Asian economies not out of the woods yet
Asian economies not out of the woods yet
SINGAPORE (DPA): The economies of Asia are not out of the
woods yet with important and difficult work lying ahead to ensure
stable banking and financial systems, a key U.S. banker warned on
Friday.
William McDonough, president of the Federal Reserve Bank of
New York, said meaningful headway has been made in Thailand,
Indonesia, Malaysia and South Korea toward recapitalizing the
banking systems, ridding balance sheets of problem assets, and
improving supervisory frameworks.
The recovery process from the economic crisis which erupted in
mid-1997 is currently at a "critical juncture" with effective
supervision the "crucial cornerstone," he told the Monetary
Authority of Singapore, the de facto central bank.
On the positive side, the economic contraction that devastated
so many in the region has generally been halted, McDonough said,
noting that equity markets have rebounded and foreign capital has
begun to return.
"It must also be acknowledged that the economies of Asia are
not out of the woods just yet," he said. "Important and even
difficult work still lies ahead."
While acknowledging there is no quick-fix, McDonough said the
essential elements are effective bank-level management, market
discipline, and official supervision.
"Here in Asia ... more work needs to be done to improve the
quality of disclosures regarding traditional banking activities,"
McDonough said. "Transparency bolsters the confidence of
depositors and other creditors and therefore makes doing business
easier and more secure."
Official supervision is needed to enforce compliance with laws
and regulations and assure that prompt corrective actions are
taken when serious problems are identified, he said.
"Because of the inherently partisan nature of politics, and
for other reasons as well, the government or state is not well-
equipped to make credit decisions," McDonough cautioned.
He said recent experience in Asia and before that in the
former command economies of Eastern Europe "makes clear just how
dangerous policy lending can be."
"Decisions as to who gets credit and who does not must be left
to private initiative within a context where those making the
decisions have a major stake, their own capital and economic
livelihood," he said.
If the system is working properly, McDonough said those
receiving credit will be the most efficient, competitive, and
profitable - those most capable of producing the stream of goods
and services that will enable the economy to grow."