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.