REGIONAL ECONOMIC CONCERNS What's next as ASEAN+3 integrates? By YOSHIHIRO IWASAKI Special to The Japan Times
MANILA -- As we watch with interest the expansion of the European Union, the 10-member Association of Southeast Asian Nations plus Three (China, South Korea and Japan) continues to make its own progress toward regional economic integration. Needless to say, there is a long way to go. But the question is no longer whether the region should integrate, but rather when, how quickly and in what areas. It has been nearly seven years since a financial crisis struck the region. Despite a rapid recovery, momentum toward increased integration has never been stronger. The Asian crisis provided impetus to address major structural weaknesses in regional economies -- especially in the financial and corporate sectors. It also prompted economies in the region to take historic initiatives in regional monetary and financial integration to enhance resilience to external shocks. And clearly the region intends to move forward in this direction. ASEAN+3's postcrisis initiatives thus far fall into three broad categories: The first consists of peer review and policy dialogues under the ASEAN+3 Informal Policy Dialogue. The second consists of more technical and substantive actions -- such as currency-reserve sharing under the Chiang Mai Initiative (CMI). Finally, in the area of capital-market development, we have the Asian Bond Market Initiative. The key issue now is how to sequence the next steps in integration: At what speed should ASEAN+3 proceed? Is there merit in formalizing and intensifying the process of regional policy dialogue? Should the bilateral currency-swap arrangements under CMI -- now at 16 for a total of $36.5 billion -- be expanded and multilateralized? Is a centralized currency-reserve pooling arrangement needed at the regional level? And should ASEAN+3 aim toward exchange-rate policy coordination? Many of these issues may be discussed Saturday by ASEAN+3 finance ministers gathering for the annual meeting of the Asian Development Bank (ADB) on Jeju Island in South Korea. A recent ADB book -- "Monetary and Financial Integration in East Asia: The Way Ahead" (MacMillan 2004) -- addresses these issues. The financial crisis showed us how badly "financial contagion" can affect regional economic and social development. Greater and more fluid information exchange, economic monitoring and policy dialogue are not merely pragmatic necessities. These measures also help build trust among nations. And that is a crucial element for success in other, more intensive steps toward regional integration. Along this line, the ADB study recommends establishing an independent, technical body -- the Regional Policy Dialogue Unit (RPDU) -- and a higher-level decision-making body, the Regional Surveillance Group (RSG). The RPDU would provide both a warehouse of information on the region's economies and an independent analysis of regional economic concerns. As a technical body, it would report regularly on macroeconomic and financial market conditions to the RSG, which could then take actions when required. The Chiang Mai Initiative is a significant step. But compared with ASEAN+3's hard-currency official reserves of $1.5 trillion and the magnitude of emergency support provided to the crisis-affected countries by the international financial institutions during the 1997 crisis, the current CMI arrangement of $36.5 billion is small. The ADB study, therefore, recommends that ASEAN+3 countries consider expanding and multilateralizing their swap lines initially by earmarking a certain amount of their foreign-exchange reserves for short-term emergency financing. In the medium term, ASEAN+3 could consider establishing a central reserve fund where the earmarked reserves could be merged and managed in line with strengthened regional economic monitoring. Another important ASEAN+3 initiative is the Asian Bond Markets Initiative (ABMI). For the first time, ASEAN+3 members are getting together to develop bond markets to mobilize savings more efficiently for the benefit of the region and to avoid the double mismatch of maturities and currencies. A developed regional bond market will also facilitate mobilization of long-term resources to finance the region's development requirements. The ABMI is also launching the Asian Bonds Online Web site at the Jeju meeting. Growing trade interdependence means that intraregional exchange-rate stability is a desirable objective. Several options are being considered, including a common basket pegging of regional currencies, and even the eventual adoption of a common currency. But exchange-rate cooperation requires macroeconomic policy coordination, which will take considerable time. It is also more of a political issue. And experience elsewhere, especially Europe, suggests that a common currency is perhaps the final step toward regional economic integration. ASEAN+3 has come a long way. But it still has a long way to go. It is clear, however, that there is a growing eagerness among policymakers and business leaders alike to accelerate regional integration and to find the appropriate way forward. This should be applauded and encouraged as we move forward at meetings like those in Jeju. Yoshihiro Iwasaki is a senior official with the Asian Development Bank in Manila. The Japan Times: May 12, 2004 (C) All rights reserved [Non-text portions of this message have been removed] ------------------------ Yahoo! Groups Sponsor ---------------------~--> Yahoo! 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