The stability of the financial system is vital to achieve sustainable macroeconomic growth among member economies of the Asia Pacific Economic Cooperation (APEC) group.

This view was shared by about 100 delegates attending Wednesday's APEC Finance and Development Programme 2003 Annual Forum in Shanghai. Among them were senior officials from financial ministries for members, as well as representatives from central banks and several international financial institutions.

Under the theme Establishing Stable Financial Systems: Policy and Challenge, the forum focused on key issues related to the stability of financial systems in Asia.

Tae-shin Kwon, deputy minister for International Affairs at the Ministry of Finance and Economy of the Republic of Korea, said the instability of financial systems may deteriorate during its intermediary functions. "(It may) also distort decision-making in consumption and investment, thereby causing a contraction in the economy," he said.

Sensible measures should be developed to prevent a financial crisis and to control vulnerabilities in the financial system, he added.

"The government should go along with the most minimal and market-friendly regulations," he told the forum.

A balanced development of the financial markets between the lending sector, and bonds and stock markets should be attained as well.

He also noted that supervisory authorities should encourage financial institutions to keep adequate capital, disclose relevant information and establish risk management systems.

According to V. Sundararajan, deputy director of the Monetary and Financial Systems Department under the International Monetary Fund, there are a number of areas where better compliance could contribute to sounder institutions.

"In some developing economies, compliance with the best practices regarding credit policies and connected lending is weak, and poor lending practices remain by far the most serious threat to banking stability," he said.

(China Daily October 16, 2003)