Emerging markets can no longer rely on 'rich uncles'<\/p>\n
By Devi M. Asmarani<\/p>\n
KUALA LUMPUR (JP): Emerging markets in Asia can no longer rely
\non the United States, Japan and Western Europe to play the role
\nof \"rich uncle\" to get them out of a crisis, according to Moody's
\nInvestors Service.<\/p>\n
Speaking at the Association of Southeast Asian Nations (ASEAN)
\nbusiness forum here Wednesday, the managing director of the U.S.-
\nbased rating agency, Vincent J. Truqlia, said the world's three
\ngiant markets had gone through significant changes and could no
\nlonger be the source of reliance for countries in need of
\nassistance.<\/p>\n
\"The unwillingness of the U.S. to play the role of world
\ncreditor, Japan's unwillingness and inability to the play the
\nrole of the world's rich uncle, and Western Europe's inward
\nfocus, all together mean that emerging markets cannot count on
\nthese markets to provide the stimulus necessary to turn around
\ntheir economies,\" he said when delivering his paper Tuesday.<\/p>\n
Truqlia said East Asian countries could not get out of their
\nown economic quagmire only through competitive devaluations, but
\nthrough the simple pursuit of fiscal rectitude.<\/p>\n
In the past, Latin America and Eastern Europe could devalue
\nand retrench to turn their fortunes around because the U.S. was
\nprofligate enough and Japan confident enough for each to
\ncontribute in its own way to maintaining world demand, he said.<\/p>\n
If East Asia followed this orthodox approach today, the region
\ncould spiral into deflation, which -- if left unchecked -- could
\nprove powerful enough to drag down economies outside the region,
\nhe said.<\/p>\n
Truqlia said the downward movement in the region's exchange
\nrates would have some very powerful negative effects upon the
\nability of Latin American and Eastern European countries to
\ncompete with the region's economies, he said.<\/p>\n
Thus, there would be no way that even the U.S., Japan and the
\nrest of the developed world could avoid the contagion, he said.<\/p>\n
Speaking during the three-day forum, Japan's former vice
\nminister of finance, Makoto Utsumi, called on Asian countries to
\nset up a system that would enable them to act in a harmonized
\nway.<\/p>\n
Utsumi, also an academic at Kaio University, said that the
\ncoordinated action could be taken whenever markets tended to move
\nin a direction that was not supported by fundamentals.<\/p>\n
\"This kind of action should be backed by constant dialog
\nconcerning policy coordination among different countries,\" he
\nsaid.<\/p>\n
The dialog should not be unilateral in which certain policies
\nof one country are forced onto another, he said.<\/p>\n
Utsumi also warned that foreign exchange matters should never
\nbe used as a weapon for bilateral or multilateral negotiations.<\/p>\n
\"We have witnessed how the moves between the U.S. and Germany
\ntriggered the so called 'Black Monday' of 1987, or how the
\n'strong yen card' of the U.S. administration affected and
\nconfused the markets,\" he said.<\/p>\n
Utsumi said monetary authorities must not concentrate only on
\none direction that the market was focussing on, in their effort
\nto strengthen their currencies.<\/p>\n
Authorities tended to feel relieved and stopped intervention
\nas soon as the market seemed to indicate a small trend reversal,
\nhe said.<\/p>\n
\"Interventions are not always successful when done against the
\nwind, while its effects are greatest when done with a following
\nwind,\" he said.<\/p>\n
The chairman of the Capital Market Supervisory Agency
\n(Bapepam), I Putu Gede Ary Suta, told the forum yesterday that
\nIndonesia needed to create future and option markets so that both
\nforeign investors and local borrowers could hedge against the
\nrisk of unexpected change in the economy.<\/p>\n
\"In recent years, many Indonesian firms borrowed in other
\ncurrencies, expecting the continuation of a policy of gradual
\ndevaluation of the rupiah,\" Putu said.<\/p>\n
Recent regional currency fluctuations would have affected
\nIndonesian businesses far less if companies had had the
\nopportunity to hedge currency risks in an organized futures and
\noptions market, he said.<\/p>\n
He said the Surabaya Stock Exchange (SSX) was now taking
\ninitial steps to organize such a market.<\/p>",
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