Asian reforms 'hurt by financial flaws'

Asian reforms 'hurt by financial flaws'

KUALA LUMPUR (Bloomberg): Malaysian Finance Minister Anwar Ibrahim reiterated yesterday that the international financial system is flawed and would be the main stumbling block to Asia's recovery efforts.

"The sudden surge in capital flows show how currency traders and international hedge funds can drastically create real havoc" to countries' currencies, he said at a Muslim Rulers' conference. The system "is lop-sided and bent on favoring the rich economies and needs to be re-adjusted."

Countries such as Indonesia and Thailand are struggling with recessions as a plunge in their currencies sparked higher interest rates and forced companies to the brink of bankruptcy. Malaysia, too, is caught in Asia's economic downturn and is set to slide to its first recession in 13 years.

This is the second time that Anwar -- who today described Malaysia's economic troubles as the "worst in its history" -- has drawn attention to problems in the international financial system. He made his first remarks in New York in April at a conference on the Asian economic crisis.

While Asia's economies have been called upon to raise interest rates, open up their economies and provide more disclosure, the "same treatment" should be leveled on "hedge funds and currency trading," Anwar said. "You want disclosure (from us), you disclose," such as "where the funds are from."

Still, he doesn't expect the international financial system to change anytime soon. If "the rich benefits, don't expect the ground rules to change, to them it's not a moral issue, it's the dollar issue."

Anwar also echoed views of Prime Minister Mahathir Mohamad, a critic of the International Monetary Fund, that IMF conditions for giving loans to countries such as Indonesia are too tough and did more harm than good.

International financial institutions shouldn't make the prescriptions "into a new theology" that must be "implemented at all costs without understanding the complexities and peculiarities of each country," said Anwar.

While he acknowledged that there were problems in Indonesia, "fundamentals alone could not have resulted in such destruction" on Indonesia, he said. "You don't condemn the whole society to abject poverty."

The World Bank said in July that Indonesia's economy is expected to shrink as much as 15 percent this year, inflation will skyrocket to 80 percent and the number of Indonesians living in poverty could double.

Indonesia's turmoil culminated in riots which broke out in May and forced Soeharto to resign as president.

Separately, Anwar said more measures to boost the economy will be "announced later." He didn't elaborate. His statement comes after Mahathir said during the weekend that Malaysia may implement measures that "appear drastic" in a bid to revive the country's economy.