Banking transparency vital for recovery: Dornbusch<\/p>\n
JAKARTA (JP): Improved transparency in the banking sector
\nwould help restore confidence of both domestic and foreign
\ninvestors and bring about economic recovery, renowned
\ninternational economist Rudiger Dornbusch said here yesterday.<\/p>\n
From the external side, Dornbusch said, economic recovery in
\nIndonesia and other countries in the region would depend very
\nmuch on the recovery of Japan's economy from its current
\nfinancial crisis.<\/p>\n
\"I think the banking sector is the most important one to
\nprovide complete and unlimited information to the rest of the
\nworld,\" he said at the Prasetiya Mulya School of Management's
\n1997 anniversary lecture at the Jakarta Convention Center
\nyesterday.<\/p>\n
\"If that isn't done, then the crisis will get worse. And if it
\nis done, then it would be an important step to get out of it,\"
\nDornbusch added.<\/p>\n
He said a lack of transparency in most sectors, especially in
\nthe banking sector, still prevailed in countries currently hit by
\nthe currency crisis -- including Thailand, Indonesia, Malaysia
\nand South Korea.<\/p>\n
Most banks hid behind bank secrecy laws in those countries.
\n\"To hide mismanaged banks behind bank secrecy is quite
\nfantastic,\" he said.<\/p>\n
Transparency in the banking sector was important because it
\nwas bad debts, especially those derived from offshore loans,
\nwhich drove countries in the region into an abyss.<\/p>\n
Banks easily procured foreign loans, some even short-termed,
\nto finance unproductive projects, such as in the property sector.<\/p>\n
Unless banks in the affected countries opened their books to
\nscrutiny, foreign investors would never put their money back into
\nthose countries and domestic investors would not deposit their
\nmoney in domestic banks.<\/p>\n
Consequently the cost of funds would remain high, as would
\ninterest rates. Such a situation would primarily punish small and
\nmedium enterprises because they could not afford to procure
\ncredit.<\/p>\n
\"Actually, for the most part, the crisis is over. Now you are
\nin the work-out phase where you want to get the interest rates
\ndown.<\/p>\n
\"The best way to do that is for people to understand just what
\nthe books of companies and banks look like because if an investor
\ndoesn't know what its like, he doesn't want to touch it, and then
\nmoney is very expensive.<\/p>\n
\"When the public has a better understanding of the accounts,
\nthe interest rates will come down and the recession won't be
\nbad,\" he said.<\/p>\n
Dornbusch, a Ford professor of economics and international
\nmanagement at the Massachusetts Institute of Technology,
\nsuggested that Southeast Asian leaders collectively call on Japan
\nto mend its economy so that it could grow and absorb exports from
\nthe region.<\/p>\n
\"I draw attention to the Japanese problem as an extraordinary
\nproblem because it affects all Asian economies,\" he said.<\/p>\n
Japan is on the brink of a crisis following the collapse of
\nthe country's fourth largest securities firm, Yamaichi Securities
\n-- believed to be the greatest bankruptcy after World War II.<\/p>\n
Even if the Japanese government was capable of mending the
\nfinancial sector by taking over all bad banks and cleaning them
\nup, it would still be confronted with the issue of growth.<\/p>\n
\"If Japan doesn't grow, your crisis will become more intense,
\nand we may loose free trade,\" Dornbusch said.<\/p>\n
If Japan's economy did not grow, most emerging Asian economies
\nwould have problems in exporting most of their products as Japan
\nhad been a large traditional market for them.<\/p>\n
Consequently, all Asian economies would try to double their
\nexports to the United States or European countries, which would
\nlikely impose restrictions to reduce current account deficits.<\/p>\n
\"That's why Japan has to grow. If Japan doesn't grow, then the
\nUnited States and the European Union will get all of the
\nproblems. We don't want that much,\" he said.<\/p>\n
\"I'm surprised that leaders in the region talk nonsense about
\nestablishing an Asian Fund instead of about problems in Japan,\"
\nDornbusch said.<\/p>\n
It was wrong to concentrate on the Asian Fund as \"the issue is
\nnot to get rescue money but to clean up the system,\" he said.<\/p>\n
He contended that all Asian countries currently hit by the
\ncrisis already received rescue money from the International
\nMonetary Fund. Therefore, there was no need to establish such a
\nfund unless it would be used as an excuse to hide economic
\nmismanagement.<\/p>\n
It would take a few years for countries plagued with crisis
\n\"to clean up their mess\" and therefore growth would not reach the
\nlevel before the crisis came.<\/p>\n
Growth for the coming few years would reach two-thirds of the
\nlevel before the crisis provided that Japan's economy grew to
\nabsorb exports of Asian economies, Dornbusch said. If not, growth
\nwould surely be lower. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banking-transparency-vital-for-recovery-dornbusch-1447893297",
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