Ten years on, Asia's policies risk a new economic crisis

It seems that Asia's policymakers just cannot get it right. In their efforts to avoid a repeat of the 1997 financial meltdown, they have inadvertently created the conditions for a second and equally damaging regional crisis.

Superficially Asia's economies appear in much better shape today than they did 10 years ago on the eve of the Thai devaluation. But according to noted US economist Nouriel Roubini, 'below the surface trouble is brewing and significant financial imbalances are building up'.

Dr Roubini, a former adviser to both the US Treasury and the White House, warns in the first draft of a new paper dated this month that 'the currency and financial policies in Asia today risk planting the seeds of a new and different financial crisis in the region'.

At first glance Asian governments appear to have successfully corrected the economic weaknesses that led to the 1997 crisis. They no longer peg their currencies at unrealistically high exchange rates against the US dollar. They no longer run large current account deficits which leave their domestic economies dependent on volatile short-term flows of foreign capital. And above all, their coffers of foreign exchange reserves are no longer dangerously depleted.

On the contrary, most East Asian countries now have nominally floating, if undervalued, currencies.

They operate sizable current account surpluses and have negligible foreign debt. And their central banks are stuffed to bursting with trillions of US dollars in foreign reserves.