Asian economies face the danger of meltdown unless they coordinate policy responses to the global crisis more closely, Japanese finance minister Kaoru Yosano warned yesterday in Bali.
We need to be prepared for sudden shifts in the real economy and swings in capital flows, Yosano cautioned.
Yosano announced $100 billion of Japanese bilateral aid to help Asian countries cope with the crisis. This will take the form of $60 billion of bilateral yen-swap liquidity plus a $38 billion contribution to the enlarged Chiang Mai Initiative and 500 billion yen of Japanese guarantees for Asian government wishing to issue yen-denominated Samurai bonds in Tokyo.
The Japan Bank for International Cooperation will meanwhile sign a memorandum of understanding with the ADB to coordinate trade financing initiatives, Yosano said. Japan is offering $6 billion to help free seized-up trade financing facilities in the region and the ADB is offering $1 billion which is hopes will grow to $15 billion by catalysing outside money.
The Japanese finance ministers fears about continuing fallout in Asia from the global crisis were echoed by Indonesian finance minister Sri Mulyani Indrawati, who stressed the dangers of capital flight and renewed speculation against some Asian currencies.
Memories of 1997 are coming back, she said, even though Asia has greatly improved its financial fundamentals since the last Asian crisis. Fighting off spillover from a global crisis which is not of their own making is one of the most challenging tasks facing Asian policymakers at present, Indrawati said.
Chinas deputy finance minister Li Yong also called for increased regional cooperation in tackling the crisis. Asian countries should work together to devise effective mechanisms of financial cooperation and in promoting development, said Li.
The need to rebalance demand in Asian economies between exports and domestic consumption is emerging as major theme of the ADB annual meeting. Financial leaders acknowledge that, unlike the situation at the time of 1997 Asian crisis, countries cannot hope to export their way out of trouble this time.
Yosano offered a partly dissenting view, however, during a seminar on the global financial turmoil and its implications for Asia. He agreed that it was necessary for Asian governments to pump up domestic demand through fiscal stimulus and other means but he insisted that exports will continue to play a central role in Asias overall economic activity.
He called on the ADB to redouble its efforts to help Asian countries to become less vulnerable to fluctuations in external demand. Asian economies need all the help they can get to avoid meltdown, he added.