rate itself. this could become self - reinforcing and lead to further capital outflow and a yet lower exchange rate. there has been a tendency for this to occur over the past 12 months. for this reason, and others, we have seen exchange rates in some asian countries that have fallen to half of their level a year ago or, in indonesia ’ s case, a quarter. falls of this size defy economic logic and serve no useful institute of international finance. remarks before the annual financial conference of the federal reserve bank of atlanta, miami beach, florida, 27 february 1998. economic purpose. indonesia was a successful trading nation a year ago at its former exchange rate, with a healthy growth of exports and a modest current account deficit. there is no value to indonesia, to the region or the world in now having an exchange rate at a quarter of its former level. any collective solution to the current troubles in asia should have as a priority the aim of restoring exchange rates a fair way towards their former value. we should not lose sight of what we originally intended to do when the international support packages were put together for thailand, indonesia and korea. our aim was to allow an orderly economic adjustment and to minimise the risk of further contagion into other parts of asia and the rest of the world. our aim was not to capitalise on any of these countries ’ difficulties in order to bring about a political transformation. some of the steps towards the restoration of a more realistic set of exchange rates are already occurring. most, if not all, of the troubled asian countries have returned to trade surplus and, probably, current account surplus. although it would be a great help, it is not absolutely necessary to restore capital inflow ; in the short term, all that is needed in order to provide some upward pressure on currencies is to prevent further capital outflow. the collective agreement among major banks to rollover korean bank debt, and then to reschedule it, was a good example of what can be done. if there is insufficient initiative or cohesion among private lenders to indonesia to follow the korean lead, then a greater involvement of governments and the imf is required. whatever the details that are finally worked out, there can be little doubt that the overwhelming priority is to rollover, reschedule, restructure existing debt or do whatever else is necessary to prevent further capital outflow.

mr. macfarlane gives an overview of the asian situation from an australian perspective talk by the governor of the reserve bank of australia, mr. i. j. macfarlane, to the american australian association, in conjunction with the asia society, the downtown economists inc., new york association of business economists and the international economists club held in new york on 11 / 3 / 98. this is my first opportunity to address such an important audience in new york, but i hope it will be the first of many such occasions. i have chosen as my topic the current asian situation, which as you can well imagine is exercising a lot of our time and thought in australia at the moment. we like to think that there is a lot of expertise in asian affairs in australia among our policy - makers, in our universities and in our press, and that therefore an australian perspective could have interest for a wider audience. forecasting economic crises the events in asia over the last 18 months have raised again the issue of whether it is possible to forecast economic crises. the international community went through the same self - examination after mexico in 1994, and a large amount of research was done on the subject much of it by the imf. it sounds as though it should be easy. we can all point to obvious signs of trouble in particular countries - in mexico, the over - valuation of the real exchange rate ; in thailand, declining exports and widening current account deficit ; in korea and indonesia, the large amount of unhedged foreign borrowing. this type of casual empiricism, however, is not good enough ; it tends to highlight a different factor for each country. to be a useful forecasting device, we need to identify a set of characteristics that is nearly always present in all countries that are about to experience an economic crisis. a number of economic studies have set out to do this, and have found a few useful regularities, but not much more. the results have disappointed those who hoped for a forecasting kit which would enable them to pick the timing of the next crisis and the countries involved. the private sector has not done any better as a forecaster, judged by interest rate spreads and credit ratings. the spreads between asian interest rates and comparable us rates narrowed during the 1990s to reach a low point in the first half of 1997 just as the problems were about to unfold. the ratings agencies made no downgrades in the first half of 1997, and compounded the problem by making a flurry