With its 3.2 billion people, Asia is the world's most rapidly expanding region in terms of national product, trade, and investment flow. The Asian economic miracle has now reached the critical mass needed for self- sustainable economic growth and world influence.
Among the most potent forces leading this transformation have been Asia's growing ability to develop new capital sources to meet its voracious needs and a pragmatic approach to financial reform that is streamlining the ability of the region to effectively manage its vast pools of money.
A decade ago, the chief sources of capital in Asian nations were Japanese investments and export-led growth from the more industrialized nations such as Korea and Taiwan.
In the 1990s, all this is changing. Traditional sources are still important, but they simply do not have the capacity to fill the region's rapidly expanding demand for capital. For example, according to the Asian Development Bank, the capital needed to fund Asian infrastructure growth alone will total more than $1 trillion in the next five years.
Now, local capital markets are available for Asians to invest their savings at home. The domestic economies of most Asian nations are increasing in importance relative to their export activities. The more developed Asian economies are investing heavily in other Asian nations, and intra-Asian trade is booming.
The region's security markets are also expanding, maturing, and becoming less volatile. Local currency bonds could ultimately replace the "dragon" bond market, which was initiated by the Asian Development Bank in 1991. This could diminish the foreign exchange risk associated with "dragons," which are typically denominated in U.S. dollars and listed on Asian markets outside of Japan.
Asian nations also have increased access to international financial markets, including the long-term U.S. debt markets, via such instruments as private placements and U.S. commercial paper. Yankee bonds (U.S. dollar- denominated bonds issued by borrowers outside the United States) are increasingly popular.
In addition to traditional government or public-sector borrowing, an evolution toward new financing options is under way to leverage private debt funding, increase privatization, and facilitate project financing through export credit agencies.
Along with the surge in available capital has come Asia's ability to manage these resources in globally up-to-the-minute ways. Over the past decade, Asian financial reforms have transformed financial systems from domination by central banks to systems in which private banks play preeminent roles and operate much as they do in Organization for Economic Cooperation and Development countries.
Market forces in Asian nations were also given a boost by the recent World Trade Organization agreement on global financial services, which provides banks, securities firms, and insurance companies all over the world with unrestricted access to more than 90% of international financial business.
The Asian financial playing field is evening out, but it is still far from level. Reforms need to continue in a number of areas including:
*Further expansion of capital markets.
*Credit and interest rate controls.
*Money markets that enable a central bank to conduct market-sensitive monetary policies.
*Clearing and settlements systems that enable money to move quickly and efficiently.
*Recapitalization of financial-sector institutions, as necessary.
*Regulatory reform to protect depositors and limit the potential for large portfolios of problem loans.
These types of reforms will increase competition and may cause some short-term pain to segments of the Asian financial services industry. But if I have learned one thing during my years as a private banker and with the World Bank, it is that as countries liberalize their trade regimes and economies, they strengthen those economies. All of us should continue to voice our encouragement for greater use of market forces in Asian economies, a process which will benefit not only the businesses and citizens of Asia, but the rest of the world as well.
Mr. Clausen, retired chairman and chief executive of BankAmerica Corp. and onetime head of the World Bank, is currently vice chairman of the Committee for Economic Development.
