Asia Still Faces Risks 10 Years After Recovery

MANILA, Philippines -- Asia faces risks of new financial shocks despite its remarkable recovery from the 1997-98 financial crisis, and regional cooperation is vital to keep the region strong, Asian Development Bank officials said Monday.

Speaking on the 10th anniversary of the crippling financial meltdown, Haruhiko Kuroda, president of the bank, said that countries affected by the crisis have fortified their economic foundations, put in place reforms and accelerated economic regional cooperation.

However, the region face the possibility of more bouts of financial market volatility as capital inflows and outflows have reached a historic high of about 8 percent of the gross domestic product of Asia's six large emerging economies.

"While Asia has done well to recover from the crisis and post robust growth in recent years, several challenges remain," Kuroda said.

Story Continues Below

"In the near future, the prospects of economic growth in the U.S. and the world, global payments imbalance, and pace of unwinding global liquidity pose risks and challenges to the Asian economic outlook," he said.

Among the areas of concern is the region's accelerating accumulation of foreign currency reserves and how to manage those reserves efficiently to meet Asia's needs for increased infrastructure investment, Kuroda said.

Another question is how the region can protect its savings — much of which is invested in U.S. Treasuries — should there be a sudden correction in global imbalances that would threaten their underlying value.

"One thing that does seem clear is that regional approaches are vital to keep Asian economies strong in the face of such threats _ and to take advantage of new opportunities," Kuroda said, adding the only logical way to move forward was to use subregional cooperation as a building block to an eventual wider and more broad-based regional integration.

Thailand's Finance Minister Chalongphob Sussangkarn said the crisis _ which started in Thailand on July 2, 1997, with a plunge in the baht and quickly spread through the region _ provided many lessons that led to crucial economic and financial reforms that have made financial institutions more resilient to risks.

Malaysia's central bank Gov. Zeti Akhtar Aziz said common elements like economic flexibility, extended periods of economic stability, high savings rates that serve as a buffer and a young and dynamic work force have helped the region respond to crises.

"Regional cooperation and integration will play a key role in the future of Asia," she said, adding that financial integration will help Asia channel its huge savings to productive investments.

She called for an increased regional surveillance and an integrated response. International financial institutions should reinforce national economic and financial reforms with reforms at the international level, she said.

The crisis that started in Thailand 10 years ago sparked recessions across Asia and rattled global markets. From South Korea to Indonesia, millions were thrown out of work as investment and real-estate bubbles burst.

Today, Asia once again has emerged as the fastest growing region in the world, the Manila-based ADB said.

Editor's note:
Chief Economist: India Is Best Investment In Asia
4 Foreign Currency Plays to Beat the Falling Dollar.
Buffett: The best book ever written on investing.