Strengthen Asian banks 'to avoid crisis', warns UNCTAD chief
Updated
The Secretary General of the United Nations Conference on Trade and Development has been speaking on the global financial crisis in Bangkok. Supachai Panitchpakdi says Asia must strengthen its banking regime now, to avoid potential financial crises in the future.
Presenter: Ron Corben
Speaker: Supachai Panitchpakdi, the Secretary General of the United Nations Conference on Trade and Development (UNCTAD)
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SUPACHAI: As we're coming to the last quarter of 2008 I still think that both things - the inflationary trend and also recession will still be the two key issues facing the world. I don't think we just right off inflation - but at the moment the combination of the instruments to fight inflation and recession may have to be tilted more towards recession.
Maybe now the emphasis will be on how to do the right monetary policy in a way that you'll be able to stimulate the economy without reignite the inflationary impact. At the moment I think we need stability and we need time for the financial crisis to temper down a little bit.
CORBEN: How much work is there to be done do you think in the U.S. with the financial system there?
SUPACHAI: I think they need a big overall. I mean the rescue operation -the relief measure will be just a relief measure. This is just to prevent the crisis from deepening and by buying the toxic assets will mean the banking system will be provided with adequate liquidity - it doesn't mean that we've already succeeded in tackling the basic issues.
So there needs to be a rethinking of the way financial institutions have been managed and have been regulated in the United States and I think throughout the world. I mean because we've been a bit over enthusiastic in going ahead - I would say - too rapidly with financial liberalization without having the kind of checking because the ratings agencies are not reliable - it's not reliable because the rating system should be applied but its not reliable.
CORBEN: I would like to ask you about the trade impact if there is this downturn - what are the likely shifts that will take place?
SUPACHAI: The last time we had a financial crisis the impact on trade was huge - was huge -- because we were told to do a highly deflationary policy. Now I think people have learned from that lesson. I think we have been too harsh on the deflationary policies in 1998, 1999. Now is the time to do the reform in the financial system without deflating the economy. This is a lesson to be learned.
I don't think it will be affected too much in itself because trade these days has been increasing because major emerging countries are involved more in trade.
CORBEN: There is talk about a shift to Asia - this seems to be highlighting the role that Asia is taking in the global economy.
SUPACHAI: I have been saying this in the last few months. The most urgent part of Asian economic integration is in the finance area - its not trade - trade intra Asia is growing anyway - there's been no problem - without Asian integration agreement intra Asian trade has been growing quite rapidly.
But financial regulation within ASEAN that could to shield, to shelter the financial system in Asia is going to be important because fortunately this time the system has not been globalized enough to have been affected by the on-goings in the U.S. and EU.
This is the time to be deepening the Asian financial system to set up the pooling of resources - to advance on what we did in the Chiang Mai initiative - and financial integration to link the reserve funding of the banks, to have the standardization in terms of funds flows and stock market arrangements - all this could be done now - even if we are not that much affected from the crisis.
