Mitsuhiro Furusawa, Deputy Managing Director of the IMF, recently commented on the challenges of financial reform and financial stability in the Asia-Pacific region, only to conclude that the area could teach Europe how to withstand volatility.

According to Furusawa’s speech: “One core lesson that is particularly important to a region that has experienced extraordinary success and financial instability over the past generation: neither financial stability nor economic growth cannot be achieved by standing still. It is only through a process of constant vigilance and reform that continued success can be assured.”

The IMF believes Asia’s ability to recover from financial instability is down to policy frameworks that allow more flexible exchange rates, and the promotion of financial stability through the strengthening of bank capital.

The [Asia-Pacific] area could teach Europe how to withstand volatility

Southeast Asia has reportedly been a “bright spot with vigorous momentum in ASEAN countries – as domestic demand has helped to offset slower exports”, in turn helping favourable demographics and societies seeking higher standards of living.

A threat to stability
But while emerging and developing economies within Asia continue to provide the most important contribution to global growth, Asia’s growth has slowed due to China’s deceleration towards six percent growth.

China therefore poses a risk to Asia’s growing stability, due to the country’s economic rebalancing and global economic and financial conditions. Additionally, growth has slowed due to world trade, weak commodity prices and tighter credit conditions. Nevertheless, the IMF believes that China’s corporate debt is manageable.

Initiatives to maintain Asia’s reputation on the global growth scale include the financing of infrastructure development, deeper markets and inclusive financing. According to the IMF, the region must “go beyond traditional banking practices for both consumers and corporations”.

The IMF believes innovation is crucial; Asia needs to commit to expanding financial services, thus giving everyone a stake in the economy, as well as launching new macro and technological financing such as mobile banking.