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.