Asia to avoid full-fledged financial crisis: ADB

Asia is expected to avoid a "full-fledged" financial crisis as governments and the corporate sector learned lessons from the previous crisis that hit the region a decade ago, the head of the Asian Development Bank said.

ADB President Haruhiko Kuroda told Reuters he also expects economies in the region to attain a more prominent role in the new global financial system that could emerge after leaders of the Group of 20 countries meet in Washington next week.

"Combined with the large buildup in foreign exchange reserves, capital outflows can now be handled more effectively than in the past. And reforms have improved financial systems," Kuroda said in a speech to the Asia Society in New York.

"A range of indicators also point to a healthier corporate sector in Asia. The result is that a full-fledged financial crisis in the region is unlikely," he added.

Nevertheless, the region is already feeling the economic impact of the global crisis, Kuroda said, forecasting aggregate economic growth for developing Asia will decline by 1.5 percentage points this year from a record 9.0 percent in 2007.

He said he sees "a further 0.5 or 1.0 percent deceleration next year."

"Initially we thought developing Asia could grow by 7.2 percent (in 2009), but now that is unlikely," Kuroda told Reuters in an interview following his speech.

"The giant economies of China and India, which account for a large portion of the growth estimate, have already seen growth slow significantly," he said.

It was only recently that the global credit crisis truly started to take a bite out of Asia's regional growth prospects, he said.

"The really serious impact on the Asian financial sector, markets has emerged only after mid-September. That is when Lehman Brothers went bankrupt, creating credit crunch situations all over the world, including Asia," he said.

On a positive note, Kuroda said inflation is also slowing in Asia as commodity prices fall and demand weakens.

"Inflation last year and the early part of this year was the number one challenge for many emerging economies in Asia," he said.

"But now inflation is a secondary issue. Particularly next year, the number one challenge would be how to sustain high growth because the economy is slowing down quite rapidly," he said.

NEW ARCHITECTURE

The International Monetary Fund believes emerging economies will be the only source of global growth next year due to recessions in industrialized economies, where the current financial crisis has emanated from.

Kuroda said he believes Asia's emerging economies stand a real chance to increase their voice and stature in a new financial architecture and that the meetings in Washington are a good starting point for setting agendas and direction.

"You cannot easily identify which country gains from it, but all emerging economies would basically gain because of a greater voice and influence over the international financial system," Kuroda told Reuters.

Source: EconomicTimes