Montek warns against convertibility

quot;We need to address the weakness of our banking system even as we need to be cautious in adopting a capital account convertibility otherwise we could land in a situation like the Indonesian crisis,quot; warnedAhluwalia.

Instability and volatility in the exchange rates is not caused only by the foreign factors but the weaknesses in the domestic monetary setups were equally to be blamed.

The excessive reaction to a minor aberration could compound the situation leading to excessive speculation and erosion of international confidence in a economic system. This would ultimately lead to oveshooting of the exchange rates and instability in the monetary and exchange rates in the domestic market bringing about a collapse of any economic system. As had happened in the Latin American countries.

In the Indonesian case, the economic system with an open system managed to build up huge short term debt but at the same time the fall in the international confidence led to the collapse of the banking and monetary systems.

Regarding the apprehensions evinced by Indian industry on the fate of the trade and commerce once the WTO rules are fully implemented, Montek said that the apprehensions were justified as even economies inthe developed world had expressed similar initial fears. But he added: quot;the Indian industry is fully competent to handle the processes of the trade liberalisation under the WTO.quot;