Doubts linger over Asia’s progress, 10 years on from its crisis
Leading economists argue that emerging Asian economies face stagnation if policy-makers continue to focus on insulating their financial systems at the expense of deeper economic reforms.
Former US Treasury secretary Larry Summers issued a stark warning in an interview with Emerging Markets earlier this year, that the problems that confronted Japan in the 1990s await much of Asia, as finance chiefs concentrate on the symptoms of past financial crises at the expense of addressing underlying causes.
“The concerns now are less about a repeat of the 1997 Asia crisis and more about the kind of failing that Japan experienced throughout the 1990s, where the aftermath of a period of easy money and reserve accumulation directed at exchange rate objectives proves to be the unearthing of weaknesses in the financial system and significant deflation,” Summers said.
Excessive focus on exchange rate coordination at the expense of currency liberalization could set the stage for a new regional crisis, he added.
His views were echoed by New York University economics professor Nouriel Roubini. “Asia has learned the wrong lessons [for its financial crisis],” he said. “They should stop accumulating reserves and let their currencies appreciate.”Roubini warned that Asia remains overly dependent on Chinese growth, which in turn is vulnerable to a hard landing for the US economy, the risks of which have grown in the wake of the sub-prime crisis.
“There is too much worry about how to manage foreign exchange reserves when that’s really fighting the last battle,” Roubini said. “The problem is a fixed exchange rate system that could unravel if there is a hard landing in the US.” —T.A.