The Importance of Asian Cooperation – Economic Post

The Importance of Asian Cooperation – Economic Post
The Importance of Asian Cooperation – Economic Post

Project Syndicate

On July 2, 1997, her bat of Thailand collapsed. After waves of speculative attacks, the government it had run out of foreign currency and could not support its exchange rate relationship with the dollar USA. A wave of Thai financial and non-financial companies that had borrowed heavily in dollars applied bankruptcy. The Asian financial crisis had begun.

Unable to service their foreign debt, Thailand, Indonesia and South Korea turned to the International Monetary Fund for support. But the IMF bailouts were too few, came too late, and came on too harsh terms.

In September 1997, Japan proposed pooling the region’s foreign exchange reserves and using them to bail out troubled countries. The “Asian Monetary Fund” (AMF) that would be created would move faster and with less stringent terms than the IMF. But the US and the IMF opposed the initiative and the AMF was stillborn.

However, regional actors did not abandon cooperation. In May 2000, the ten ASEAN countries – Indonesia, Thailand, Cambodia, Laos, Malaysia, Myanmar, Philippines, Vietnam, Singapore and Brunei – plus China, Japan and South Korea (ASEAN+3) signed the Chiang Mai Initiative , the first currency swap agreement. Another milestone came in 2002, when ASEAN+3 launched the Asian Bond Markets Initiative (ABMI).

Unfortunately, Asian economic cooperation has been losing momentum in recent years for a number of reasons. First, the need for regional liquidity support has become less pressing. Second, although the Asian bond market has made impressive progress over the past ten years, the development of local currency bond markets is driven by domestic financial needs rather than regional economic cooperation, and cross-border local currency bonds are rarely issued.

Third, since the Asian financial crisis, most East Asian countries have adopted a managed floating exchange rate regime. But none have linked their coins to a currency basket.

More broadly, greater economic and financial cooperation is vital to Asia’s long-term prosperity. However, its pursuit – including the possible formation of an East Asian Economic Community – is fundamentally a political rather than an economic issue. Due to the close geographical proximity and economic connectivity of the East Asian countries, ASEAN+3 governments should urgently put the effort that started 25 years ago back on their agenda.

Yu Yongding is a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. He has been a member of the policy making committee of the People’s Bank of China (2004-2006).


The article is in Greek

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