Global Trends by Martin Khor
Monday 1 September 2008
As the global financial
crisis turns into recession in developed countries, Asian countries
should anticipate the effects and prepare policy measures to counter
them, according to a regional workshop held in
The global financial turmoil has yet to affect Asian developing countries severely, but it is best to anticipate adverse effects and examine policy options to counter them before the crisis hits.
This was the conclusion of
a workshop last week held in
Several experts from international agencies warned that Asian countries face vulnerabilities, especially to the vagaries of capital flows. Though the region is better prepared than during the financial crisis a decade ago, some countries have weaknesses which in ways are different from the old ones but can nevertheless cause problems.
The workshop on the Global Financial Turmoil, Capital Flows and Policy Responses was attended by 50 policy makers, researchers and civil society representatives.
Two routes by which the global
crisis may affect
He added that Asian countries are even more integrated to the global financial system than a decade ago, making them more vulnerable to shocks. In some countries, there have also been massive increases in the outflows of capital by residents, who press their governments to enable them to diversify their investments abroad.
If the global crisis leads to less inflows (or a high outflow) of foreign funds, the government may want the local funds to return, but it is not easy to achieve this, warned Akyuz.
This refers to the sale of bonds by the Central Banks to banks to mop up excess liquidity caused by capital inflows. The governments incur a loss since they usually have to pay higher interest for the loans they obtain than the interest they earn on their foreign reserves.
Akyuz estimated that Asian developing countries together lose US$50 billion a year from the cost of holding foreign reserves that are “borrowed.”
He suggested that
Several other speakers, including
Indian economist C.P. Chandrasekhar and Yu Yongding of the
Yu said that
Dr. Rizal Ramli, former Coordinating
Minister of the Economy of Indonesia, traced the adverse effects of
IMF policies on
“The more hot money flows
Datuk Seri Andrew Sheng, former head of the Hong Kong Monetary Authority, said it was now even clearer that reform of the global financial system is needed, as recent events showed that the central countries can also face financial crisis and thus the world requires the changes.
However the international financial institutions are not designed to cope with crisis occurring in the central countries. Asian developing countries should get their act together for regional cooperation to increase their global voice, but it may take a new threat through a global financial crisis to lead them to a common view and approach.
In a final session, the prospects
of Asian regional financial cooperation were discussed. Heiner Flassbeck
of UNCTAD, and a former German Finance Vice Minister, spoke on how
“Political will was key,
there were strong leaders who pushed this forward,” he said, adding
Chandrasekhar said regional
cooperation was needed in three areas – to prevent financial crises,
to manage them if they occur, and to provide financing for growth, as
was being attempted by the Bank in the South in
President of the Philippine Institute for Development Studies, Josef Yap, summarized the various Asian regional cooperation measures, such as the Chiang Mai initiative, the Asian Bond Fund, and discussions on exchange rate coordination.
However, some of the more recent efforts appear to have stalled, he said. Participants of the workshop concluded that attempts towards regional monetary cooperation must be accelerated, in view of the need to counter the impending effects of the global crisis.