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."