Asian central banks urged to cooperate

Asian central banks urged to cooperate

KUALA LUMPUR (AFP): Asian central banks should seek an
institutional solution to combat future speculative assaults on
their currencies, Deutsche Bank Group chief economist Norbert
Walker said yesterday.

"If you could win over big banks in Taipei, Hong Kong and
Beijing which have foreign reserves amounting to almost 400
billion dollars... this is the kind of ammunition one should
look for," Walker told a news conference.

The Frankfurt-based economist said this would help to
"establish a convincing system of firefighters to avoid the next
crisis" following the plunge in Asian currencies after the Thai
baht's float on July 2.

While the spread of regional currency instability following
the Mexican peso's collapse in late 1995 was known as the
"tequila effect", Walker termed the recent turmoil across Asia as
the "sake effect" -- similar to the collapse of Japan's
overheated stock and property markets in the late 1980s.

Since early July, the Thai currency has lost more than a
quarter of its value while the Indonesian rupiah has plunged by
almost 20 percent. The Philippine and Malaysian currencies have
lost more than 10 percent each of their value while the Singapore
dollar has dropped by about six percent.

Walker said Asian economies had no "quick fixes" to curb the
current unrest in foreign exchange markets, predicting that
Thailand would have a particularly hard time until the first
quarter of next year.

But "Southeast Asia still has the potential to grow at rates
well above five percent," he said. "Thanks to the elephants such
as China and India pulling ahead, we don't see much of a downturn
for Southeast Asia.

"It's just that some small and medium-sized tigers catch the
virus and they will have a difficult digestion period during the
next half year or so. But they should be back on their feet
because their immune system is intact."

Walker said Asian economies should build up their labor forces
through education as current resources were not being put to
optimal use.

The high level of savings in Asia is also not being used
efficiently due to "distortions in the capital allocation," he
said, noting that there was "too much government interference in
the preferences of consumer and investors."

With its relatively free capital allocation, Hong Kong moved
"from pre-industrial to high quality services in a generation,"
he said. "That is the type of miracle that one should mimic to
increase productivity."