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By Maricel E. Burgonio, Reporter
TO maintain financial stability
across the region, the International Monetary Fund (IMF) told banks
and other financial institutions in Asia to require effective
disclosure of exotic financial instruments.
John Lipsky, IMF first deputy
managing director, said Asian economies should ensure effective
management of liquidity risks and robust financial safety nets, as
Asia has not de-linked from global capital markets and the
turbulence last year brought by the US sub-prime crisis.
“Policy makers need to avoid
complacency and take steps to restore confidence, while at the same
time preparing for further pressures,” Lipsky said in a paper
titled, “Global Imbalances and Global Financial Strains:
Implications for Asia,” that he delivered in Tokyo.
Lipsky said there might be
serious risks to global financial stability although there are some
signs of normalization in credit markets.
“And while it is reassuring
that Asia has so far escaped serious downdrafts from the US
sub-prime crisis, capital markets are now so interlinked that it
would be prudent to act pro-actively to respond to the risk of
spillovers,” he said.
He said sub prime-related losses
in the region remain lower. However, Asian corporations have
difficulty in accessing local loan and debt markets. Despite this,
investor sentiment toward Asia remains positive, he said.
“And while certain segments of
the credit market have dried up such as for securitized assets,
there are no signs of serious problems of credit availability in the
region,” he added.
The IMF official said
policymakers in the region also have to be mindful of the
macroeconomic environment and signs that Asia’s current account
surpluses are projected to remain high over the medium-term.
“And the growing inflation
pressures that many countries in the region are facing are providing
ample illustrations of the potential costs of subordinating monetary
policy to limiting exchange rate adjustments, if other flanking
policies are not rigorously applied,” he said.
Asian economies should enhance
further the integration of regional capital markets and boost the
returns of Asia’s big savings, the IMF official said.
To sustain investment flows, Asia
requires continued commitment to reforms, especially in financial
markets, as well as macroeconomic and exchange rate policies, he
said.
“Multilateral policymaking
would mean a return to solid global growth with low inflation, but
with reduced imbalances. A reduction in global imbalances implies
reduced net cross-border capital flows—but perhaps still larger
gross flows,” he added.
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