Fischer, at Forum, Says Progress May Induce 'Complacency' : IMF Official Has Warning for Asians
International Herald Tribune
October 19, 1999
Michael Richardson 

As Asian stock markets fell again Monday, reacting to fears of rising interest rates in the United States, the International Monetary Fund warned the region that it risked a new financial crisis unless it pressed ahead with painful reforms.

Stanley Fischer, first deputy managing director of the IMF, said that complacency was one of the main risks clouding the outlook for Asia, following a faster-than-expected recovery from the currency turmoil and economic slump that affected much of the region in 1997 and 1998.

Mr. Fischer and other officials and business executives attending the opening of the World Economic Forum's East Asia economic summit here called for a renewed commitment by the region to continue implementing reforms, including the restructuring of heavily indebted banks and companies.

"In principle, everyone accepts that much structural reform remains to be carried out, not only in the crisis-struck countries, but also in China, India, Japan, and many others, and that it will be crucial to press ahead with the key reforms," Mr. Fischer said. "But the risk that the strengthening recovery will reduce the urgency of reform, and allow a business-as-usual attitude to set in, is very real."

The IMF said recently it expected the five East Asian economies hit hardest by the financial crisis — Indonesia, Malaysia, the Philippines, South Korea and Thailand — to grow on average by almost 3 percent in 1999 and 4 percent in 2000.

Mr. Fischer said that Japan, which accounts for more than half of Asia's output, was also showing signs of growth after its longest recession since World War II.

But he said that Japan's recovery — "absolutely critical for Asia" — was still subject to significant risks.

"Household confidence is fragile, with fears of job losses, and businesses still need to restructure to reduce excess capacity," Mr. Fischer said. "An early resolution to Japan's banking sector problems remains a key."

He said that the crisis had sent an important warning to Asia.

"It would be an unforgivable mistake, one with great costs to many who have already paid a high price, to ignore its lessons," Mr. Fischer added.

Some business executives at the meeting cautioned that investors would no longer risk their money in Asia unless corporate governance, transparency and laws were improved.

Rick Murray, director of legal and regulatory affairs in the Hong Kong office of the international accounting firm Deloitte Touche Tohmatsu, said that despite Asia's improved economic performance, the fundamental structural problems that were most frequently cited as the cause of the financial crisis in the region remained unaddressed.

"We are moving from an enthusiasm-based investment period to one in which people and institutions are making more informed decisions that require highly reliable and relevant data," he said.

"Otherwise, I fear that the present optimism in the market may bring us back to where we were."

The Singapore prime minister, Goh Chok Tong, said that the crisis had forced Asians to be more aware of the role of good corporate governance in creating and sustaining growth.

He said that to expect an immediate victory for transparency and accountability would be naive because corruption, collusion and nepotism were endemic in many societies.

But Mr. Goh said that he hoped the crisis would reduce business based on political connections and kickbacks.

"The crucial lesson for Asia is to make sure that its economies are well run, with rational macroeconomic policies as well as a sound financial system in place," he said. "This may not completely insulate the healthy economies from contagion, but it will minimize the ill effects."

Taichi Sakaiya, director-general of the Japanese government's Economic Planning Agency, said he believed the Asian nations would overcome the recent crisis and return to rapid growth.

But he warned that this would require political stability, a favorable international environment, and thorough structural reforms.

"This admonition holds true for Japan as well: we should not relax our vigilance based solely on the recent recovery," Mr. Sakaiya said. "Whenever economic conditions improve, there are political demands that move to decelerate the growth."

Such demands include increasing reluctance to allow foreign investors to buy equity stakes or controlling interests in leading Asian companies.

Prime Minister Mahathir bin Mohamad of Malaysia said that one of the reasons he resisted turning to the IMF for emergency loans to overcome the crisis was to protect the country's economic sovereignty.

"We have been able to achieve similar results to the other crisis-hit economies without having to auction off our precious corporations, which we had spent a generation to build, to foreigners at fire-sale prices," he said. Malaysia has not had to "bow or kowtow to anyone," Mr. Mahathir added.

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