Building Asian economic cooperation<\/p>\n
Pana Janviroj, The Nation, Asia News Network, Bangkok<\/p>\n
Is a key mechanism of Asian cooperation about to face a
\nshowdown? Something big is about to happen in the development of
\nthe Asian financial market, at least if recent signs are to be
\nbelieved. And the effects are becoming apparent within one of
\nAsia's boldest forms of cooperation.<\/p>\n
First, there have been news reports about the reluctance of
\nthe Japanese finance ministry to support the bilateral currency-
\nswap arrangements that the country has with a number of other
\nAsian nations. These agreements were put in place to forge a
\nsystem for Asian nations to help one another in times of
\nfinancial crisis.<\/p>\n
Then there was the strongly worded article opposing the
\ncreation of the Asian bond market -- which Thailand has
\nchampioned -- by the two academics who co-founded the Asian
\nShadow Financial Regulatory Committee.<\/p>\n
Herald Benink, a professor of finance at the Rotterdam School
\nof Management, and Ghon Rhee, a professor of finance at the
\nUniversity of Hawaii, co-authored a Financial Times article
\nsaying that the Asian bond initiative is understandable, but
\nmisguided. They said Asian nations would do better concentrating
\ntheir efforts on becoming more integrated with global markets.<\/p>\n
The two professors argued their position on the grounds of
\nefficiency, specifically, cost. The Asian bond vehicle, they
\nargue, is not cost effective and will be self-defeating. But
\nsupporters of the Asian bond argue otherwise.<\/p>\n
They say that there is no better way to bind nations together
\nthan being investment partners. And in a world of financial
\nvolatility, in which market mechanisms are allowed to freely
\noperate, what options do nations have to save themselves from
\nsudden isolation caused by the herd instincts of investors,
\nbankers and hedge fund managers?<\/p>\n
Thailand could easily claim that building up an Asia bond fund
\nor getting bilateral currency swaps to come together to form a
\nregional pool would be well worth the cost. It's a simple
\nquestion of when the crunch comes, what can you fall back on? The
\n1997 Asian crisis is a case to point.<\/p>\n
Former U.S. president Bill Clinton admitted in his memoirs
\nthat neglecting to come to Thailand's aid during the crisis was
\none of the biggest mistakes of his presidency. The politics
\nwithin the International Monetary Fund, meanwhile, also made it
\ndifficult for the global lender of last resort to think outside
\nthe box in terms of the conditions surrounding the Thai economy
\nat the time. Thailand needed a different kind of medicine than
\nthe one prescribed.<\/p>\n
So, emerging Asian nations have toyed with the idea of
\nstarting an Asian Monetary Fund of their own; a set-up which
\nwould only be possible if China could establish an amicable
\nrelationship with Japan. As this political breakthrough was not
\npossible at the time of the financial crisis and continues to be
\nimpossible today, other avenues have been explored.<\/p>\n
These other avenues include the so called Chiang Mai
\nInitiative for bilateral currency swaps among Asian nations
\n(launched by the Chuan government), the Asian Bond Fund (launched
\nby the Thaksin government) and, more recently, the call for a
\nsingle Asian currency (made by the Asian Development Bank's
\npresident).<\/p>\n
Haruhiko Kuroda, the special adviser to the Japanese cabinet,
\nhas suggested that there are five major steps that must be taken
\nin the quest for a single currency:<\/p>\n
1 The Chiang Mai Initiative, which was put in place by the
\nAsean-plus-three finance ministers in May 2000, must be
\nstrengthened.<\/p>\n
2 The greater regional bond market must be developed.<\/p>\n
3 There must be more trade cooperation through free-trade
\nagreements (FTAs) in conjunction with the fourth step;<\/p>\n
4 There must be more cooperation to ensure the stability of
\nintra-regional exchange rates.<\/p>\n
5 Asian countries must develop policy-convergence criteria and
\nintroduce a single currency.<\/p>\n
Certainly, it will take time to establish a single currency.
\nThe key challenge at this time is political rather than economic.
\nAsian nations, unlike their counterparts in the Western world of
\n\"survival for the fittest\", can implement competitive
\npartnerships, a concept that might be alien to others. Also,
\nAsian nations can afford to sacrifice some of the efficiency
\nchampioned by people like professors Benink and Rhee in favor of
\ncooperative efforts to build the Asian Bond Fund into a
\nmeaningful mechanism. It has already accumulated more than US$2.1
\ntrillion (Bt86.9 trillion) in reserves.<\/p>\n
The benefits await: Understanding neighbors willing to help
\nyou out when you face short-term capital flows; a shot at the
\npossibility of creating an Asian currency, which would help ease
\nrisk and the sort of peaceful co-existence that comes when
\ninterests become intertwined.<\/p>\n
The Asians may err. Of course, efficiency will continue to
\nassert itself as the most pressing concern when it comes to
\nallocating resources in this increasingly capitalist world. This
\nis a harsh reality for failed economies. The 1997 crisis taught
\nus not to leave it all to the markets, even at the cost of
\nefficiency.<\/p>",
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