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.