UN warns Asian economies face new threats
THAILAND: Asian economies face new threats that could destabilise the
region, despite the current boom that resulted from success in
overcoming the 1997 financial crisis, a top UN official said Monday.
Some of the risks now facing the region are similar to those that
preceded the 1997 crisis, which began in Thailand and spread around
Southeast and East Asia, said Kim Hak-Su, the head of the UN Economic
and Social Commission for Asia and the Pacific.
A global liquidity bonanza, inflated asset values, and tremendous
speculative pressures on regional currencies could again destabilize
regional economies, Kim said.
"Globalisation, along with its many benefits, exposes economies to
quick and harsh risks from the constantly shifting international
environment," he said in a speech opening a conference on the 10 years
since the 1997 meltdown.
Kim urged governments around the region to ensure flexibility in
exchange rates, adding that central banks should also be clear about
their exchange rate policies.
"Greater flexibility would help take away the 'one-way bet' that
encourages even more capital inflows than would otherwise take place,
since markets would quickly realize that the currency could move in
either direction," he said. Kim said countries around the region could
weather future shocks by ensuring solid macroeconomic fundamentals,
developing healthy financial sectors, having robust microeconomic
foundations, and improving regional cooperation.
Thailand was the epicenter of the 1997 meltdown when excessive
borrowings in US dollars coupled with high interest rates forced the
Thai government to float the currency, which then promptly collapsed
along with the economy. The baht nosedived to 56 to the dollar from 25,
took the Thai economy with it and then sent a tidal wave of debt and
default sweeping across the region which cost billions of dollars to put
right.
Over late 1997, the contagion spread unchecked, hitting Southeast
Asia first, with Malaysia and Indonesia the worst affected as their
currencies and then economies crumpled before the onslaught.
Then it was the turn of South Korea - an apparently strong economy
whose Achilles heel of massive debt forced the government to go to the
International Monetary Fund for a huge and humiliating bailout.
All the while, the shockwaves reverberated around the region,
sparking a concerted attack on the Hong Kong government's cherished
dollar-peg currency system in mid-1998.
Bangkok, Monday, AFP |
