Asian Financial Outlook: The next 10 years

An international conference

organized by

Thai Institute of Directors

The Nation

Supported by

Asia News Network

Friday, August 10, 2007

Grand Hyatt Erawan Hotel

Bangkok

July 2, 1997 is the date on which all chronologies of the Asian financial crisis start. That was the day the Bank of Thailand failed in its futile attempt to sustain the US$ peg of its currency. Hours later, the central bank of the Philippines was forced to defend its peso. Within days, pressure on the Malaysian, Indonesian, Hong Kong and South Korean currencies built up. Within four months, 10 of the largest banks and two of the biggest securities firms in Japan collapsed. By February 1998, Thailand had lost 42% of its GDP, Indonesia 55% and Korea 34%. The foregone income growth opportunity for the respective countries was calculated at 26%, 25% and 17% of GDP for the duration of the crisis that varied from one to three years.

Why recall all this now? Financial crises have a tendency to recur. There were 112 systemic banking crises in 93 countries in the last 30 years. Don't countries learn from their experience? Some do, to some extent.

Thailand has - perhaps to a greater extent than any other. Just as the country was recovering from the catastrophe, The Nation organized in 1999 its first conference called Asia: Back to Basics? Factors that led to the crisis and possible preventive measures were analyzed. A government that was elected the following year did not forget the lessons. It strengthened the rural economy as never before in the country's history. But the simultaneous growth of the largely foreign-controlled and export-oriented industrial sector and further internationalization of the economy have not helped to minimize the country's vulnerability to another crisis. The challenges are global.

Everyone hopes that a stronger China and India will somehow reduce the risk of another crisis. Yes and no. Their economies are more open now than ever before.

Money not under the control of any regulatory authority is estimated at US$40 trillion and growing every day. More financial centres are cropping up to help move these funds. Risks galore.

On the other hand, some bankers and economists believe that another financial crisis in Asia is almost impossible. The balance sheets of almost every Asian country and governance standards have changed so significantly (less debt, more reserves, floating currencies) that it is very difficult for them to see how there could be a repeat crisis anywhere except in the Philippines or Indonesia. But others question this optimism.

Another theme to be examined will be the enormous changes in the global financial system since 1997. An explosion of liquidity, the evolution of a bewildering array of financial products, and technology-based interlinking of markets are seen by some as creating even more risk in

the system. But others would argue that the result is in fact the opposite - that effective risk to the system is much reduced because it has been diversified over a much wider range of products and investors. If that is the case, what are the implications for a country such as Thailand? For Asia?

Enhanced risk management is another issue for both countries and corporations. Are the rules and standards for managing risks apt and sustainable? These and other pertinent issues will be examined at the conference.

Day 1