Closer communication by Asian central banks can ward off new financial crisis

By Hu Weijia Source:Global Times Published: 2018/5/29 21:28:39

Could Asia have another financial crisis? Some nations' foreign debt exposure is a source of concern, but there's no need to be too pessimistic.

India and Indonesia are among Asia's most debt-burdened nations, Bloomberg News reported on Tuesday, saying that "Moody's Investors Service's external vulnerability index - which is the ratio of short-term debt, maturing long-term debt and non-resident deposits over one year calculated as a proportion of reserves" - was 51 percent for Indonesia and 74 percent for India.

At the end of the September quarter, India's external debt stock stood at $495.7 billion, up 5.1 percent over the level at end-March 2017, according to India's finance ministry. The rise in external debt was primarily due to the increase in foreign investment in the debt segment of India's capital market.

India's external debt growth contributed to its economic expansion, which the IMF estimated would be the fastest among major economies in 2018. Economic growth has increased India's tolerance for high external debt. Although India's external debt increased in 2017, information compiled by economic data provider CEIC showed that the ratio of external debt to India's nominal GDP dropped to 20.1 percent in 2017 from 23.4 percent in the previous year.

Some emerging economies in Asia are facing serious debt problems, but their external debt remains within manageable limits. Although some countries have depreciated their currencies, it is too early to say that the 1997-98 Asian financial crisis, which was characterized by a series of currency devaluations, could be repeated.

However, Asian economies still need to enhance coordination to build buffers that can weather unexpected economic storms.

China is trying to slow its credit scale and growth by deleveraging as it also prioritizes control of financial risks. For instance, the government has taken measures to regulate bond trading, with a focus on restricting leverage and banning under-the-table deals designed to skirt regulations. Taking a closer look at China's financial deleveraging, some efforts are successful and some are failures.

But generally, China is moving forward. Its experience could serve as a useful reference for other countries to deal with their debt problems.

As for the Asian economy as a whole, there may be some challenges in the coming years. On the one hand, every country needs to head off financial risks to ensure sustainable development. On the other hand, these countries need to enhance communications among their central banks to make the regional economy more secure.

The author is a reporter with the Global Times.


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