MUMBAI, March 30: The last of the shocks from southeast Asia may not be over yet. According to Institute of International Finance, Washington, managing director Charles Dallara, chances of new disruptions in the region are very much alive, especially from Indonesia which is reeling under a new crisis of confidence on the exchange front.Dallara was delivering the Exim Bank commencement day lecture on "Outlook for emerging markets and India following the Asian currency crisis" in Mumbai on Monday.
An expert on emerging market economies, Dallara said that countries like India, which have managed to stay clear of the contagion effect of the southeast Asian crisis, will have to guard themselves against fresh disruptions in the region. These may get triggered off by the current recession and the ensuing unemployment in the region. According to him, the projections of an early recovery in the region may not materialise because apart from foreign lenders, their own domestic banks and institutions have reducedexposures to the corporates.
Early in the day, Dallara also addressed the Reserve Bank of India (RBI) officials at a seminar presided over by RBI deputy governor YV Reddy. Stating that he was optimistic about the Indian economy, Dallara gave credit to the RBI for its "careful, sound and deft handling of the monetary and the credit policies in the recent years."
Presiding over the Exim Bank function, the chairman of the committee on capital account convertibility (CAC), SS Tarapore, once again advocated the need for a real effective exchange rate (REER) monitoring band for the rupee.
He said that a viable and sustainable exchange rate should be worked out so that a freefall of the rupee is completely ruled out. "The reason for totally discounting any freefall of the rupee is not merely related to the kind of exchange rate policy pursued by the authorities or an article of faith, but the important fact that India has a secular track record of a low inflation rate and so long as inflation is containedwithin a 5-6 per cent range, there would be no reason whatsoever to expect a freefall in the rupee," Tarapore said.
According to him, a number of safeguards in the Indian system prevented the contagion effect from spreading to India: Restriction of external commercial borrowings, current account deficit being less than 2 per cent of the GDP, a strong reserves position at $28 billion, short-term debt-plus-portfolio stocks as a percentage of forex reserves minus the forward liabilities being around 100 per cent and the net foreign exchange asset-currency ratio being maintained at 70 per cent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
