Remote chance of crisis hitting Asia again: PERC

Remote chance of crisis hitting Asia again: PERC

SINGAPORE (AFP): Asian countries remain dogged by problems
arising from the 1997 financial crisis but these are not likely
to trigger another collapse in the region's economies, a report
said Monday.

There is still volatility in Asian currency markets but
attempts to contain such fluctuations through the basket approach
are not necessarily the solution for Asia, according to the
Political and Economic Risk Consultancy (PERC).

It warned against including the euro in the currency basket
comprising the U.S. dollar and yen.

"Adding the euro to this basket would not help promote the
goal of greater exchange rate stability," PERC said in its latest
Asian Intelligence report entitled "Asian Exchange Rate
Volatility."

"To the contrary, with the euro moving one way against the
dollar and the yen the other way, putting the euro in the basket
would work against the interests of countries like Taiwan and
Korea, which are mainly concerned with finding a proper balance
between the dollar and the yen in order to maintain their export
competitiveness," it said.

Asian economies are now fundamentally stronger than when the
crisis erupted in 1997, it said.

"Today, virtually every Asian country still has major systemic
problems, but they are different from the ones that existed four
years ago and are not so far out of line with market forces that
they are likely to spark another region-wide exchange rate
crisis," PERC said.

"The sharp corrections that occurred in most Asian economies
in 1997 and 1998 caused most governments to institute important
policy reforms," it said.

"Local banking systems, while still weak, have not been piling
on new debts," it added.

The profile of the region's capital market has changed
markedly since Japanese corporations started repatriating their
capital, leaving most Asian countries -- major recipients of
Japanese capital investments -- less vulnerable, PERC said.

"No country in Asia has the exposure to short-term foreign
debt that it did four years ago," it said.

"Foreign reserves have, in most cases, been rebuilt to fairly
hefty levels.

"That capital inflow that is taking place is mainly in the
form of direct investment capital, not indirect investment
capital into local equity markets, which was the case back in
1997."

At the Asia-Europe Meeting held last month, Asia was urged by
Japan and France to include the euro and the yen in a new post-
crisis currency regime to reduce reliance on the greenback.

But an exchange rate regime is only successful when the
economy is supported by appropriate macroeconomic and structural
policies, PERC said.

A basket regime would not be effective in parts of Asia such
as Indonesia and the Philippines when it was governed by former
president Joseph Estrada, it said.

"There is too much political uncertainty," PERC said,
referring to Indonesia.

"Nor could such as system be effective in a place like the
Philippines when confidence was being sapped by a leadership
crisis such as the type that happened under Mr. Estrada," it
said.

But Asian politicians are likely to favor the basket approach
to manage the exchange rates as it gives "the impression of
greater currency stability in the near-term," PERC said.

This approach in the long-term would only encourage
governments "to revert to policies that result in greater
economic imbalances and systemic shortcomings that ultimately
lead to more radical exchange rate corrections," it added.