Business | Economy
Time for Asia to renegotiate IMF position
Asia, so far at least, has escaped relatively lightly from a financial crisis that began in the US and ended with the nationalisation of a large chunk of the west's financial system.
- By David Pilling And Geoff Dyer, Financial Times
- Published: 23:21 November 14, 2008
Asia, so far at least, has escaped relatively lightly from a financial crisis that began in the US and ended with the nationalisation of a large chunk of the west's financial system.
Fairly well capitalised banks, cautious regulation and mountainous foreign exchange reserves have shielded the banking systems of most Asian economies from the worst of the financial hurricanes wreaking havoc in the US and Europe.
But Asia, already suffering from shrinking demand for its products, has a big stake in trying to prevent a new financial crisis in Asia 10 years after the last one, and in ensuring robust mechanisms are in place if catastrophe strikes again.
That partly means reworking its relationship with the International Monetary Fund, an institution in which Asia is under-represented and in which its faith was badly dented by the 1997 Asian crisis. Then, the IMF set strict conditions for borrowing in stark contrast to its relatively liberal lending to Iceland and Hungary this time around.
The tables have also been turned in that Asia's regulatory prudence - often criticised as inhibiting the efficient functioning of capital markets - has come back into fashion.
"This provides an important chance for reconciliation between the IMF and Asia," says Takatoshi Ito, professor of economics at Tokyo University and a former adviser to the IMF.
French President Nicolas Sarkozy, a strong advocate of a radical shake-up of international regulation, has supported greater involvement by the big emerging powers, foremost of which are China and India. But in a meeting of Asian and European leaders in Beijing last month, China gave a fairly cautious response. Wen Jiabao, the premier, called for a "fair, just and effective international system" but said the biggest contribution China could make was "to maintain fast and stable growth".
China in question
China, which has yet to open its capital account, is still not fully integrated into the global financial system, say experts, limiting its scope to contribute to the regulatory debate. It has been ambivalent about taking a bigger quota in the IMF, wondering what it would gain. Beijing also feels vulnerable because of recurring accusations about its undervalued currency.
Stephen Roach, chairman of Morgan Stanley Asia, said too much was being expected of China. Yet some Chinese officials and academics feel that Beijing should seek to parlay its relatively healthy economy and financial system into greater influence.
"This is a moment where there has to be some give and take," says a senior academic at an official think- tank in Beijing. "If the US and the west want us to be so helpful, they have to do something to guarantee our interests too."
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