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Policymakers downplay concern over repeat of 1997 fiscal crisis

Policymakers downplay concern over repeat of 1997 fiscal crisis
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First Published: Wed, Sep 17 2008. 11 47 PM IST
Updated: Wed, Sep 17 2008. 11 47 PM IST
Singapore: Asian policymakers from Japan to Thailand downplayed concern that the demise of Lehman Brothers Holdings Inc. and the crisis at American International Group Inc. (AIG) will trigger a repeat of the 1997 meltdown in the region.
“I don’t think a financial crisis will take place in Asia,” Bank of Japan governor Masaaki Shirakawa said in Tokyo on Wednesday. “The situation of Asian economies is different from the time of the 1997-1998 crisis. They have plenty of foreign reserves.”
The Asian financial crisis, set off by plunging currencies, led to the collapse of companies as they buckled under billions of dollars of debt, forcing Indonesia, Thailand and South Korea to turn to the International Monetary Fund for bailouts. The region has since accumulated more than $3.3 trillion (Rs152.8 trillion) of reserves, about half of the global total.
“It’s clear that Asia isn’t going to have an exchange rate or economic crisis,” said V. Anantha Nageswaran, head of research at Bank Julius Baer and Co. Ltd in Singapore and Mint columnist. “It won’t be immune to the global slowdown, but it isn’t as vulnerable.”
Lehman’s filing for bankruptcy and the government’s bailout of AIG sparked concern that the credit crisis may worsen and cause more financial failures. Still, the exposure of Asian banks to Lehman’s debt is relatively low and may not cause damage to financial systems, analysts said.
Potential losses of Japanese banks “seem to be within the levels that can be covered by their profits,” Shirakawa said on Wednesday. “There’s no concern that the latest events will threaten the stability of Japan’s financial system.”
Japan’s banks and insurers have announced a combined 245 billion yen ($2.3 billion) of potential losses tied to the collapse of Lehman.
Thailand, which triggered the Asian financial crisis with the devaluation of its baht in July 1997, faces no shortage of capital, central bank governor Tarisa Watanagase said, adding that the central bank is ready to inject funds if needed.
“Capital outflows may continue in line with the region as US companies repatriate funds,” Tarisa said. “But it may be short term because the Fed had already taken action, so the problems should be solved faster and the stock market will return to normal.”
South Korea may use its foreign exchange reserves to provide liquidity to the financial system when needed, vice-finance minister Kim Dong Soo said on Wednesday.
Reserve Bank of Australia governor Glenn Stevens said the nation’s financial system “is weathering the storm well” and company balance sheets are “very strong”.
Kevin Hamlin in Beijing contributed to this story.
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First Published: Wed, Sep 17 2008. 11 47 PM IST