Asia will be unable to solve its economic crisis without meaningful reform and stringent supervision of local financial systems, according to senior U.S. bankers and regulators.
Industry officials and executives at the annual meeting here of the Bankers Association for Foreign Trade said this week that unless such measures are adopted, Asian countries risk a further deterioration of their economic systems.
They also warned that no improvement in the region's economies will be possible unless Japan also reforms its financial system and resumes growth.
"Reforming Asia will be no easy task," said David A. Coulter, chairman of BankAmerica Corp. Characterizing financial reform in Asia as "extremely painful," Mr. Coulter said Asian countries risk sliding back into "cronyism" and political chaos if they fail to adopt the necessary measures.
With the exception of several large globally oriented institutions like J.P. Morgan & Co., U.S. banking companies have escaped major losses since the sharp declines in stock markets and currencies of several Asian countries last year. Thailand, South Korea, and Indonesia were hardest hit.
Regulators and analysts put much of the blame for the crisis on the poor supervision of Asian banking systems, overborrowing, and speculative investments.
William A. Ryback, an associate director of the Federal Reserve System in Washington, noted that regulators worldwide agreed last year to accept commonly defined standards for banking supervision. But he also suggested that it remains to be seen how the standards will be applied and whether sanctions will be taken against countries that fail to carry out sound policies.
"The key word is 'implementation,'" Mr. Ryback said.
Both Mr. Coulter and Edward E. Crutchfield, chairman and CEO of First Union Corp., stressed that their companies will continue to expand globally despite some setbacks and possible negative comments from stock analysts about growing cross-border risk.
"It's not enough to cause anyone to get out of the business or to change course," Mr. Crutchfield said.
The bankers' remarks came amid louder warnings by economists that the Asian crisis is far from over and that the worst may still be ahead.
"The Asian economic crisis is only beginning," said C. Fred Bergsten, director of the Institute for International Economics, Washington. "Nineteen ninety-eight will be a lost year for Asia in terms of economic growth." Mr. Bergsten warned that, unlike Mexico, which experienced a similar crisis in the mid-1990s, Asian countries cannot count on a large neighboring country to bail them out and will not be able to boost their own growth by relying on the strong U.S. economy.
"Mexico had Nafta (the North American Free Trade Agreement) and a friendly neighbor to the north with a booming economy," Mr. Bergsten said. Asia has traditionally relied on the economic strength of Japan, a nation mired in a recession, and it is still unclear whether Japan is going to recover quickly, he said.
Mr. Bergsten warned that the U.S. economy will be hit this year by a sharp increase in the trade deficit, to $300 billion, from $225 billion last year.
He also warned that some non-Asian countries, including Russia, Brazil, and Argentina, are vulnerable to an economic downturn. He added that the International Monetary Fund will not have the resources to help another country in financial crisis unless the U.S. Congress approves additional funding.
Congress has so far declined to approve an extra $18 billion in allocations to the IMF, in part because many lawmakers question the agency's purpose. But Mr. Bergsten warned that "Congress is literally playing around with fire."