A collective Asian effort to establish a regional financial fund or the introduction of a new international financial architecture could be the possible answer to solve any future financial crisis in Asian countries, said an academician today.
Prof Lee Poh Ping, from Universiti Kebangsaan Malaysia, also said that alternatively, Asia could help improve the present architecture by increasing the Asian voice in the International Monetary Fund (IMF) and the World Bank.
On the regional body, Lee said, the establishment of some kind of a fund will ensure that there are sufficient reserves to meet a repeat of the 1997 financial crisis.
"The introduction of a new architecture can minimise if not altogether get rid of a 1997-type crisis," he said in his paper entitled "Globalisation: How should Asia respond" at the International Conference on Globalisation in Kuala Lumpur today.
Lee is one of a host of speakers to present papers on globalisation in the conference which is jointly organised by Institute of Strategic and International Studies (Isis) and the Finance Ministry.
Lee said that globalisation is a series of processes, one of which is financial globalisation where a country opens up its financial system to international capital penetration.
He added that this process was accelerated in Asia in the early 1990s as a result of many Asian countries listening to the advice of the "Washington consensus".
"The movement of capital in and out can have negative consequences for Asian countries that do not have the proper regulatory structures to handle such movements.
"This is seen in the recent Asian financial crisis where the currencies and economies of many Asian countries were devastated as a result of such outflows," said Lee.
The Asian financial crisis started in Thailand in 1997 after the Thai authorities abandoned their informal pegging of their currency to the US dollar and floated the Thai baht following heavy speculation on the currency by international financial traders.
From Thailand, the breakdown of currency values quickly spread to the other Southeast Asian countries and South Korea, causing a devastating financial crisis.
Lee said that it was undeniable that the capital outflows were not only a major reason for the crisis but also the trigger that brought it.
He added that it was evident from the crisis that the affected Asian countries could not easily handle the crisis on their own due to their lack of currency reserves needed to maintain the stability of their currency.
"In trying to meet the attack on its currency, Thailand wasted much hard currency to no avail. Similarly Indonesia and Malaysia did not have enough reserves of their own to individually defend their currencies from falling as a result of capital outflow," he said.
Lee said that the IMF, which responded to the calls of the affected countries for assistance, had implemented a 'one size fits all' approach with its vast possession of capital.
"It (IMF) is not sensitive to social and cultural variations. Moreover, by its insistence on conditions for its loans, many of which may not be directly related to repayment activities, it could compromise the sovereignty of the recipient countries," he said.
"Thus, if a national or a global approach is not totally satisfactory to the solution of financial globalisation, a regional approach may be what is called for," Lee suggested.
He said that regional awareness of the need to act together was seen in the increasing acceptance of Asians to the idea of an Asian Monetary Fund (AMF).
Lee also noted that there was less apprehension, especially in Southeast Asia, of Japanese domination through such a fund.
"Most Southeast Asians are happy recipients of the Miyazawa Plan, seen by some as some kind of an AMF," he said.
In the aftermath of the financial crisis, Malaysia rejected assistance from IMF and successfully implemented some unorthodox policies, including selective currency controls, to counter the crisis. Prime Minister Dr Mahathir Mohamad has also been advocating for the setting up of a regional funding body to provide financial assistance to affected countries.
The Malaysian leader is of the opinion that the international funding organisations such as the IMF and the World Bank impose too many conditions on the economy and political agendas of the countries that have taken loans from them.
In Indonesia, the adoption of some of the IMF conditions resulted in riots following economic instability and there is an increasing backlash from the Thai population stemming from the opening up of their economy to foreign penetration as a result of IMF advice.