Asia’s Reserves May Help Ease US Sub-Prime Crisis

Source : TODAY, Thursday, August 16, 2007

ASIA may withstand any fallout from the United States housing-loan crisis because of the US$2.3-trillion ($3.5-trillion) foreign-exchange reserves that emerging nations in the region have accumulated, Nobel laureate Joseph Stiglitz said.

Central banks in Asia’s developing economies, which did not follow counterparts in Europe, the US and Japan in pumping cash into money markets, have enough funds to mitigate the effects of the sub-prime problems, Mr Stiglitz said in an interview in Jakarta.

Central banks injected US$290 billion into money markets last week as concern that US sub-prime mortgage losses will curtail lending drove up short-term borrowing costs.

The Bank of Japan and the US Federal Reserve have since resumed regular refinancing operations. European Central Bank president Jean-Claude Trichet said financial markets are “going back to normal”.

“Since emerging markets are generally viewed as riskier and as risk spreads are unusually low, they will increase,” said Mr Stiglitz, a professor of economics at Columbia University.

Still “the magnitude of the effects will be mitigated by the fact that reserves in most of the countries are very large.”

The region’s markets attracted US$269 billion in capital inflows last year, according to the Asian Development Bank. — BLOOMBERG