SE Asia central banks meet to discuss financial markets

(AFP)   

The financial leaders of these exporting nations are meeting for two-days as policy makers globally try to tackle the global credit crisis that is threatening to drag on worldwide economic growth.

The meeting "addresses the problem of uncertainties in the global economy which, by now, I think everybody has realised is getting bigger and we have to try to make efforts in these conditions to maintain macroeconomic stability," Burhanuddin Abdullah, Indonesia's central bank governor, told a news conference.

The dollar slumped this week to a record low against the euro and a basket of major currencies. It stands at a 13-year low against the yen.

Most Southeast Asian currencies – the Thai baht, Malaysian ringgit, Indonesian rupiah, and Singapore dollar – have risen against the dollar. The baht, for example, is up 7.9 per cent since the start of the year.

But the Philippine peso has eased 0.3 per cent and the South Korean won has dropped 7.3 per cent.

The credit crisis emanating from the US housing market has engulfed US banks and hit the world's biggest economy hard, reflected in data that some economists believe suggests the US is already in recession.

Hartadi Sarwono, a deputy governor at Bank Indonesia, said the dollar will be discussed by the financial leaders.

"But it will not be specifically about the weakening of the dollar itself because we don't know whether it will get weaker or stronger," Sarwono said.

A weak dollar can make Asian exports more expensive and has sparked worries in financial markets that central banks might diversify their foreign exchange reserves, which are heavily weighted in favour of dollars.

Philippines' central bank governor Amando Tetangco said this had already been happening even before the dollar's slide and it would continue.

Some central banks had indicated previously that they would not allocate fresh inflows of foreign exchange reserves so heavily in favour of dollar holdings.

"Diversification is always a good thing, it is something that central banks have started to do even way before" the dollar's recent weakening, Tetangco told reporters.

Other central bankers declined to comment.

Asian economies rely heavily on exports to the United States, so governments and bankers fear the weaker dollar and economy is likely to crimp Asia's growth.

"What happens now is the turbulence comes from the biggest country, the United States, so I think the discussion will be around that subject," Indonesia's governor Abdullah said.

Abdullah said the central bankers will discuss efforts to deepen their financial markets, for example by having more liquidity and more debt instruments to help ease the impact of external shocks.

"What are the policy options available for us? Standard literature has suggested financial market deepening," said Abdullah.  (Reuters)