GLOBAL financial liberalisation should be undertaken in careful stages to avoid the financial instability that could cause socio-political problems, Public Bank Bhd said in a recently published paper entitled Globalisation: New Realities.
The bank warned of the dire consequences that could beset emerging countries such as Malaysia if the process of global integration was done without consideration for the countries stages of development.
It said although there were clear benefits to financial globalisation, such as greater choices and lower costs for consumers, the cost to the country of such a process handled badly could be more than it can bear.
There must be a fine balance between the need to maximise the benefits and the need to maintain financial stability for long-term sustainable growth, it said.
The recent Asian financial crisis and its aftermath, the bank said, suggested that financial markets were becoming more volatile, and posed a threat to financial stability, particularly to the banking system.
The report highlighted the dangers posed by excessive volatility in asset prices (such as property prices, share prices and exchange rates). It said that following the Asian financial crisis, asset prices were misaligned from economic fundamentals for a considerable period of time and this was a risky state of affairs.
The repercussions of financial market instability on the emerging market economies could be enormous as it could quickly transmit from the financial markets (such as the asset and foreign exchange markets) to the real economic activity.
This would further disturb the social-political stability of the countries, it said.
Drawing from the experience gained during the crisis, it said countries needed to better manage the globalisation process such that they experience net gains and become more resilient and better prepared to deal with new shocks associated with the process.
A gradual and careful sequencing integration into the global economy ensures that the emerging market economies will benefit from the globalisation process, it said.
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