Official says Australia's financial links to Asia weak

Official says Australia's financial links to Asia weak

CANBERRA (Dow Jones): Australia's financial policy links with Asia have reached a low point and must be rebuilt, Reserve Bank of Australia Deputy Governor Stephen Grenville said Monday.

In particular, Australia should make clear its willingness to be part of discussions between ASEAN nations, Japan, China and South Korea on currency arrangements - discussions that so far it hasn't been invited to attend, he said.

"The important thing Australia needs to do, while we are waiting to see whether we are wanted in that club, is to go on demonstrating goodwill and competence," Grenvilled said.

"Then...sooner or later, at some point, these countries would see it is in their own advantage to have us there."

His comments are the first of their kind from an Australian policy-maker, who have in the past trumpeted Australia's ability to use its economic strength during the regional economic crisis as a basis for increased influence.

Since the Asian financial crisis began in mid-1997, Australia has boosted international policy links through its participation in the Group of 20 and the Financial Stability Forum.

But Grenville said the nation's financial links within the region have dissipated.

"Some real progress was made coming out of the Asian crisis in terms of improving the multilateral arrangements, with the G20," he said during a conference on financial markets and policies in East Asia.

"We have made progress with the Financial Stability Forum and the Bank for International Settlements has now admitted a number of Asian countries to its membership," he said.

"But for Australia, the regional crisis represented, I think a setback for the mundane task of building regional institutions, (and) regional links."

"If we look at it from a narrow Australian point of view...I would have to say that it is in some ways a low point in our relationship."

Grenville said Australia has formed relationships through regional groups but these links have deteriorated as many of the people involved have moved on.

He singled out Indonesian central bank governor Sjahril Sabirin who is in jail after being arrested in June on accusation of facilitating a transfer of funds in a banking and political scandal.

"We got to know each other through forums such as Emeap and the Manila Framework but I would have to say that those people who we got to know to a very large extent dispersed as a result of the Asian crisis," Grenville said.

Emeap is a grouping of 11 central bank governors known as the Executives' Meeting of East Asia and Pacific Central Banks. The Manila Framework group was formed in 1997 with an aim of giving Asian nations more say in the running of the IMF and in shaping global debate on financial issues.

Still, Grenville said Australia didn't do things badly during the crisis.

The country was "quick to join" financial support packages for three Asian countries in 1997.

"And I think we had a better assessment than anyone...on what was happening as the Asian crisis unfolded," he said.

But attempts by Foreign Minister Alexander Downer and Reserve Bank Governor Ian Macfarlane to outline that assessment during a trip to the U.S. in 1998 failed, he said.

"I would have to say that it wasn't loud enough to be heard," he said.

Also, "Australia's own performance during the Asian crisis has been sufficiently good to maybe act as a positive example," Grenville said.

"But I think that there is a real danger, and this may have happened, that this good performance and the times we have mentioned it might be mistaken by our Asian neighbors as being boastful...at a time of their own misfortune."

"Souring of the relationship between Australian and Indonesia over Timor has blocked off a very important (entry) to the ASEAN arrangements," he added.

Joined by Japan, China and South Korea, the 10 members of the Association of Southeast Asia Nations said in May they will work toward a regional financing mechanism that could head off currency crises.

As a first step, they will try to write bilateral arrangements to swap foreign exchange reserves should their currencies face sudden turbulence.