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.