Asian central banks lead on reform as governments fail to play their part
Asian governments have failed to act in recent years to fix their economies, leaving it to bankers just as cheap money starts to dry up
Asia's central bankers are being forced to juggle their day jobs with what their governments have failed to do - steeling their economies for the hard times.
Critics say many governments have done too little to remove barriers to domestic and foreign business investment, cut red tape, upgrade infrastructure and develop deep, well-functioning financial markets when the region was flush with cheap money.
Now that economic rocks are emerging as the tide of the US Federal Reserve's easy cash recedes, central banks are having to step in, detouring from their price and financial stability mandates, to shore up weak economies.
India and Indonesia were first in the firing line of investors last year when the Fed's plans to scale back its US$85 billion in monthly cash injections started to take shape. Both took emergency steps, intervened in markets and raised interest rates to shore up battered currencies.
Since then the Fed has started winding down its stimulus in earnest, putting emerging markets on the back foot once again as investors look to target the most vulnerable economies.
Indonesian and Indian authorities have improved their defences against rapid outflows but their governments have failed to tackle supply bottlenecks and market rigidities that fuel inflation and limit room for policy manoeuvre, economists say. Both face elections this year that could lead to populist measures and further delay reforms.
In Thailand, months of political turmoil have paralysed government, leaving the central bank as the mainstay of economic support.
"Government and monetary policies should be fairly balanced," said Rob Subbaraman, chief Asia economist at Nomura in Singapore. "In India, and increasingly Thailand, the governments have not done their part. There's a risk Indonesia goes this way as the elections draw closer."
Even in Japan and China, with their stable political leaderships, central banks seem to be doing most of the heavy lifting.
In Japan, a blast of central bank money has boosted the economy and markets, but Prime Minister Shinzo Abe's economic reforms have disappointed. Meanwhile, the People's Bank of China is trying to rein in an explosion of off-balance sheet and risky lending as cautious regulators resist speedier financial reform that would force markets to price risk more realistically.
In picking up the reins from government, the risk is that central banks will deliver neither the stability they seek, nor the economic support that is needed.
In Japan, for example, the concern is that optimism spurred by the Bank of Japan's massive cash injections will fade without reforms to unshackle the economy's untapped growth potential and help overcome the problems of a fast-ageing society.
The PBOC's attempts to curb risky lending by calibrating supply of money market funds have triggered repeated cash crunches that threaten to ignite market panic.
Indonesian and Indian central banks may be forced to tighten monetary policy more than their slowing economies would otherwise have warranted because of fragile market sentiment and sticky inflation that remains high even when growth cools. In an ominous sign for India, foreign investors have been net sellers of the nation's stocks this year.
Thailand's central bank is under pressure to fill the void left by stalled infrastructure spending and provide the struggling economy with stimulus, but says it is well aware of the risks.