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Repeat of currency crisis unlikely, ADB chief says

Asian economies will avoid a repeat of the 1997 to 1998 currency crisis because they have accumulated large amounts of foreign reserves, Asian Development Bank (ADB) President Haruhiko Kuroda said.

“I don’t see that any countries in the Asian region are going to face such balance of payments difficulties or a currency crisis,” Kuroda said at the Foreign Correspondents Club of Japan in Tokyo yesterday.

Asian economies were crippled by a currency crisis a decade ago when Thailand’s devaluation of the baht prompted investors to pull money from the region. Several countries, including Indonesia, Thailand and South Korea, spent most of their foreign reserves to prop up their exchange rates and had to borrow more than US$100 billion from the IMF.

“I don’t think currencies in the region would be under significant pressure in the coming months or years,” Kuroda said. “I don’t think any of them would request IMF or Chiang Mai Initiative supports.”

Asian countries have accumulated foreign exchange reserves in the decade since the crisis. South Korea had US$258 billion in foreign reserves at the end of last month, the sixth highest in the world, trailing only China, Japan, Russia, India and Taiwan.

Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least US$80 billion in foreign exchange reserves to be tapped by nations in case they need to protect their currencies. That was an expansion of the Chiang Mai Initiative, under which pairs of nations would lend each other money at favorable terms if help is needed to support their exchange rates.

Growth in emerging Asia is “quite robust,” the ADB chief said, adding that containing inflation is the “No. 1 challenge” for the region.

Record food and energy prices are fanning inflation across Asia, leaving its consumers with less to spend and threatening growth from South Korea to the Philippines at a time when the US slowdown is weakening demand for exports.

Philippine inflation accelerated to 11.4 percent last month, the fastest pace in 14 years, the National Statistics Office reported yesterday. India’s 11.05 percent increase in wholesale prices in the first week of last month was the fastest in 13 years. Inflation in China accelerated to 8.1 percent in the first five months, the quickest since 1996.

Oil prices have doubled in the past year, while the costs of rice, corn, wheat and soybean have reached unprecedented levels this year.

Kuroda said central bankers in Asia were successfully tightening monetary policy to contain prices and would keep doing so “for some time” as inflation persists.

“I’m reasonably confident that emerging economies in the region will overcome the current inflation and go back to a sustainable growth path,” Kuroda said.
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