Asian surveillance
Asian surveillance
The deputy finance ministers of 14 Asian-Pacific nations that
met in Manila early this week opted for the ideal that it was
much better preventing a fire than having to extinguish one.
Several weeks before the senior officials gathered in the
Philippine capital, the central issue raised in various forums
had been the urgent need for an Asian emergency fund to bail out
countries in financial distress.
But the Manila meeting devoted much more attention to setting
up a framework of measures to prevent the kind of economic crisis
currently hitting East Asia. They did cover the need for a rescue
mechanism, but seemed quite comfortable with the existing one
around the International Monetary Fund-led bailout package.
The framework of preventive measures, which can serve as a
building block against currency crises, include technical
cooperation in strengthening domestic financial systems,
regulatory capacities and initiatives to enhance economic
transparency and a mechanism for regional surveillance.
The reality of an increasingly global marketplace seems to
have made the 10 Asian nations and the U.S., Australia, Canada
and New Zealand fully aware of the need for regional
surveillance.
The devastating spread of the financial crisis from Thailand
in early July to Indonesia, Malaysia, the Philippines and South
Korea, has served to further strengthen the warning that the
International Monetary Fund's global surveillance needs to be
supplemented by a regional surveillance mechanism.
Most analysts, including those from the IMF and the World
Bank, have concluded after in-depth analyses of the current
financial crisis in East Asia that regional surveillance is
indeed the most important preventive measure and early warning
system that has been missing in the region.
Regional surveillance and peer pressure could help identify
potential risks to growth and financial stability and advise
appropriate policy responses to reduce those risks. But the
problem thus far has been the uneasiness of Asian countries to
tell their neighbors what to do, as such an act could be detested
as interference into internal affairs.
Most countries have now realized that each has an obligation
to keep its house in order and to work with its neighbors so that
they can anchor each other and exert peer pressure to pursue
sound policies.
By maintaining the central role of the IMF as coordinator,
Asian countries would be comfortable with the planned regional
surveillance as none of them would have to take the initiative in
telling others to straighten up. The IMF, internationally
recognized as the global economic policeman, could use its
persuasive powers to straighten out errant member countries.
The senior finance officials should also be commended for
finally recognizing the lack of transparency in the financial
sector as one of the main reasons behind the reverse of capital
flow in Southeast Asia. This realization hopefully will enhance
their cooperation in strengthening their financial systems.
Obviously, all these preventive measures cannot guarantee that
a financial crisis will not break out in the future. Hence, a
bailout mechanism is still required.
It is again quite encouraging that the 10 Asian nations that
took part in the Manila meeting did not push ahead with their
proposal for setting up a US$100 billion Asian emergency fund, as
presented by Japan during the annual meeting of the IMF and World
Bank in Hong Kong in mid-September. The finance officials instead
agreed that the Indonesian bailout was the model for future
rescue programs.
Under the Indonesian package, finalized early this month, the
IMF, World Bank and Asian Development Bank provided most of the
funds which have served as the first line of defense. Other
countries, such as Singapore, Malaysia, Brunei and Australia,
have pledged standby loans which together serve as the second
line of defense.
Under the scheme decided on in Manila, each of the 14 nations
is free to decide on a case-by-case basis whether to participate
in a rescue plan and how much to contribute.
The original plan of the Asian emergency fund had been widely
criticized, notably by the U.S. and the IMF itself. It was feared
that Asia's booming economies would not have the incentive to get
their houses in order if they knew they could get financial help
without having to go to the IMF and its tough lending conditions.
Such a fund could also be used by governments as an excuse to
avoid "making hard decisions", and perversely, provide a tempting
target for speculators to draw down significant amounts from the
pool itself.
Hopefully, the ministerial meeting of the Asia Pacific
Economic Cooperation (APEC) forum currently underway in Vancouver
will fine-tune the general framework already agreed on in Manila
and will not waste time on redebating the merits and demerits of
an Asian emergency fund.