Asia woes more complex than Mexican, says BIS

Asia woes more complex than Mexican, says BIS

BASEL, Switzerland (AFP): Turmoil on Southeast Asia's
financial markets is broader-based than the Mexican crisis of
1995 and could have broader repercussions, the Bank for
International Settlements (BIS) said yesterday.

In a report on banking and finance in third-quarter 1997, the
BIS -- effectively the central bank of the world's central banks
-- pointed out that Japanese banks particularly were in an
exposed position.

"In contrast to the Mexican crisis of 1995, which was heavily
biased toward public sector debt, the recent Southeast Asian
currency turmoil involved a wide spectrum of actors and
instruments," the report said.

"While this reflects the general tendency toward a
diversification of funding sources and the greater reliance on
private sector financing, it also means that it will be
increasingly difficult for official financial assistance to
insulate creditors and debtors from the adverse consequences of
poor investment decisions."

Noting the "large exposure" of a number of banking groups in
the region, and of Japanese banks in particular, the report said
this "suggests broader potential repercussions."

July 1997 figures indicated that, as of the end of 1996,
Japanese banks held 35 percent of international banking debts in
Asia, including Hong Kong and Singapore, and 53 percent in
Thailand alone.

The Thai crisis stemmed from a rigid exchange system and
macroeconomic and financial imbalances, in which excessive
banking credit expansion accentuated the fragility of the local
financial system, the BIS said.

The resulting shock wave in other countries of the region was
due mainly to fear of a loss of competitiveness with the
depreciation of the baht, the BIS said, although it acknowledged
that fundamentals in Indonesia, Malaysia and the Philippines also
showed weakness.

The report pointed out that market forces had ignored signs of
impending trouble, saying: "Several reasons have been given for
the persistence of large-scale inflows to the region.

"One was the apparent firm commitment by the national
authorities to preserving the external value of the domestic
currency, which maintained the attractiveness of local assets.

"Another was the ongoing process of deregulation, which in the
short term acted as an incentive to further inflows," it said.

A third factor was that, given worldwide liquidity, the range
of investors expanded.