10-12-2008, 02:30 AM
<b>Impact on Asia will be less: Y.V. Reddy
</b>
M. Ramesh
Rasheeda Bhagat
Singapore, Oct. 11 Former Governor of Reserve Bank of India, Dr Y.V. Reddy, on Saturday said the impact of the global financial turmoil on Asia will not be as much as on the Western countries. Indeed, this could eventually lead to Asian countries supplying goods and capital to the entire world, he said.
âI am less pessimistic about Asia,â Dr Reddy said, while speaking at the Pravasi Bharatiya Divas, a conference of the Indian diaspora.
Giving reasons, he said banks in Asia were better capitalised and not much exposed to sophisticated derivatives. Secondly, Asian economies were in a high-growth mode and hence they had a better ability to withstand the crisis. Further, most of the Asian countries enjoyed a strong fiscal position and current account surpluses. This gave them an ability to bail out a failing financial institution, if necessary.
Leverages
Also, anecdotal evidence showed that âfinancial leverageâ (or borrowings relative to networth) in these countries was not much, Dr Reddy said. In an economy, there were three entities that borrow â households, companies and financial intermediaries (banks and non banking finance companies). If one of the two entities was over-borrowed, the problem was manageable, but if two out of the three were over-borrowed âone has to be carefulâ. But on this count too, Asia scored better, he said.
Dr Reddy also said the âintensity of the dilemma of the policy makers was also becoming less acuteâ as commodity prices were coming down, and in tandem, so were inflationary expectations.
The former RBI governor also spoke of different structures of financial institutions in Asia and diffusion of financial centres across the region. These also gave strength to the region to withstand any financial turmoil, he said.
He said there would be some impact on Asian countries in line with their dependence on the US for exports. But even then, the issue would be of trade and not a financial meltdown.
Dr Reddy also had a word of caution on the integration of the financial sector with the global financial system. Trade integration was good, he observed, but financial integration called for a ânuanced approachâ, he said but did not elaborate.
Lot of good news
Dr Reddy said he did not quite know if all the bad news had come out, but âthe worst is behind us in terms of sentiment.â However, he pointed to many âgood newsâ. For example, he said the governments across the globe were âvery, very proactiveâ.
Not only were the central banks taking a coordinated approach, the governments were also acting in tandem, he said. As long as the problem was one of liquidity, it was up to the central banks to manage it, but when it became a solvency issue, it became the responsibility of the governments, he said, adding that, fortunately, governments were playing their role.
An outcome of the crisis, according to Dr Reddy, is the âhistorically significant redefining of the concept of the central bankâ.
</b>
M. Ramesh
Rasheeda Bhagat
Singapore, Oct. 11 Former Governor of Reserve Bank of India, Dr Y.V. Reddy, on Saturday said the impact of the global financial turmoil on Asia will not be as much as on the Western countries. Indeed, this could eventually lead to Asian countries supplying goods and capital to the entire world, he said.
âI am less pessimistic about Asia,â Dr Reddy said, while speaking at the Pravasi Bharatiya Divas, a conference of the Indian diaspora.
Giving reasons, he said banks in Asia were better capitalised and not much exposed to sophisticated derivatives. Secondly, Asian economies were in a high-growth mode and hence they had a better ability to withstand the crisis. Further, most of the Asian countries enjoyed a strong fiscal position and current account surpluses. This gave them an ability to bail out a failing financial institution, if necessary.
Leverages
Also, anecdotal evidence showed that âfinancial leverageâ (or borrowings relative to networth) in these countries was not much, Dr Reddy said. In an economy, there were three entities that borrow â households, companies and financial intermediaries (banks and non banking finance companies). If one of the two entities was over-borrowed, the problem was manageable, but if two out of the three were over-borrowed âone has to be carefulâ. But on this count too, Asia scored better, he said.
Dr Reddy also said the âintensity of the dilemma of the policy makers was also becoming less acuteâ as commodity prices were coming down, and in tandem, so were inflationary expectations.
The former RBI governor also spoke of different structures of financial institutions in Asia and diffusion of financial centres across the region. These also gave strength to the region to withstand any financial turmoil, he said.
He said there would be some impact on Asian countries in line with their dependence on the US for exports. But even then, the issue would be of trade and not a financial meltdown.
Dr Reddy also had a word of caution on the integration of the financial sector with the global financial system. Trade integration was good, he observed, but financial integration called for a ânuanced approachâ, he said but did not elaborate.
Lot of good news
Dr Reddy said he did not quite know if all the bad news had come out, but âthe worst is behind us in terms of sentiment.â However, he pointed to many âgood newsâ. For example, he said the governments across the globe were âvery, very proactiveâ.
Not only were the central banks taking a coordinated approach, the governments were also acting in tandem, he said. As long as the problem was one of liquidity, it was up to the central banks to manage it, but when it became a solvency issue, it became the responsibility of the governments, he said, adding that, fortunately, governments were playing their role.
An outcome of the crisis, according to Dr Reddy, is the âhistorically significant redefining of the concept of the central bankâ.