Asian bankers vow vigilance amid economic recovery

KUALA LUMPUR, Jan 27: Asian central bankers today took heart from the region's economic recovery but cautioned against relying on the United States and Europe as engines of growth and vowed to keep close watch on capital flows, reports Reuters.

Governors from the 11-member South East Asian Central Banks (SEACEN) organisation, meeting in Malaysia's capital, called for closer cooperation among the region's central banks to ensure capital flows did not damage their resurgent economies.

They also lamented that their call for reform of the global financial system had not borne fruit and appeared to have been brushed aside by Group of Seven industrialised nations.

SEACEN comprises the central banks or monetary authorities of Indonesia, Malaysia, Mongolia, Myanmar, Nepal, the Philippines, Singapore, South Korea, Sri Lanka, Taipei and Thailand.

Observers from Cambodia, Fiji, Papua New Guinea and Tonga attended SEACEN's annual meeting, and Banco de Mexico governor Guillermo Ortiz appeared as a guest speaker.

US, Europe cause for concern

Malaysian Finance Minister Daim Zainuddin kicked off the meeting by saying the trend of rising interest rates and tighter liquidity in the United States and Europe would hit Asia.

"While global growth may continue to be supportive, the current trend of rising interest rates and tightening liquidity conditions in the US and Europe will certainly have implications on capital flows to Asia," Daim said.

Daim said the US economy, which was growing on the back of productivity gains and output growth in the computer industry, might not be able to sustain rapid growth.

"In addition, fears of an overvalued US stock market are compounded by global deflationary pressures which are already affecting the profitability of American corporations. Hence, the concern that a major correction may occur," he said.

Chol-Hwan Chon, governor of Bank of Korea, said Asian economies had survived the crisis that erupted in mid-1997.

But he said they now needed to manage capital flows to achieve stability and spur growth, without abandoning the goal of economic liberalisation.

Malaysia, which imposed capital controls in September 1998 to stem the outflow of foreign exchange during the Asian crisis, said countries should be allowed to adopt unorthodox exchange control measures and not be punished for their actions.

Amid relief over Asia's recovery, the central bankers underlined the need for sound macroeconomic policies and tighter financial supervision to sustain growth.