Mr. Yam focuses on how Hong Kong is coping with financial turmoil Text of the “Inside Asia Lecture 1998” by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph Yam, JP, organised by The Australian, Sydney on 23/11/98. Introduction  It is a great pleasure to be in your beautiful city once again, and an honour to have the opportunity to speak to such a distinguished audience. Sydney and Hong Kong - both vibrant international cities with spectacular ports - have much in common. We enjoy growing cultural and economic links and, although some 4,500 miles distant, we are both part of the same region. Less happily, our economies have both taken a hammering from the financial crisis that has recently rocked the region. My focus in this talk will be on how the regional crisis has affected Hong Kong, and, equally important, on the ways in which it has not affected Hong Kong. The Asian Financial Crisis  The complex causes that so suddenly turned the Asian miracle into an Asian mess will no doubt be debated for many years to come. The devastating effects of the massive exodus of capital from the region have been clear enough. In the worst hit economies currencies have devalued by as much as 70%. Stock markets have declined to the levels of ten years ago. Asset prices have sharply deflated, economies have contracted, and unemployment has risen. The region is going through its worst financial crisis since the Second World War.
As for the monetary policy, the Monetary Policy Committee has already cut the policy interest rate twice by a total of 1.75 percent from 3.75 to 2 percent. These were significant reductions by the history of Thai monetary policy. The cuts aim to shore up confidence by sending a strong message that monetary policy can now focus on supporting growth now that inflation is not a threat. They also help shore up domestic demand. Nevertheless, we are mindful that, at this juncture, monetary policy easing may transmit slowly to support economic growth. Second, the Thai private sector has strong underlying strengths to withstand economic and financial volatility. Both business and household debts are low. Our production and service sectors, now adversely affected by the global slowdown, were able to build up profits earlier as a cushion. The agricultural sector continues to show signs of growth. Although agricultural prices have adjusted downward, agricultural production cost such as fuel and fertilizer have also declined, which helps reduce the burden of farmers. Third, the banking system is liquid and resilient. Banks have ample liquidity because they do not rely on inter-bank funding but rather predominantly on domestic deposits. But the Bank of Thailand remains vigilant. We maintain close dialogue with the top management of banks concerning important external developments and stand ready to provide liquidity should such a need arise.