xfdws DON’T-FORGET-CRISIS sked Emerging Markets Datafile
November 03, 2003
THE STANDARD
HONG KONG
ENGLISH
Don’t forget crisis lessons, says Tung, THE STANDARD
Louis Beckerling
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Chief Executive Tung Chee-hwa has warned Asian leaders attending the Boao Forum that they were in danger of forgetting the painful lessons learned during the Asian financial crisis of 1997-1998.
Singling out disruptive currency speculation by hedge funds during the crisis, Tung told delegates: “There is clearly a need, based on our experience, to build a new international financial architecture to monitor, or at least make more transparent, the activities of hedge funds.”
Asian leaders had responded to disruptive capital flows triggered by speculators during the financial crisis by seeking to limit the damage that could be caused by hedge funds such as Long Term Capital Management, Tung said.
Unfortunately, with the recovery in the region and the build-up of huge foreign exchange reserves, this particular effort has faded away, he said.
Hong Kong, Tung said, was particularly sensitive as a financial centre, to the issue of economic and financial security, which should now be regarded as an integral element of national security, and all governments should now be expected to take appropriate steps to protect the region’s financial systems.
The shocks of the Asian crisis had been exaggerated by the speculative attacks of highly leveraged hedge funds, said Tung, which were able to exert a distorting influence on financial markets that overwhelmed the natural price discovery process.
Hong Kong had shown the way by intervening in markets to limit the damage being done by speculators, and several economies in the region followed.
To ensure a similar crisis did not emerge in the future, he said, it was important to build a new international financial architecture.
Arguments about allowing the free float of Asian currencies should be resolved, warned Tung, and the new financial architecture should contain sufficient control mechanisms to allow the free flow of capital without the disruptive side effects.
In the audience listening to Tung was the chief executive of the Hong Kong Monetary Authority (HKMA), Joseph Yam, who later told The Standard on the sidelines of the conference that Tung had sought to breathe new life into initiatives aimed at securing financial stability in the region.
Banking and financial systems are intermediaries in making capital flows and their benefits available.
To the extent that these flows are restricted, the benefits are affected, Yam said.
In the long run, this would not be sustainable but as the Chief Executive pointed out, mechanisms must be found to encourage the free flow of capital without destabilising regional economies.
Yam said these did not simply mean choosing between fixed and floating exchange rates.
“In Hong Kong, we have a peg, but we also have free flow of capital,” he pointed out, adding that fixing exchange rates was merely one element in the equation.
United States pressure on China to revalue its currency was unfair, Tung said.
Tung’s comments in support of the yuan’s link to the US dollar echoed remarks made by a succession of speakers at the start of the conference, notably by Morgan Stanley chief economist and managing director, Stephen Roach.
The yuan should not be revalued, Tung said. The pressure from the US is unfair. Products made in China are mostly exported to the US and if these goods are not made in China they would have to be made elsewhere in the region, Tung told Hong Kong media as he left the conference.
Problems the US was presently experiencing with its economy were structural and if the yuan were to be forced higher it would hurt the US economy, he said.
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