Asias 1997 financial crisis wont repeat itself, even as a slowing Chinese economy unnerves the regions financial markets. So says Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc. He concluded in a June 25 report that current differences outweigh the similarities. While still predicting Asia is headed for slower growth in coming years, Neumann cited several reasons for expecting the continent to avoid another period of turmoil akin to 16 years ago. Then, countries from Thailand to South Korea were forced to devalue their currencies and were propelled into recession. Current account positions are now mostly in surplus, which should cushion the blow from an outflow of capital, Neumann said. Banking systems also appear more robust, with better regulatory systems, higher capital buffers and lower loan-to-deposit rates. There are also no glaring mismatches between assets and liabilities, he said. In the 1990s, most external borrowing was in U.S. dollars. By contrast, most of the debt that investors have taken on in recent years is in local currency, so a surge in the dollar wont impose a spike in debt-service costs. The region also enjoys much higher foreign exchange reserves than in the 1990s and countries have more power to swap currencies at short notice, giving them firepower to fight currency attacks. Still, there are new vulnerabilities, said Neumann. Financial volatility complicates the ability to pay debts and bond markets are now bigger than they were. Whereas in the 1990s leverage lay in the hands of businesses, now its households, small companies and government entities that bear the most debt. On balance the dissimilarities with 1997 outweigh the parallels, said Hong Kong-based Neumann, a former consultant to the World Bank. Asias defenses are more robust nowadays. Most likely, Asias growth has just downshifted to a less spectacular pace. http://www.bloomberg.com/news/2013-06-27/no-1997-asian-crisis-return-as-china-trembles.html
