly flow out of capital from the emerging countries. There is the following problem that in case of Asia, is there any countries to be especially sensitive from the tapering of QE. And whether there is the chance that Asian region will return to the financial crisis again.

Rao and Ramakrishnan (2014) shared the opinion that the emerging countries in Asia that will be mostly impacted from the capital flow out is Indonesia and India since both countries have high capital flow in from the international in the past two years and the more fluid also enhance their growth. But some countries grow with the excess payment which leads to the inflation problem and the loss of balance in current account. Both countries are now viewed as having the special risk on the international capital flow out in which may occur from the tapering of QE measurement (Zumbrun, 2013a).

In case of Indonesia, it is the good sample to reflect the impact and the vulnerability to the economic stability problems that might result from the capital flow out. Since 2013, the Rupiah currency of Indonesia has been reduced for 20 percent and the economics of Indonesia is slowing down with the reduced growth only for 5.6 percent in third quarter, the lowest since 2009 (Eichengreen and Gupta, 2013). As the domestic consumption slowdown and the higher expansion in the past period, Indonesia loss more in the current balance at 3.4 percent of GDP and have to compensate for the loss of balance by official supporting fund. Since the capital flow in has shifted to flow out and reducing the national supporting fund more than 17 billion US dollar this year (Kenny, 2014). It forms the pressure on the Rupiah currency value and the central bank of Indonesia has to adjust the policy interest