Adb May Join Imf Surveillance System On Financial Crises

The Asian Development Bank (ADB) is likely to participate in an IMF-sponsored surveillance mechanism aimed at providing warning to member countries about any impending financial crisis.

ADB president Mitsuo Sato said yesterday that such a system would help member countries develop prudent financial norms and insulate them against any financial crisis such as the currency turmoil in several South-East Asian nations.

As a key multilateral institution in Asia, we have to help member countries in case of difficulties, he said.

Tracing the origin of the East-Asian currency crisis, Sato said it was the outcome of a double squeeze where external events coupled with internal factors such as the absence of an effective monitoring mechanism.

The currency crisis does not mean in any way the end of the South East Asian miracle, he said referring to the high growth rates shown by the countries in South East Asia which had earned them the acclaim of Asian Tigers.

He parried the question on whether ADB would participate in the proposed Asia fund for bailing out ailing economies in Asia particularly those hit by the East Asian currency crisis. The idea was mooted at the Fund-Bank meeting in Hong Kong in September this year by Malaysia which, however, met with stiff resistance from some of the donors to the multilateral institutions.

ADB has in the recent past participated in the IMF led rescue packages for Thailand and Indonesia.

Commenting on the inflow of foreign funds in Asia, the ADB president said that the money being brought in is not being used efficiently and there is lack of a regulatory mechanism to check this trend.

While expressing difficulty over adopting a regional capital adequacy norm, Sato said the region has countries with varying economic background and hence the difficulty in putting in place a uniform adequacy norm.

Expressing confidence that the South East Asian nations would show sufficient resilience to recover from the currency crisis, Sato said the basic growth impulses are still strong in these economies.

Asked whether ADB would revise its growth outlook for Asia since the currency crisis had hit the South East Asian economies, Sato said the ADB would make its projections taking this into account.

Earlier, speaking at the ADB sub regional seminar on emerging Asia, Sato said although open markets and deeper global integration have generally served Asia well in the past.

Some of the risks of globalisation are now being starkly illustrated in South East and East Asia. It is important that South Asia draws the correct lessons from this experience, he said.

The ADB president, quoting a study by the bank, said improved policies, better governance structures and more favourable demographics could cause growth in South Asia to accelerate to around 4.5 per cent in the next 30 years.

He said such growth would offer immense opportunities for reducing poverty and improving the quality of life across South Asia.

Referring to financial systems and their adequacy, Sato said recent events have shown that exposing frail and immature financial systems to international capital markets can invite imprudent and undisciplined behaviour.

But difficulties of the magnitude that are now being disclosed were only possible because of the underlying deficiencies in governance structures and in the banking sector practices, he said.

While open capital accounts will magnify the costs of financial sector weaknesses, keeping capital accounts closed risks missing out on the wealth creating opportunities that full participation in the global economy offers, the ADB president said.