The 1997 Asian financial crisis is now 20 years behind the region but with corporate debt rising to record levels and market volatility threatening, key policymakers yesterday (Thursday, May 4) called for increased “vigilance” and monitoring in order to avert further catastrophes.
Sri Mulyani Indrawati, Indonesia’s finance minister, said Asia had become “more resilient” to shocks but added: “We must be vigilant to the danger of [fresh] shock and volatility coming from inside and outside the region.”
She stressed the need for better monitoring of corporate debt within the region. Her warning came in the wake of concerns voiced by the IMF, the Institute of International Finance (IIF) and others over soaring debt levels globally.
Global debt has reached $217tr, or a record 325% of world GDP, the IIF said recently, as a result of historically low interest rates, which have encouraged borrowing in expectation that the global financial environment will remain benign.
Debt accelerated sharply last year and much of the debt is located among emerging non-financial
corporations, the IIF said. Singapore, Hong Kong, Indonesia and Russia have “high levels of foreign exchange-denominated debt”.
David Rubenstein, co-chief executive officer of The Carlyle Group, the investment firm, also warned recently of a repeat of the 1990s crisis. He estimated there was $4.5tr in emerging market corporate debt that was dollar-denominated.
NEED FOR VIGILANCE
Asian economies have opened up to external capital flows, which have aided regional growth but at the same time exposed them to new financial shocks, Mulyani said at an ADB seminar on Thursday. “Globalisation has brought benefits but it can also create a disaster.”
The need for increased “vigilance” was also stressed by Junhong Chang, director of the ASEAN+3 Macroeconomic Research Office (AMRO), the regional surveillance arm of the Chiang Mai Initiative Multilateralisation (CMIM) launched in 2010 as a form of regional IMF for the Asia region.
Mainly at Japan’s insistence, the CMIM is prevented from disbursing more than 40% of its $240bn funds without approval from the IMF. But some ASEAN nations are pushing for this level to be raised so the CMIM can mobilise more liquidity in the event of further problems in Asia.
Ms Chang said “policymakers should remain vigilant in the face of globalisation [and of] growing risks in financial markets.”