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Following is the speech (English only) by the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, at the 31st Asian Development Bank (ADB)Annual Meeting in Geneva today (Thursday):
I would like to extend my gratitude to the Swiss authorities and the people of Switzerland for their generous hospitality. I would also like to thank the Bank's Management and staff for the excellent arrangements at this Meeting. Our experience in organising the 1997 Annual Meetings of the World Bank and the International Monetary Fund (IMF) in Hong Kong told us that the running of an international event of this scale is not an easy task. I am also impressed by this beautiful city and the tranquillity of Lake Geneva, which is quite a contrast to the stormy seas of Asia.
I would also like to add our special welcome to our new member of the Bank - Tajikistan.
1997 was an exceptionally busy year for the Bank. It began with the excellent news of the agreement on a US$6.3 billion replenishment of the Asian Development Fund in January. With hindsight, this was opportune in light of the unfolding Asian financial crisis.
The Asian crisis caught us all by surprise by its ferocity and speed of contagion. There are lessons to be learnt. The currency turmoil is telling us how and why our wealth could be cut by half because of weaknesses in the financial intermediation process in Asia which made us vulnerable to volatile speculative capital flows. According to IMF statistics, net capital inflow to emerging markets was less than US$50 billion a year at the beginning of the decade, but by 1996, this was increased to US$235 billion. Asia alone has received roughly half of this capital inflow. However, these funds were withdrawn when investor confidence was shaken by the inadequacies in regulation and supervision of financial institutions, lack of risk management and poor corporate governance. What initially started as a liquidity crunch turned very quickly into a massive solvency crisis in the affected economies.
As the crisis deepened, international institutions responded quickly. I am pleased to see that the ADB, in coordination with other international financial institutions (IFIs), has promptly provided financing to the three affected economies of Indonesia, South Korea and Thailand. The Bank's commitment to the region's financial development was not only limited to these three economies. We noted that the Bank's total loans to financial sector in the year 1997, excluding the loans to South Korea and Thailand, was US$363 million, representing a 70% increase over the 1996 figure.
In addition, the Bank is also providing technical assistance to the Pacific member economies and assisted the APEC economies in the development of the Voluntary Guidelines for Facilitating Private Participation in Infrastructure Development and the Guidelines for Promoting Financial and Capital Market Development. We applaud the Bank for providing a strong contribution to the region's financial and monetary stability.
I mentioned earlier that one of the major factors leading to the Asian financial crisis was the short-term liquidity crunch that emerged at the beginning of the crisis. Even though the IMF mobilised financing totalling US$110 billion for three programme countries in Asia, with two-thirds coming from the IFIs, and one-third from bilateral financing, it was still insufficient relative to the market needs. Such official liquidity cannot come fast enough and at the right price to calm the international investors.
I acknowledge that, given the sheer size of the public and private sector foreign currency debts of the affected economies, the role of this international lender of last resort cannot be fulfilled by the IMF or any single central bank without the participation of the private sector. I also understand that it would be difficult for the IMF to take on the role by itself since it apparently cannot raise funds from the market because of its quota constraints. However, I believe that the Multilateral Development Banks (MDBs) have perhaps a role of assisting in the recycling of international liquidity. They can complement the IMF resources by using their substantial and already established market mechanism to raise funds from the market and recycle them. There are variants of this MDB financing. For example, they could issue bonds themselves and channel liquidity or provide guarantee or credit enhancement on bonds issued by the adjusting economies. This could help to develop a deep and mature Asian bond market, and encourage Asian economies to invest their official reserves in the region.
Another dimension to develop Asian bond markets is for the IFIs to issue bonds in Asia to act as the catalyst for the nascent Asian bond markets. As we all know, Asia has the highest saving rate and more than half of the world's reserves belong to Asian economies. There is tremendous appetite for high quality fixed income instruments from Asian investors and central banks and monetary authorities. I note that the Bank has not been a frequent bond issuer in Asia and in the Asian currencies. Being the only development bank in Asia which is majority-owned by the Asian and Pacific economies, and was established with the objective of promoting and developing the economies and markets in the region, I think the Bank should focus its efforts on developing the Asian bond markets and should be more active in issuing bonds within the region. Indeed, if the ADB were to issue bonds to fund Asian financial sector development to help alleviate the intermediation problem in Asia, Hong Kong will be one of the first to invest in such bonds.
Mr President, I am sure that you are conscious of all these issues. I sincerely hope that, after today's meeting, the ADB should be undertaking more work in these areas.
Thank you.
End/Thursday, April 30, 1998
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