Asian bankers vow vigilance amid recovery

Asian bankers vow vigilance amid recovery

KUALA LUMPUR (Reuters): Asian central bankers on Thursday took
heart from the region's economic recovery but cautioned against
relying on the United States and Europe as engines of growth and
vowed to keep close watch on capital flows.

Governors from the 11-member Southeast Asian Central Banks
(SEACEN) organization, meeting in Malaysia's capital, called for
closer cooperation among the region's central banks to ensure
capital flows did not damage their resurgent economies.

They also lamented that their call for reform of the global
financial system had not borne fruit and appeared to have been
brushed aside by Group of Seven industrialized nations.

SEACEN comprises the central banks or monetary authorities of
Indonesia, Malaysia, Mongolia, Myanmar, Nepal, the Philippines,
Singapore, South Korea, Sri Lanka, Taipei and Thailand.

Observers from Cambodia, Fiji, Papua New Guinea and Tonga
attended SEACEN's annual meeting, and Banco de Mexico governor
Guillermo Ortiz appeared as a guest speaker.

Malaysian Finance Minister Daim Zainuddin kicked off the
meeting by saying the trend of rising interest rates and tighter
liquidity in the United States and Europe would hit Asia.

"While global growth may continue to be supportive, the
current trend of rising interest rates and tightening liquidity
conditions in the U.S. and Europe will certainly have
implications on capital flows to Asia," Daim said.

Daim said the U.S. economy, which was growing on the back of
productivity gains and output growth in the computer industry,
might not be able to sustain rapid growth.

"In addition, fears of an overvalued U.S. stock market are
compounded by global deflationary pressures which are already
affecting the profitability of American corporations. Hence, the
concern that a major correction may occur," he said.

Chol-Hwan Chon, governor of Bank of Korea, said Asian
economies had survived the crisis that erupted in mid-1997.

But he said they now needed to manage capital flows to achieve
stability and spur growth, without abandoning the goal of
economic liberalization.

Malaysia, which imposed capital controls in September 1998 to
stem the outflow of foreign exchange during the Asian crisis,
said countries should be allowed to adopt unorthodox exchange
control measures and not be punished for their actions.

Daim accused G-7 nations of turning a deaf ear to calls by
developing nations for the reform of the global financial system.

The Five Asian countries later on the day renewed an agreement
whereby they would provide short-term financial assistance to one
another in the event of currency turmoil.

The year-old agreement, first signed in South Korea, was
renewed Thursday by the central bank governors of Indonesia,
Malaysia, the Philippines, Singapore and Thailand. The pact is
for a period of one year.

The governors are meeting Thursday and Friday outside Kuala
Lumpur at the 35th Conference of Governors of Southeast Asian
Central Banks, called SEACEN.

Ali Abul Hassan Sulaiman, governor of Bank Negara Malaysia,
said the short-term loans would be relatively small but didn't
give a figure.

If more money is needed by a country in the event of a crisis,
he said, the country would have to go to the International
Monetary Fund.

An example of how the agreement would work, he told reporters,
was during the regional financial crisis that began in 1997.
Then, five countries lent a total $1 billion to Thailand to help
the central bank stem the fall in the baht.

The agreement signed Thursday is referred to as a currency
swap agreement.