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Asian Recovery Carries Risks That Reforms Stall

Reserve Bank Deputy Governor, Murray Sherwin today warned of a risk that the faster than expected return to growth in Asia could reduce progress with still needed reforms in some countries.

That's come in speech to the International Law Association in Wellington entitled Reforming the Global Financial Architecture: Some New Zealand Perspectives.

Mr Sherwin said, "My concern is that the reform process remains inadequate. Indeed, the risk now is that an early return to positive growth is, in some cases, weakening the political will to undertake those still necessary domestic policy reforms. To that extent, the recovery now underway is that much more susceptible to reversal and that much more vulnerable to further crises in the future."

Mr Sherwin described reforms to the international financial system which are under consideration, saying that improved standards for national statistics, improved accounting and audit standards, and new codes of good practice in fiscal and monetary policies were likely to be the most significant outcomes of the global financial system reform effort.

Mr Sherwin said that the Asian crisis was different from those that the IMF has been accustomed to dealing with in the past, in that its origins lay mostly in the private sector rather than with monetary or fiscal policies.

"Raising large scale public funding for rescue packages, as had been done in Thailand, Indonesia, and was done more in 'virtual form' for Korea, will be difficult to repeat in future. This is particularly the case where funds raised from the taxpayers of the international community are seen to be going mostly to facilitate the escape of private investors from investments that have turned, for whatever reason, to mush," he said.

For that reason, there has been intense debate about "measures by with the private sector would be obliged to take a share of the downside risk of cross-border investment," Mr Sherwin concluded.


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