ASTANA, KAZAKHSTAN – Greater international cooperation as well as domestic measures are needed if economies are to protect themselves in the face of future crises, high-level policymakers and market experts at the Governor’s Seminar – titled Reducing Vulnerability: Learning From Past Crises - told delegates at the 47th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) today.
ADB President Takehiko Nakao participated in the seminar. Other panelists were Muhamad Chatib Basri, Indonesia’s Minister of Finance; Erbolat Dossaev, Kazakhstan’s Minister of Economy and Budget Planning; Marisa Lago, Assistant Secretary for International Markets and Development at the US Department of the Treasury; Arvind Mayaram, India’s Finance Secretary; and Yoshiki Takeuchi, Deputy Director-General of the International Bureau in Japan’s Ministry of Finance.
The Governors' Seminar took place on 3 May on the sidelines of the ADB Annual Meeting in Astana, Kazakhstan and discussed the lessons that Asian policymakers should learn from past crises and from the more recent financial turbulence in the region.
“Regardless of the level of development, a country risks being destabilized by a financial shock when its financial system is not well-regulated and when effective macro-prudential measures are absent,” said ADB President Takehiko Nakao at the Governors’ Seminar. “To prevent future crises, and to protect their gains in poverty reduction, Asian countries must learn from past crises and continue their efforts to strengthen economic fundamentals and financial systems.”
Financial crises can be very costly: They can paralyze the financial system, lead to large output and job losses, and bring financial and human suffering to millions of households.
Globalization and financial integration create new opportunities for trade and development. But they also magnify cross-border spillovers of economic and financial shocks. Such episodes highlight the importance of a sound response strategy when a crisis occurs.
Panelists discussed the importance of good economic fundamentals, better cross-border coordination of macroeconomic policies, sound financial regulation, speedy responses at times of crisis, and the role of regional financial and monetary cooperation in order to reduce vulnerability.
Many countries in developing Asia have taken the right steps in strengthening their financial systems, banks, and corporate governance since the 1997 Asian financial crisis. “The region is now in a much better position to weather external shocks,” Mr. Nakao said.
Other panelists said that putting a country’s own house in order is not enough. Rather, the effects of cross-border contagion mean there needs to be more cross-border dialogue on economic and financial issues.
While high foreign exchange reserves can help provide a buffer, countries must also be able to access multilateral sources of support.
Meanwhile, sovereign and private sector borrowers also need to broaden their sources of funding and countries need to strengthen financial safety nets. The panelists pointed to the Chiang Mai Initiative Multilateralization as a good example of regional cooperation. Well-capitalized banks are also a key part of a robust financial system.
Several of the panelists said that countries heavily dependent on natural resources must work harder to diversify their economies in order to become more resilient.