Asia not solely to blame for crisis: World Bank
Asia not solely to blame for crisis: World Bank
BANGKOK (Reuters): Asia should not accept blanket blame for
its economic crisis and should rather be proud of the decades of
world-class growth and poverty reduction its has achieved, the
World Bank's chief economist said on Thursday.
At the same time it should not ignore structural issues that
may have contributed to its vulnerability or weakened its
competitiveness, Joseph Stiglitz told a conference on the crisis
in Bangkok.
Thailand and other countries in the region should remain open
to the outside world but not subject themselves "blindly" to the
vagaries of short-term capital flows, he said.
They should also deepen participation in decision-making, a
key to social cohesion and to reducing inequalities.
Stiglitz said the "Asian Economic Miracle" had been real and
based on sound fundamentals and government policies.
"The crisis that beset the region over the past two years
notwithstanding, East Asia remains the best model for development
the world has probably ever seen," he said.
"Going forward, the countries must build on the strengths of
the past that led to the miracle, but at the same time address
those weaknesses.
Stiglitz said the level of criticism leveled at East Asian
countries had been puzzling.
"If the problems were so severe, how was it that the region
outperformed the rest of the world for a third of a century?"
But the crisis had shown the need for governments to act
strongly to minimize the downturn, to ensure maintenance of
spending aimed at the poor, and to design institutions that
reduced the economic vulnerability and protected the poor.
He said institutional reforms would be the core to sustained
growth in future and countries had been mistaken in pursuing
financial market liberalization when they should have
concentrated on regulatory steps.
"The dangers and inefficiencies of relying excessively on
capital adequacy standards and the weakness in the risk
adjustments and accounting frameworks that have been standards in
the past are increasingly being recognized," he said.
"Banks will need to move towards more comprehensive and robust
regulatory structures... Such regulations will include
implementing exposure limits on foreign-denominated liabilities
and assessing the exposure of the firms to which they lend.
"Restrictions on real-estate lending and other forms of risky
lending should almost surely be imposed. Speed limits (rates at
which portfolios can increase) also need to be considered."
Stiglitz said short-term capital flows were a major source of
instability and those not related to trade should be discouraged.
"It is perhaps worth noting that Malaysia's intervention to
stem the outflow of capital does not seem to have produced the
dire consequences that its ardent critics seem to have predicted,
and perhaps wished for," he said.