 TOKYO Asian nations need better protection to prevent "massive" capital inflows from damaging their economies, central bank governors from the region agreed Monday. The governors noted their success in putting the regional economy on sound footing and strengthening the financial system since the end of the last crisis, during which foreign capital flight made Asian currencies fall in 1997 and 1998. "It is, and will surely be, the most difficult task for any monetary authorities to maintain the stability of foreign exchange rates, the free flow of capital and the independence of monetary policy simultaneously," Toshihiko Fukui, governor of the Bank of Japan, said at a symposium to mark the 10th anniversary of the regional currency crisis. "In order to increase the ability to absorb external shocks from massive capital flows, the priority seems to be to strengthen the function of foreign exchange and financial markets," he said. But with the globalization of the world's financial markets, large capital flows will continue to have a strong impact on open economies, he said. Tarisa Watanagase, governor of the Bank of Thailand, who monitored the turmoil in Thai markets last month, was also cautious about rapid moves in capital flows. "Rapid movements of capital flows," she said, "have caused exchange rates to be vastly out of line with the underlying economic fundamentals and have negative impacts on the export or the import sectors." Watanagase added: "The recent surge in capital inflows has caused a one-way appreciation of the baht relative to regional currencies" that is detrimental to Thailand's export competitiveness. The Bank of Thailand implemented capital controls to restrain the baht's rise in December but made an abrupt partial reversal of the decision after the move alarmed foreign investors, triggering a plunge of about 15 percent in the Thai stock market. Asia-Pacific nations have more than $3.1 trillion of foreign currency reserves, more than 60 percent of the global total. Chinese reserves swelled to more than $1 trillion last year, while Thailand, Indonesia and the Philippines saw their reserves rise by over a fifth in 2006. Foreign exchange reserves provide the region with a cushion against the potential damage of capital flows, said the governor of Bank Indonesia, Burhanuddin Abdullah. "In the aftermath of the Asian crisis, countries in the region are more conscious in protecting their national interests and strengthening their sense of security amid greater global uncertainties," Abdullah said. "The huge accumulation of international reserves certainly entails exchange-rate risk amid the looming global imbalances." Japan growth has weak spots The Japanese economy has grown for a record five consecutive years, though consumer prices remain flat and consumer spending is weak, The Associated Press reported. In its economic report for January, the Cabinet Office said that the economy continued to recover, but that robust corporate profits had yet to trickle down to wages. |
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