ASEAN 'must cooperate' in financial arena

ASEAN 'must cooperate' in financial arena

SINGAPORE (Reuter): Southeast Asia will suffer more pain over the next few months after its bruising in the currency market, Deutsche Bank Group chief economist Norbert Walter said on Monday.

"I think it is quite obvious that (they) will go through considerable pain over the next few months in a number of countries," he told a news conference.

Walter said the Association of South East Asian Nations (ASEAN) rallied around to defend some currencies during July's currency turmoil, but there could have been more institutional co-operation in place before the attacks.

Unlike Mexico, which had the United States come to its aid when its economy contracted sharply in 1995, ASEAN's larger economies may not be ready or willing to play "big brother".

"Japan has proven generosity and, of course, proven interest, but Japan has not unlimited resources," he said.

Walter said it would have benefited the region to have had assistance from some Chinese economies with large reserves. China, Taiwan and Hong Kong could in future be invited by ASEAN to co-operate with its governments and central banks.

Walter said ASEAN, as an economic body grouping Brunei, Myanmar, Indonesian, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam, does not have the institutional cohesion of the European Economic Union (EEC).

He said the establishment's secretariats and the occasional policy meeting were not enough to address regional issues of common interest in a strong and impressive way.

Drawing from the European experience, he said economies vulnerable to speculative attacks were insulated by "tacit co- operation" between central banks.

"The institutional set-up of Europe was considered a bulwark against speculative attacks...tacit cooperation between central banks is something that has to be institutionalized," he said.

Walter said there was also a need for substantial corrections in many countries and for the region to build up its institutions to withstand financial crisis.

"Quite a few political agents have to learn the intracacies of this delicate market, and have to learn not to always speak with their mouths and to control their body language," Walter said.

He suggested that some governments avoid making announcements of their close relationships, as these could prove costly in highly sensitive currency markets.

Walter said it was hard to predict how long it would take for Southeast Asia's currency and stock markets to stabilize.

"The contagion effect, in my view reflects, the world's belief that the region is more homogeneous than it is," he said.

He said, however, that when calm returned to the markets the differences would then show up more clearly.

Walter said if some economies enforced corrective measures, currency speculation would subside and move elsewhere.

He said the region's bullish real estate sector was an example of something that could not go on indefinitely. Walter said a turnaround in the region would depend on how inflation and costs are contained.

"One has to make productive use of the present devaluation that followed the flotation of many countries," Walter said.

If that were the case, the volatility experienced lately would be a "once-off" issue.