Do managed currency floats lead to a new gold standard??
Saturday January 13 11:24 PM ET
Asia, Europe Say World Economy at Risk
By Tim Szent-Ivanyi
KOBE, Japan (Reuters) - Finance ministers from 25 Asian and European
nations warned Sunday that the outlook for the world economy had suddenly
darkened because of a slowdown in the United States.
In the draft of a statement to be issued after a two-day Asia-Europe Meeting
(ASEM) in this western Japanese port city, the ministers vowed to keep
taking measures to make their economies more robust and to further reduce
their vulnerability to external shocks.
The communique, which made no reference to recent exchange rate trends, said long-term growth prospects in
Asia and Europe had improved over the past two years, with inflation remaining generally under control.
``However, developments in the recent weeks confirm that downside risks to the outlook have increased,
particularly those associated with the continuing economic and financial imbalances in the global economy, and
slowing down of the U.S. economy,'' the draft statement said.
Ministers were also cautious about the state of the Japanese economy, the world's second-largest, which is
struggling to shake off a decade of sub-par growth following the bursting of a bubble in shares, property and
other assets at the beginning of the 1990s.
The statement noted that Japan's recovery had been only modest and that further deep-seated reforms to the
fabric of the financial and corporate sector were needed to put it back on track for self-sustaining growth,
which it said was important for the rest of Asia.
Officials who have attended the two days of talks have described the tone of the discussion about the world
economy as realistic. Despite short-term risks, some ministers have pointed to the recent decline in oil prices as
one reason not to be excessively pessimistic.
``They shared the view that ensuring a stable energy market was vital to the maintenance of long-term economic
growth for all ASEM members and the world at large,'' the statement said.
Review Of Excahnge Rate Regimes
The communique was largely given over to a review of the opportunities for economic and financial cooperation
between Europe and Asia as well as to the simmering debate over the best exchange rate regime for emerging
market economies to follow in an age of fast-moving capital flows.
France has backed Japan's call for countries to adopt a managed float of their currencies, which would entail
steering their value according to a basket of currencies of their main trading partners.
The draft communique concludes that no single arrangement is necessarily right for all countries all the time. It
said the key lesson of the currency crisis that ravaged Asia in 1997 and spread to Russia and other emerging
economies was that, whatever regime is adopted, governments must follow sound economic policies.
``The experience of recent years suggests that countries now face a much higher risk of financial crisis if they
choose an exchange rate regime that is not backed by coherent and appropriate macroeconomic and structural
policies, as well as strong institutional arrangements,'' they said.
Ministers also approved a replenishment of an ASEM trust fund that was set up to help cushion the blow of the
1997 crisis.
Britain's junior finance minister, Melanie Johnson, strongly welcomed the decision but said its purpose should
now shift from managing the effects of the crisis.
``This second phase of the Trust Fund should focus on assisting countries to implement the reforms necessary
to underpin a sustainable recovery,'' she said. |
