Vision of E. Asia common market emerges

Vision of E. Asia common market emerges

By Raju Gopalakrishnan

MANILA (Reuters): East Asia's vision for a common market and unified currency is perhaps half a century away but a weekend summit which discussed the issue signals the potential emergence of a powerful new bloc, some analysts said on Monday.

China, Japan, South Korea and the 10-nation Association of Southeast Asian Nations (ASEAN) agreed on extending cooperation in a wide range of financial and trade-related issues at Sunday's summit in Manila.

Talk of a common market and currency in the future gripped the meeting, despite the many divisions and suspicions within the group, not the least of which is the rivalry between China, which has more than half the people in the region, and Japan, which produces almost half of the economic output.

The east Asian markets encompass about two-fifths of the world's population and about US$7.75 trillion in combined GDP.

Such a grouping could rival Europe and the United States, if it were ever united. But analysts say the staggering differences in economic development between the 13 nations involved would take decades to overcome.

Still, the summit moves signaled "a search for a common identity partly in opposition to a Western identity", said Simon Flint, currency strategist at Bank of America in Hong Kong.

One sign was Japan's lobbying the summit successfully to back former vice finance minister Eisuke Sakakibara as the new managing director of the International Monetary Fund (IMF), a post usually the preserve of Europe.

The show of strength on Sakakibara was the first sign of the region's new assertiveness, said Neil Saker, head of economic research for SG Global Equities.

"It's very much like the formative years of the EU," he said.

The process would be driven by ASEAN, which has entrenched moves toward free trade in the region, in the same way as cooperation in iron and steel led to the formation of the European Union, Saker noted.

In the meantime the 13 countries would "form a very strong lobby group to counter the U.S.", he said.

ASEAN countries range from impoverished Myanmar, Laos and Cambodia to the tiger economies of Singapore and Malaysia. Others include Brunei, Indonesia, the Philippines, Thailand and Vietnam.

"We are seeing the development of an East Asian focus group ...which is more of a caucus than APEC," Saker said, referring to the 21-member Asia-Pacific grouping.

Another sign could be the formation of an Asian equivalent of the IMF, to stave off the possibility of regional financial crises, he said. The United States has looked with suspicion on the proposal, since it would undermine Bretton Woods institutions.

Aside from overcoming international differences, such as the wide gulf between the economies and approaches of China and Japan, members working toward an East Asian grouping will also have to deal with the sensitive internal issue of surrendering some independence over economic policy making.

"One of the things you need for common trade areas and free currencies is some kind of surrendering of sovereignty and surrendering of independent monetary policy," said Flint.

"And we are so far from that in either Southeast Asia or greater East Asia...the rise to the hegemony of the East is 50 years away. It's a fascinating subject but not one that my foreign exchange traders are interested in."

Saker said the process of nations coming together also was imperative to counter global capital flows.

"What the Asian (financial) crisis has shown is that sovereignty is really non-existent anyway," he told Reuters.

"Money flows really run the world and countries' sovereignty is eroded. I think there is a case for saying a bloc like this or the EU is important...individual countries are now powerless in the face of capital flows."

But he, too, agreed that a common East Asian market was about 50 years away.

But many things need to be done, said Dewi Fortuna Anwar, a top aide of Indonesian President B.J. Habibie when he was in office and a regional political analyst.

"If there is a political commitment towards that vision then they (should) start coordinating their respective national policies and then set targets," she said.

"For example, how to make sure that the currencies are not so different in values...also the stability of the banking sector."

But she said the fact that East Asia was talking about such a vision was a major shift.

"They shouldn't just talk about it, they should sit down and talk about the details, what particular technical cooperation they have to do to achieve such a target by such a date," Anwar said.

"They should be talking about clear targets, what they want to achieve in five years, what they want to achieve in 10 years."