The International Monetary Fund (IMF) has called on the central banks of the Philippines and other emerging economies in Asia to take a closer look at the way banks manage their liquidity, warning that the effects of the US financial meltdown on the region can be worse than expected.

Specifically, the IMF has advised regulators to see whether nonperforming loans of banks in emerging Asian economies are properly managed and if their loan exposures have adequate capital provisioning.

Any signs of liquidity problems in their banking sectors should be immediately addressed by implementing policy measures available, the IMF said.

'since the global financial system is linked, that implies that problems in the financial system in one part of the world can have implications in other parts of the world. It is a good preparation measure to review banks- practices with respect to liquidity management," said Reza Baqir, the IMF resident representative to the Philippines.

Baqir said in a speech delivered at a business conference Thursday (October 23) that the exposure of emerging economies in the region to the United State--"not only in terms of exports but also in terms financial instruments handled--has increased from the 1990s.

In his presentation, Baqir said the share of financial instruments issued in the United States and held by banks and other entities in emerging Asia jumped to 13.1 per cent in 2006 from 4.6 per cent in 1994.

In terms of exports, the share of purchases of the United States to the total export earnings of emerging economies in Asia has risen to 15.9 per cent in 2006 from 12.0 per cent in 1994.

Baqir said that because of globalisation and rising exposure to the United States, "what happens to a bank from the other side of the world (referring to the United States) may affect banks in this region."

He said that given the increase in the exposure of emerging Asia to the United States, there is now a stronger correlation between their economic growths. For every percentage-point drop in the US economy, Asian economies contract by 0.25 to 0.5 percentage point, Baqir said, citing IMF estimates.

But he stressed that the correlation between the performance of the economies of the United States and those of emerging Asia could even be higher than estimates currently available.

"The crisis we face today is the worst since the Great Depression, and so statistics based on the past 15 years might not fully capture the impact of the US crisis on emerging Asia," Baqir said at a business forum organised by the Confederation of Asia-Pacific Chambers of Commerce and Industries.

The IMF official underscored the importance of intensifying the monitoring of banks and financial institutions in emerging markets. He said the impact of the US financial crisis on emerging Asia had so far proven to be limited and the region remained to be the global economy's growth driver.

But "the crisis has reached the emerging markets... and risks are on the downside", he said.

Baqir said one of the IMF economic indicators pointed to the possibility of a global recession in the near term, influenced largely by the financial turmoil in the United States.

This means there is a probability that the global economy will grow by only 3.0 per cent this year, he said.