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.