Emerging markets can no longer rely on 'rich uncles'

Emerging markets can no longer rely on 'rich uncles'

By Devi M. Asmarani

KUALA LUMPUR (JP): Emerging markets in Asia can no longer rely
on the United States, Japan and Western Europe to play the role
of "rich uncle" to get them out of a crisis, according to Moody's
Investors Service.

Speaking at the Association of Southeast Asian Nations (ASEAN)
business forum here Wednesday, the managing director of the U.S.-
based rating agency, Vincent J. Truqlia, said the world's three
giant markets had gone through significant changes and could no
longer be the source of reliance for countries in need of
assistance.

"The unwillingness of the U.S. to play the role of world
creditor, Japan's unwillingness and inability to the play the
role of the world's rich uncle, and Western Europe's inward
focus, all together mean that emerging markets cannot count on
these markets to provide the stimulus necessary to turn around
their economies," he said when delivering his paper Tuesday.

Truqlia said East Asian countries could not get out of their
own economic quagmire only through competitive devaluations, but
through the simple pursuit of fiscal rectitude.

In the past, Latin America and Eastern Europe could devalue
and retrench to turn their fortunes around because the U.S. was
profligate enough and Japan confident enough for each to
contribute in its own way to maintaining world demand, he said.

If East Asia followed this orthodox approach today, the region
could spiral into deflation, which -- if left unchecked -- could
prove powerful enough to drag down economies outside the region,
he said.

Truqlia said the downward movement in the region's exchange
rates would have some very powerful negative effects upon the
ability of Latin American and Eastern European countries to
compete with the region's economies, he said.

Thus, there would be no way that even the U.S., Japan and the
rest of the developed world could avoid the contagion, he said.

Speaking during the three-day forum, Japan's former vice
minister of finance, Makoto Utsumi, called on Asian countries to
set up a system that would enable them to act in a harmonized
way.

Utsumi, also an academic at Kaio University, said that the
coordinated action could be taken whenever markets tended to move
in a direction that was not supported by fundamentals.

"This kind of action should be backed by constant dialog
concerning policy coordination among different countries," he
said.

The dialog should not be unilateral in which certain policies
of one country are forced onto another, he said.

Utsumi also warned that foreign exchange matters should never
be used as a weapon for bilateral or multilateral negotiations.

"We have witnessed how the moves between the U.S. and Germany
triggered the so called 'Black Monday' of 1987, or how the
'strong yen card' of the U.S. administration affected and
confused the markets," he said.

Utsumi said monetary authorities must not concentrate only on
one direction that the market was focussing on, in their effort
to strengthen their currencies.

Authorities tended to feel relieved and stopped intervention
as soon as the market seemed to indicate a small trend reversal,
he said.

"Interventions are not always successful when done against the
wind, while its effects are greatest when done with a following
wind," he said.

The chairman of the Capital Market Supervisory Agency
(Bapepam), I Putu Gede Ary Suta, told the forum yesterday that
Indonesia needed to create future and option markets so that both
foreign investors and local borrowers could hedge against the
risk of unexpected change in the economy.

"In recent years, many Indonesian firms borrowed in other
currencies, expecting the continuation of a policy of gradual
devaluation of the rupiah," Putu said.

Recent regional currency fluctuations would have affected
Indonesian businesses far less if companies had had the
opportunity to hedge currency risks in an organized futures and
options market, he said.

He said the Surabaya Stock Exchange (SSX) was now taking
initial steps to organize such a market.