Asian "irrational euphoria"?

Henry C.K. Liu hliu at mindspring.com
Mon May 17 21:36:04 PDT 1999


Tuesday May 18 1999 SCMP

Camdessus urges caution

DAVID SAUNDERS

Recent rallies on Asia's financial markets are

premature and smack of "irrational euphoria",

according to the International Monetary Fund's

managing director Michel Camdessus.

Speaking in Hong Kong, Mr Camdessus

warned that while the new-found optimism

across the region was understandable as

economies started the process of recovery,

much work needed to be done in terms of

financial restructuring.

The recovery on stock markets, while

appropriate after almost two years of turmoil,

was happening a little too rapidly, he said.

"People were talking about a deep recession in

the making for Asia . . . Now we are possibly

at a turning point, or even possibly after the

turning point," Mr Camdessus said.

"But I am a little bit concerned that after

instances of excessive pessimism, we are now

in a phase . . . of a degree of irrational

euphoria. So we must be careful in our

judgment."

However, during a speech beforehand, at the

Pacific Basin Economic Council's international

general meeting, Mr Camdessus noted

considerable progress had been made towards

improving the international financial system.

"We are at the point now where - let me be a

little impertinent - central banks no longer

compete for a reputation for secrecy but for

one of transparency," he said.

He called for full liberalisation of capital

movements in a "prudent and well sequenced

fashion".

He said that while the ultimate goal of financial

institutions and all governments should be for

trade liberalisation and greater regulatory

transparency, he acknowledged there was

sometimes a case to argue for capital controls

to be imposed on a temporary basis.

"Generally, consensus is emerging that capital

controls do not deal effectively with

fundamental economic imbalances, but may

only be useful in certain circumstances," he

said, adding they were in fact accounted for

within the IMF's own articles of agreement.

"[But] controls may have a place when there is

the risk of a crisis, but only to allow a breathing

space for other fundamental measures to take

effect."

Such controls were generally more effective

when imposed on capital inflows rather than

outflows, such as those erected by the

Malaysian Government in September.

Any future work on financial reforms needed

to include social consideration, he said. The

financial crisis had exposed the inadequacy of

social welfare systems across Asia, where

people had traditionally relied on family-based

support.

Mr Camdessus also said stronger nations had to

do more to integrate developing states, which

were not benefiting from the global economy.

"Too little is being done by industrial countries

to facilitate this integration, for instance by

opening their markets or by extending official

development assistance," he said.

Mr Camdessus said all financial institutions,

including the IMF itself, had to ensure that they

evolved in line with the changing global

economy and that all countries were given an

opportunity to participate in the

decision-making process.

Asked for his observations on the Hong Kong

economy, Mr Camdessus said the IMF

believed it had reached a turning point,

although unemployment remained high.

He said the SAR Government was right to

defend the peg and retain it even though it had

undergone immense pressure.



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