Asian monetary crises tests will to reform<\/p>\n
By Philippe Ries<\/p>\n
HONG KONG (AFP): Asia's monetary crises are testing the will
\nof regional governments to pursue structural reforms, especially
\nfinancial deregulation, economists have said.<\/p>\n
In theory the response to a regional crisis sparked by the
\nfaulty banking system in Thailand would be simple: press forward
\nwith observation of international standards in financial
\ninstitutions, in opening to foreign capital and entities, in
\ntransparency, supervision and risk management.<\/p>\n
Instead, said Miron Mushkat of Lehman Brothers in Hong Kong,
\n"since the crisis may legitimately be viewed as the product of
\nexcessively rapid financial development, it would be realistic to
\nexpect the pace of financial liberalization to slacken in coming
\nmonths."<\/p>\n
"The possibility that financial reform might be brought to a
\nhalt, or even rolled back, cannot be ruled out at all," he said.
\nBut, he added, the response may be "diametrically opposed":
\n"Asian countries could allow their currencies to float freely and
\naccelerate the pace of both financial sector and real sector
\nliberalization."<\/p>\n
The two possibilities were vividly demonstrated Wednesday by
\nthe contradictory stances of Jakarta and Kuala Lumpur.<\/p>\n
While Indonesian authorities announced a plan for monetary
\nstabilization and liberal economic reforms, the Malaysian
\ngovernment decided to sink tens of billions of dollars in pursuit
\nof the tough policy adopted by Prime Minister Mahathir Mohamad.<\/p>\n
The most significant step announced by Indonesian Finance
\nMinister Mar'ie Muhammad was the lifting of a 49 percent limit on
\nforeign ownership in listed firms on the Jakarta bourse.<\/p>\n
On the other hand, said the chief economist of a foreign
\nbusiness bank in Singapore, "basically, what Malaysia is saying
\nto foreign investors is: We don't want you."<\/p>\n
Instead of propping up trading, the creation of a 60-billion
\nringgit (US$20.4 billion) public fund to aid local investors led
\nto a new plunge of the Kuala Lumpur stock market.<\/p>\n
Foreign investors are "clearly exasperated" the economist
\nsaid, adding, "they have decided they don't want to invest in a
\ncountry when they don't know the rules anymore."<\/p>\n
He predicted "a blood bath in the currency market" where the
\nringgit could drop to 3.2 to the dollar. The greenback breached
\nthe three-ringgit threshold Thursday.<\/p>\n
Philipp Moffitt, executive vice president of Tokai Asia
\nLimited in Hong Kong said there was nothing that could stop the
\nMalaysian authorities from closing the market.<\/p>\n
But other Southeast Asian countries, especially Thailand,
\nunder virtual diktat of the International Monetary Fund, will
\ncertainly not follow in the footsteps of Mahathir, experts said.<\/p>\n
"I hope that when growth comes back, financial deregulation
\nwill follow," said Mushkat.<\/p>\n
In fact, he said, "the results generated thus far provide very
\nlittle support for the view that financial development is a key
\nfactor in driving economic growth."<\/p>\n
That is to say the temporary slow-down in financial
\nliberalization would have only a modest effect on growth in Asia.<\/p>\n
"Engineering a recovery, particularly on the export front, is
\nthe principal challenge facing the region," Mushkat said.
\nBut, he said, failure to speedily tackle systemic faults in
\nbanking could delay economic recover, as shown by the experience
\nof Japan, which has been in semi-stagnation since 1990.<\/p>\n
However countries such as Thailand, Indonesia and the
\nPhilippines "are more willing than Japan to open their
\neconomies," Mushkat said, adding, "Japan is a different animal."<\/p>",
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