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Asia: Coping with the financial crisis (updates)

Updated On: Dec 22, 2008

East Asia will face challenges from the financial crisis as it deepens. The crisis’ sudden withdrawal of investment by foreign investors, the increased cost of capital, slower growth and the decreasing aid for development programs will put on strain on the region.

All these factors may affect lower skilled labor and remittances for economies like the Philippines. Cutting aid for the poor in times of crisis, especially a deepening one like this, will cause even greater distress for the poor.  Better social safety nets within the framework of spending stimulation by the government may serve the dual purpose of aiding the poor while combating the crisis at the same time.

Internally, within the East Asian region, greater cooperation is seen as the way to cope with the financial crisis. The People’s Bank of China announced the establishment of a bilateral currency swap arrangement with the Bank of Korea on 12 December 2008, supporting amounts of up to 180 billion yuan or US$39 billion.  

The arrangement helps to improve short term liquidity and promote bilateral trade. This comes on the back of South Korea’s own bilateral currency swap arrangements with Japan, increasing an existing won-yen arrangement to US$20 billion from US$3 billion that had been in place since May 2005. This upgrading of swap arrangements took place on the same day.

South Korea also already has an agreement that gives it access to US$10 billion from the Bank of Japan in dollars in a crisis while the agreement with China would give them access to 38 trillion yuan at any time for the next three years. A previous agreement with China allows the Korean central bank to get as much as US$4 billion worth of yuan or US dollars during crisis.

All three Northeast Asian powerhouses also agreed to initiate regular consultations with each other on currency stability.

Unilaterally, the efforts are just as intensive.

China’s People’s Bank decreased interest rate in early December 2008 and, for the first time, China participated in coordinated global interest rate cuts on 8 October 2008. Its stimulus package, equivalent to 15% of its GDP is the largest one that any country has ever taken in response to the global financial crisis.

Japan’s PM Taro Aso announced on 12 December 2008 an extra S$165 billion stimulus package to help the Japanese economy through tax breaks and public financing and another 13 trillion to prop up financial markets.

This piggybacks on a 27 trillion yen stimulus package announced in October 2008 which focused on expanded credits for small businesses and a cash payout to every household to stimulate spending.

Like Japan, Malaysia is also injecting an additional RM7 billion (S$3 billion) of public spending into its economy for the construction of affordable housing and publication transportation, to especially prop up its construction industry.  

Meanwhile, some Southeast Asian thinkers are focusing on non-financial related measures such as an overhaul of business education itself with some focus on history to learn from the past. To prevent an incessant focus on profit-orientation, suggestions are made to introduce the humanities in subjects such as political sciences, business history and psychology to have an element of betterment of society.

Another tack is on the augmentation of regulations to combat the effects of the financial crisis. Some models are being explored. Chinese banks are not allowed to support margin trading, lending people money to invest in stocks, limiting the absolute size of losses on the stock market in China.

In Korea, the Act on the Capital Market and Financial Investment Business (the Capital Market Consolidation Act, or the CMCA) will be partially effective on 4 August 2008 and fully implemented on 4 Feb 2009.

Under this legislation, when any financial investment makes an investment recommendation to any non-professional investor, it is require to provide sufficient explanation that the investor understands the financial investment product, the firsts involve in investing the structure and characteristics of the financial investment product in terms of investability, the application fees, the terms for early repayment and the matters regarding the termination of or cancellation of contract, and to obtain confirmation of such understanding from the investor by signature, seal, recording or other method.

Sources:

Adams, Jim, “Asian crisis? World Bank ready to help” dated 11 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A23.

Hale, David, “Financial crisis: Beijing’s careful tack” dated 19 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A26.

Hassan, Hazlin, “Malaysia unveils measures to avert economic slowdown” dated 15 November 2008 in The Straits Times (Singapore: the Straits Times), 2008, p. C18.

Lin, Yanqin, “The lessons of greed and history” dated 13 December 2008 in Today (Singapore: Today), 2008, p. 8.

The Straits Times, “China goes to rescue of Korean won” dated 13 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A5.

The Straits Times, “Tokyo unveils new help package” dated 13 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A5.







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