ASEAN+3 to meet in Myanmar as economies looking better

ASEAN+3 to meet in Myanmar as economies looking better

Andrew Batson, Dow Jones, Beijing

As senior economic officials from East Asia gather in Myanmar
this week, their mood should be fairly upbeat, cheered by a
regional economy that's looking much better than it did just a
few months ago.

Analysts say better-than-expected economic figures from the
beginning of the year point to a regional recovery that's already
under way, and will begin to show up in stronger export figures
as early as the second quarter.

And that recovery is partly based on intra-regional trade
rather than just exports to the U.S. Thus it could add to the
growing momentum behind policies that strengthen ties among the
10 members of the Association of Southeast Asian Nations and
Japan, South Korea and China - the so-called Asean+3 group.

"If Asian countries are sensible enough not to stand in its
way, integration will over time deliver a larger market," says
Cliff Tan, an economist with Salomon Smith Barney in Singapore.

Last week, China and Japan signed a pioneering US$3 billion
currency swap agreement aimed at defending both countries'
currencies against speculation in the foreign exchange market.

Though that worry is largely moot for China, given its closed
economy, the cooperation between the two central banks is
nonetheless significant given their recent war of words over the
proper value of their respective currencies.

China and Thailand also signed a $2 billion currency swap
agreement in December.

Japan, meanwhile, has similar bilateral swap agreements with
South Korea, Malaysia and Thailand, as well as the Philippines,
which is also negotiating its own swap arrangements with China
and South Korea.

While analysts say the swaps would prove of only limited use
in defending a currency that's declining for fundamental economic
reasons, the deals are beginning to build an architecture for
closer economic cooperation in the region.

That could help strengthen sentiment in support of a much more
substantial form of integration: transforming Asean from a
regional talking shop into a free-trade area - one that's now
proposed to include China, the region's emerging powerhouse.

Japan, not wanting to be left out, signed a bilateral free
trade deal with Singapore in January, which both countries
promoted as a model for possible future pacts between Japan and
other Asean members.

And on Thursday, China moved the long, tortuous process of
free trade negotiations forward a small step, saying it will meet
with Asean officials in May to hammer out a schedule for talks on
the proposed Asean-China free trade area.

Those steps toward closer economic and financial cooperation
could be further advanced this week, when officials from Japan,
China and South Korea, along with the Asean member countries meet
in Yangon, Myanmar.

If the talks on lowering tariff barriers among Asian countries
bear fruit - and no one is suggesting that will happen in the
short or even medium term - the region's economic growth
potential will increase, economists say.

Governments' moves toward free trade are always vulnerable to
delaying actions by politically-powerful industry lobbies. But
observers say the emerging Asian recovery should give
policymakers more room to maneuver.

With the notable exception of China, exports from Asian
countries fell across the board in January and, for those
countries which have already released data, February.

But the declines are less steep than in recent months, and
economists say the figures look even better once seasonal
adjustments are made for Chinese New Year.

"On a seasonally-adjusted basis, there is already a fairly
strong recovery underway," says P.K. Basu, an economist at Credit
Suisse First Boston. "There is some intra-Asian demand,
consumption is growing everywhere in the region, and investment
appears to be picking up a bit."

Many analysts and government ministers expect the Asean
countries to start showing positive export growth by the middle
of the year, even in the hard-hit technology sector.

While the region's shipments of semiconductors will hit a
seasonal lull in the second quarter, a pickup should be around
the corner. "The lack of facility investments in the past two
years is expected to constrain the supply growth and to lead to a
DRAM market upturn in the second half," Merrill Lynch wrote in a
recent report.

By then, the recovery in the U.S. - Asean and China's largest
export market - should have gathered speed.

With the growth in domestic demand and investment that
regional central banks' recent easing of monetary policy has
helped create, Asia's recovery will have strong support from both
external and internal demand.

"They're being given some breathing space to figure out what
they need to do to be more competitive," says Salomon Smith
Barney's Tan.