Asia's economies are in better shape than most, but they are still too vulnerable, writes Philip Bowring
Of course most of Asia is in far better condition than the US and Europe and will suffer less - but still a lot - from the financial crisis. Yet it is still more vulnerable than it should be, weaknesses partly attributable to itself, partly to the global financial architecture and partly to the apparent cultural bias of western financial and media institutions.
After the Asian crisis, governments made public commitments to increase co-operation among themselves to guard against financial contagion. The most specific of these was the co-called Chiang Mai Initiative, which led to agreements on currency swap arrangements to enable countries whose currencies came under sudden and untoward pressure to acquire reserve currencies from better-positioned neighbours.
With this crisis, however, regional co-operation has been conspicuous by its absence. For sure, only the Korean won came under direct attack, but others weakened and wobbled despite apparently favourable national balance sheets as the phrase 'emerging market' was pinned indiscriminately on them by the investment houses and their media mouthpieces.
Korea asked China and Japan for a regional meeting to help stability but nothing happened. The region remains too frozen by Sino-Japanese rivalry. There was not even an attempt at co-ordination. Responses to the crisis, such as Hong Kong's guarantee of bank deposits, were aimed at local markets - in Hong Kong's case more to protect smaller banks against a shift of deposits than out of concern for the currency. Events were also a reminder that while much of Asia has few foreign exchange controls, there is still very little cross-border bond investment and local currency bond issuance that would reduce reliance on US dollar funding, which can be hostage to the prejudices of dealers in New York and London.
In other words, Asia has failed to make much effort to reduce the imbalances in a global financial system in which the dollar and European currencies account for 90 per cent of global reserve assets - a privilege which enables them to bail out their banks simply by printing more of their own currency. Part of the problem lies with Japan. At one time the yen held promise as a trading as well as reserve currency. But neither Japan nor China have been keen to encourage that - Japan because it fears currency appreciation, China because it wants to limit Japan's international role. While it is now widely recognised that the global financial architecture needs radical reform, Asia's lack of coherence on the issue is preventing the region playing the role that its economic power suggests it should.
There is also the issue of cultural bias, which has been very evident in the case of Korea. Alarm bells have been repeatedly rung by the ratings agencies - despite their low reputations for credibility - and the likes of Financial Times about the supposed foreign debt crisis of Korea and its banks that helped trigger the dramatic fall of the won. Much emphasis was also placed on Korea's current account deficit. Whilst Korean banks have been over-reliant on wholesale funding the fact remains that overall Korean net foreign debt is almost nil and its currency reserves of more than US$200 billion are almost half those of the whole Euro region. Its 2 per cent of GDP current account deficit is both new and modest.
Contrast Korea's black image with the coverage of Australia and New Zealand. Australia, with an economy smaller than Korea, owes the world US$400-plus billion, has for years had a current account deficit in the 4-6 per cent range despite high commodity prices, and one of the highest household debt levels in the world!
Although much of its foreign debt is in Australian dollars, the net foreign currency debt of Australian banks alone may well exceed the nation's foreign reserves - a paltry US$29 billion. But will the cosy English-speaking club even question whether the Australian government has the assets needed to fulfil its guarantee of Australian banks' liabilities? Can it admit the situation of Australia and New Zealand is far worse than that of the Asian upstart?
Philip Bowring is a Hong Kong-based journalist and commentator