Asia on the mend, but bankers still laid low

Asia on the mend, but bankers still laid low

SHANGHAI, China (AFP): The worst of the Asian financial crisis
which rocked global markets two years ago may be over, but
international central bankers gathering here this week still have
plenty to mull over.

Exchange rates, international monetary cooperation, bank
restructuring and financial reform are among some of the broad
topics up for discussion at Monday's Shanghai meeting of the Bank
for International Settlements, a BIS official told AFP.

International central bank chiefs attending the gathering are
also expected to look at banking supervision and Year 2000
computer bug compliance, the official said.

Signs of an Asian economic rebound have prompted some analysts
to question if governments still have the will to pursue
financial reform and bank restructuring.

"The issue of restructuring is not diminished by the fact that
there has been some recovery in evidence," said the official, who
spoke on condition of anonymity.

Attempts so far to increase capital levels, make balance
sheets more transparent and improve the regulatory and
supervision functions of central banks have been viewed
positively, he added.

The restructuring of China's banks -- which have a huge burden
of bad debt as a result of years of government-directed lending
to loss-making state enterprises -- is being closely watched by
the BIS, analysts note.

"China is an anchor of stability in the region and the
Europeans are also the largest creditor group to China," said Chi
Lo, China economist at HSBC in Hong Kong.

"About 42 percent of the total foreign loans extended to China
last year came from Europe," he said, citing international
banking estimates.

Regional central banks are also struggling to keep their
currencies weak to support the export-led recovery, even as the
euro falls to new lows against the dollar.

Asian countries are keen that China -- whose exports slumped
5.3 percent from January to May -- does not devalue the yuan and
spark a new Rnuld of devaluations across Asia following the mid-
1997 crisis.

With the euro almost down to parity with the dollar, European
nations would like Asian central banks to pile some of their huge
foreign exchange reserves into the fledgling currency.

"Central banks from Europe want to talk about the future of
the euro," said Arthur Lau, deputy head of financial institutions
at ratings agency Fitch IBCA.

"Some Asian central banks have talked about whether they want
to put some of their reserves in the euro, but the currency is
really weak right now," he said.

Japan and China have the two largest foreign exchange reserves
in the world. Japan had US$223.7 billion at the end of May while
China had $146.6 billion as of end March.

The BIS, dubbed "the central banks' central bank," currently
manages about $120 billion worth of reserves, a large portion of
which is from Asia.

Pending board approval, it is also planning to open a "trading
room" to handle investments for Asian central banks, said the BIS
official.

The Shanghai meeting is only the second time that the Swiss-
based BIS has moved beyond its Basel headquarters for its monthly
meeting. The first time was a year ago in Tokyo.

The BIS also had an informal meeting in Hong Kong in January
which agreed that Asia was "on the mend" but that e forts to
shore up shaky banking systems needed to continue.

Central bank governors from leading industrialized nations are
expected to meet informally on Sunday afternoon, and will be
joined by their Asian counterparts in Monday's formal sessions.