Asia is unlikely to be hit by another financial crisis similar to the one in 1997 as the region now has ample foreign exchange reserves, former US Federal Reserve chief Alan Greenspan said yesterday.
The region has also taken action to pool part of these massive reserves to defend against a repeat of the meltdown, he was quoted as telling a closed-door Merrill Lynch forum in Singapore.
"The chance of 1997 happening again is virtually non-existent," a forum participant quoted him as saying.
PHOTO: AFP
Greenspan, whose views are still closely watched by the market despite his retirement last year, was speaking via satellite link from Washington.
According to a participant, who did not want to be named, Greenspan drew his views from the fact that Asian central banks currently have adequate reserves compared with a decade ago when several economies were running current account deficits.
The former Fed chief also referred to an agreement this month by the 10-member ASEAN, Japan, South Korea and China to pool part of their reserves as a shield against a repeat of the 1997 crisis.
Under the pact, the 13 countries will work toward a multi-nation scheme of currency swaps to improve a system that was introduced in 2000.
Asia now holds the bulk of the world's foreign reserves at some US$2.7 trillion, led by China, which alone has more than US$1 trillion.
Greenspan said a slowdown in the US economy will affect exports from Southeast Asia, but any impact could be offset by stronger domestic consumption as a result of the region's healthy savings rate.
The US economy -- a major buyer of the world's exports -- weakened dramatically in the first quarter to its worst growth pace in four years, expanding at a clip of just 1.3 percent.
A housing slump dragged the world's biggest economy down sharply from its annualized 2.5 percent pace in the prior quarter.
Greenspan told the forum he thought the odds against the US economy falling into a recession are two to one.
He said that "housing is a drag" on the US economy, describing the problem in the housing market as one of excess inventory.
"We're unlikely to get an improvement until we're through this," he was quoted as saying.
Commenting on the Chinese currency, Greenspan said it was in China's "self-interest" to allow the yuan to appreciate at a quicker pace.
The value of the yuan has been a key source of friction between the US and China, with Washington accusing Beijing of artificially keeping the currency low to give its exporters an unfair advantage in the global market.
China revalued the currency by 2.1 percent in July 2005 and has since then allowed the yuan to gain approximately 5 percent more.
However, for many of China's major trading partners, especially the US, the gains are viewed as far too slow.
China has said its financial system could be destabilized if the yuan was allowed to rise too quickly.
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