NUSA DUA, Indonesia (Reuters) - Japanese Prime Minister Yoshihiko Noda said on Saturday Asia needs to consider further steps to avoid a financial crisis as the euro zone’s debt problems could spill into the region.
While Asia has become more resilient due to its economic management since the region’s own financial crisis in 1997/98, it is not immune to Europe’s problems, Noda said.
“I don’t think Asia is necessarily vulnerable to external shocks (from Europe),” Noda told a news conference after the East Asia Summit on the Indonesian resort island of Bali.
“Given efforts to conduct sound economic policy, the region generally enjoys a current account surplus and its foreign reserves are at high levels, so it has become more resilient to external shocks.”
“Having said that, there is no doubt that we could face adverse impact if we cannot build a firewall against the European crisis.”
Policymakers around the world are worried that Europe’s inability to unify around a debt strategy could hurt their economies.
Greece, Ireland and Portugal - all small, peripheral euro zone economies - have already been forced to accept EU/IMF bailouts as they can no longer afford to borrow commercially.
Now Italy’s borrowing costs have reached unsustainable levels, while Spain’s are nearing this point and the crisis is even starting to affect triple-A rated France.
While giving no details on what kind of further steps Asia should take, Noda said boosting regional financial cooperation is basically the way to go as Asia tries to prepare itself for possible meltdowns in Europe.
Japan, China and South Korea lead a $120 billion emergency fund, under the so-called the Chiang Mai Initiative, with the 10-member Association of South East Asian Nations (ASEAN) - part of a move to strengthen ties and avert the repeat of the 1997-1998 Asian financial crisis.
In a move to beef up its foreign exchange defenses in the wake of global uncertainties, South Korea last month signed an agreement with China to double the value of their bilateral currency swap pact after securing a similar deal with Japan.
In addition to such efforts, Asia needs further crisis prevention measures, Noda said.
“Japan is leading discussions on how to prevent crisis and on introducing further steps to avert crisis at a regional level. We need to quickly wrap up those and I proposed that at the summit of ASEAN+3 (ASEAN plus China, Japan and South Korea).”
Editing by Jason Szep