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Asian economies under new threat, UN official says

Asian economies face new threats that could destabilize the region, despite the current boom that resulted from success in overcoming the 1997 financial crisis, a top UN official said yesterday.

Some of the risks now facing the region are similar to those that preceded the 1997 crisis, which began in Thailand and spread around Southeast and East Asia, said Kim Hak-su, the head of the UN Economic and Social Commission for Asia and the Pacific.

A global liquidity bonanza, inflated asset values and tremendous speculative pressures on regional currencies could again destabilize regional economies, Kim said.

"Globalization, along with its many benefits, exposes economies to quick and harsh risks from the constantly shifting international environment," he said in a speech opening a conference on the 10 years since the 1997 Asian meltdown.

Kim urged governments around the region to ensure flexibility in exchange rates, adding that central banks should also be clear about their exchange rate policies.

"Greater flexibility would help take away the `one-way bet' that encourages even more capital inflows than would otherwise take place, since markets would quickly realize that the currency could move in either direction," he said.

Kim said countries throughout the region could weather future shocks by ensuring solid macroeconomic fundamentals, developing healthy financial sectors, ensuring robust microeconomic foundations and improving regional cooperation.

Thailand was the epicenter of the 1997 meltdown when excessive borrowings in US dollars coupled with high interest rates forced the Thai government to float the currency, which then promptly collapsed along with the economy.

The baht nosedived to 56 to the dollar from 25, took the Thai economy with it and then sent a tidal wave of debt and default sweeping across the region.

The problems spread unchecked, hitting Southeast Asia first, with Malaysia and Indonesia the worst affected.
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