G-7's FSF promises not to overlook Asian concerns

G-7's FSF promises not to overlook Asian concerns

HONG KONG (Reuters): The chief of a G-7 watchdog on global financial stability assured Asian central bankers on Saturday their views would be considered in its work to help avert crises.

Financial Stability Forum (FSF) chairman Andrew Crockett, who also heads the Bank for International Settlements, was responding to concerns that rich nations were not sufficiently aware of the impact of hedge fund activities on small, open economies.

"They were very anxious that the Financial Stability Forum not overlook this concern...," Crockett said after a meeting in Hong Kong with representatives of 11 central banks.

"I think I was able to assure them that this was a concern that was understood by the FSF and that we have a group working on that problem."

Crockett, briefing reporters about his talks with the bankers here, said a few Asian central banks were participating in the working group.

The FSF was initiated by the G-7 club of rich nations in February after financial crises in Asia, Russia and Brazil raised concerns about the damaging effect of speculative capital flows.

Worries about financial stability deepened in September when a huge U.S.-based hedge fund, Long Term Capital Management, nearly collapsed when volatile markets turned against it.

In the talks in Hong Kong, Asian central bankers have expressed concern that rich nations in the FSF would focus predominantly on the impact on developed markets.

"What I could not say to them was that I knew exactly how the discussions (within the FSF) would come out," Crockett said.

The FSF has invited Hong Kong, Singapore, Australia and the Netherlands, as major financial centers, to participate in its meetings. The next gathering will be on September 15 in Paris.

Crockett said some Asian central bankers he had met on Saturday favored an expansion of the forum to include smaller, open economies which were particularly vulnerable to the activities of hedge funds and other highly leveraged investors. But he said this was not on the cards.

"I hope we will involve in some fashion all of the countries that have a significant interest in financial stability and that obviously involves countries that are vulnerable to financial crisis," Crockett said.

FSF membership needed to be restricted to allow participants to have open discussions and reach agreements, he said. The forum could be expanded but was unlikely to include smaller economies.

The FSF aimed to keep lines of communication open with small economies, including those in Asia.

"I don't think we are contemplating a formal liaison body, but what we would like to do is deepen our relationship with central banks in the region," said Crockett, adding the group also aimed to foster communications with the private sector.

Crockett's meeting followed a one-day Executives' Meeting of East Asia-Pacific Central Banks in Hong Kong on Friday.

The group comprises central banks and monetary authorities from Australia, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore and Thailand.

The BIS will hold its monthly meeting in Shanghai on Monday and will discuss the outlook for the global economy, developments within the FSF and progress in bank restructuring and other financial reform, Crockett said.

"There has been concern expressed in the past, and it was also expressed in this morning's meeting, that as the recovery gathers pace, the impetus for carrying out reforms in the financial systems may slip. So I think the governors will want to encourage each other not to let the momentum slip," he said.