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Singapore’s biggest sovereign wealth fund GIC said on Tuesday that the greatest risk facing Asia is a global economic and financial environment that does not stabilise and recover by 2010.
“If the U.S. economy turns out to be worse than expected, requirements for banks’ capital will be higher and the U.S. administration might need to go back to Congress to ask for additional funding,” Tony Tan, deputy chairman of the Government of Singapore Investment Corp said in a speech.
“Downside risks remain high, despite signs of stabilisation,” he said.
GIC, which manages more than $200 billion in assets and has significant stakes in Citigroup and UBS, said failure of policies in the West and protectionism were some of the other risks facing the global economy.
“A major challenge going forward is the uncertainty raised by the apparent failure of Western or American models which, at the extreme, put financial markets above other sectors of the economy.”
His comments came after the International Monetary Fund said last month that the sharp contraction in the U.S. economy “seems to be ending” but recovery will be slow with risks still looming from the weak labor and housing markets.
The IMF, in its annual report on the U.S. economy, stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010.
GIC’s Tan, however, said Asia’s economic fundamentals were strong and its growth will recover once the global economy stabilises.