67618
Most countries have taken steps to reduce foreign debt, making their economies less exposed should a sharp appreciation in the US dollar inflate the cost of repaying loans.
Most countries have taken steps to reduce foreign debt, making their economies less exposed should a sharp appreciation in the US dollar inflate the cost of repaying loans.

Asia Can Withstand Another Financial Crisis

Asia’s current account positions are much stronger, with most in surplus for several years now and the economies are again among the fastest-growing in the world

Asia Can Withstand Another Financial Crisis

The Asian nations hit hardest 20 years ago by a crisis that sent currencies and stock markets tumbling, saw governments fall and pushed millions back into poverty, now have some of the strongest buffers in the world.
But that resilience faces a fresh test. The world’s biggest central banks are either removing monetary stimulus or mulling ways to do so—the same backdrop that helped unravel the Asian miracle a generation ago. That could suck liquidity out of emerging markets, pressure currencies and raise the cost of dollar debt repayments, news outlets reported.
Asia’s currency reserves at well over $6 trillion make up more than half of the world’s holdings, led by China’s $3 trillion hoard. In 1996, Asia’s reserves were less than $1 trillion, leaving central banks short-handed when their fixed and managed currencies came under speculative attack from investors including George Soros. Most of the countries now have floating exchange rate systems, reducing pressure on central banks to defend a particular level of the currency.
Asia’s current account positions are much stronger, with most in surplus for several years now. The current account, which measures trade and financial flows including interest and dividend payments, is used by investors to gauge a nation’s resilience to a crisis.
Asian economies are again among the fastest-growing in the world, with countries such as the Philippines, India and China expanding more than 6% annually, Bloomberg reported.
Most countries have taken steps to reduce foreign debt, making their economies less exposed should a sharp appreciation in the US dollar inflate the cost of repaying loans.

Crisis Period
Twenty years ago, companies went bankrupt and governments from Thailand to South Korea were forced to seek bailouts from the International Monetary Fund when their tumbling currencies made servicing US dollar loans impossible.
The Asian crisis began when speculators brought down the Thai baht. Within months, the currencies of Indonesia, South Korea and Malaysia were also affected. The East Asian Miracle turned into an Asian financial nightmare.
In particular, the countries had recently liberalized their financial system in line with international advice. This enabled local private companies to freely borrow from abroad, mainly in US dollars. Companies and banks in Korea, Indonesia and Thailand had in each country rapidly accumulated over a hundred billion dollars of external loans. This was the Achilles heel that led their countries to crisis.

Lessons to Learn
Many of Asia’s economies have also gradually reduced their dependence on exports and become more reliant on rising consumption. Youthful populations in countries such as the Philippines and Indonesia are setting up what could be a demographic dividend if enough work can be found to swell the ranks of the middle classes there, staronline reported.
So today, 20 years after the crisis that erupted on July 2, 1997, when Thailand abandoned its currency peg, the region is again a favorite among investors, with global funds pouring about $45 billion into stocks and bonds in Indonesia, Malaysia, the Philippines, South Korea and Thailand this year. Analysts predict that the Indonesian rupiah, Philippine peso, and Malaysian ringgit will be the top-performing currencies, including interest income, in Asia by the end of 2018.
“Asia has come a long way because of the lessons they learned,” said Tsutomu Soma, general manager of the fixed-income department in Tokyo at SBI Securities Co. “The region paid a huge price for those lessons but has moved on to improve drastically.”
The Asian crisis two decades ago taught that over-borrowing in foreign currency can create difficulties in debt repayment should the local currency level fall. To avoid this, many countries sold bonds denominated in the local currency to foreign investors.
However, if the bonds held by foreigners are large in value, the country will still be vulnerable to the effects of a withdrawal.
As an example, almost half of Malaysian government securities, denominated in ringgit, are held by foreigners. Though the country does not face the risk of having to pay more in ringgit if there is a fall in the local currency, it may have other difficulties if foreigners withdraw their bonds.

 

Short URL : https://goo.gl/2ARS6S
  1. https://goo.gl/9wChgB
  • https://goo.gl/7SEQy4
  • https://goo.gl/fys4f2
  • https://goo.gl/TxtWyK
  • https://goo.gl/jk5FTJ

You can also read ...

Close to 40% of digital transformation initiatives will be supported by AI capabilities.
The digital economy in Asia-Pacific, or APAC, is expected to...
An electronic stock indicator of a securities firm in Tokyo.
As investors come to terms with the impending end of easy...
Most economists would agree that Italy needs faster economic growth if it is to resolve its public debt  and banking-sector problems in an orderly manner.
Italy’s economy is growing again, but it’s still the worst...
Maersk is expanding its competitive universe to include different types of companies.
The world’s largest container company will start looking for...
Lloyds Profits Miss Forecasts
Lloyds Banking Group PLC raised its 2017 dividend by 20% and...
NZ Says Pacific Trade Deal Will Boost GDP
New Zealand estimates a Pacific trade deal would boost its...
CBs May Top Inflation Targets
Not only will central banks meet their inflation targets, they...
Pak Current Account Gap Widens
Pakistan’s current account deficit widened 28.74% on a month-...

Add new comment

Read our comment policy before posting your viewpoints

Trending

Googleplus