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Published on September 11, 2007

Ministers and economists suggested yesterday that Asean together with Japan, South Korea and China move forward on financial cooperation in order to advance regional integration. This would not only strengthen the region's competitiveness but also forge further growth.

At an economic symposium entitled "Moving East Asia Forward", hosted at the Dusit Thani Hotel by Yomiuri-Nation Information Service and Nation Multimedia Group, panellists shared the view that if financial crises were to happen again, they should be resolved by resources and cooperation within the region.

Asia should institutionalise its financial system to ensure the goals of the East-Asia Economic Community to create a free flow of trade, investment and finance, they said.

One successful cooperative act is the Chiang Mai Initiative's bilateral currency-swap agreement, under which a country facing a financial crisis can draw financial aid from members. So far, the 16 Asian nations have conducted swap agreements totalling US$83 billion (Bt2.8 trillion).

Strengthening the financial system will be a key support in encouraging the region's future progress to achieve the goals of both the Asian Monetary Fund and the Asian Currency Unit (ACU). The Asian Monetary Fund would serve a role similar to the International Monetary Fund, while the ACU would be a single currency similar to the euro.

Former Japanese finance minister Sadakazu Tanigaki said that although the United States has not welcomed the Asian Monetary Fund, members should focus on using it as a model to supplement IMF policy measures.

He added that members should consider using their savings as a financial source to subscribe to bonds issued by member countries. The Asian bond market has grown two or three times since its launch in 2002.

In the recent meeting between Asean and Japan, China and South Korea, Japan and Thailand proposed the issuance of bonds to finance mega-projects such as airports and power plants. In addition, members should find a way to convert debts of financial institutions into bonds. This method is designed to solve the effects of the US sub-prime mortgage crisis.

However, the prospects for Asia's goal of achieving a single currency are not rosy due to a wide gap in economic development stages among countries.

Eisuke Sakakibara, a professor at Waseda Univeristy globally known as "Mr Yen", said Asia had great potential to become the world's trading hub thanks to its market-driven management. In addition, Asean's component manufacturing will continue to grow. As a result, intra-Asian trade is growing at 15 per cent, and is expected to rise to 65 per cent - equal to intra-European Union trade - in the near future.

The integration of Asean plus 3 (Japan, China and South Korea) involving half of the world's population will shift the world's trade and investment centre from the US and the EU to Asia.

To achieve this goal, Asian members should concentrate on building up their financial pool through bilateral currency swaps, Asian bonds, the Asian Monetary Fund and the final goal - the ACU.

"We should accelerate the Asian Monetary Fund, as now foreign reserves in the region have reached $3 trillion. If we put only 5 per cent of the reserve into the financial pool, it's a huge amount of cash flow to assist members," said Sakakibara.

The success of these strategies would encourage the region to achieve the ACU, although it will take 20-30 years, he added.

Moreover, countries should consider whether India should be involved in the region's financial cooperation, he said. The growing economy in India will have a strong impact on the region, and Japanese investors are interested in investing more in India.

Export-Import Bank of Thailand chairman and former commerce minister Narongchai Akrasanee said that to achieve currency integration, Asian members must move forward on issuing more cross-border bonds.

The lower yield gap of bonds in Asia is a good sign to facilitate the ACU in the future.

 He said Asia was capable of achieving the "single currency" ideal, but he could not specify the time scale because of differences in economic development.

 "The region could achieve its Asia Currency Unit initiative in the future. To support the plan, all countries must increase cross-border bonds to narrow the gap between each country's financial systems," said Narongchai, adding that once rising bond trading among Asian nations occurs, economic gaps in the region will narrow.

 In order to promote economic integration under the Asean- plus-3 framework, Narongchai suggested Thailand and Japan work together via Asean to institutionalise Asia's integration because of the already tight cooperation that exists.

 Deputy Prime Minister Kosit Panpiemras said that in the next 10 years, the Kingdom and Japan would be key partners in developing each country's economic growth as well as that of the region, thanks to the Japan-Thailand Economic Partnership Agreement.

"Thailand should not wait for assistance and investment from Japan any more, but should create partnership cooperation for technology development and other areas," he said.

Potential sectors on which Thailand and Japan should cooperate further include food, automobiles and service sectors that focus on human resource development.

Over the next five to 10 years, Thailand will still be a key production base in the region. However, Japanese investment in Thailand will fall because both countries will concentrate more on human resources and IT development.

Last year, Japan's investment in Thailand was recorded at Bt2.3 billion, or 26 per cent of overall foreign direct investment in the Kingdom.

Achara Pongvutitham,

 Petchanet Pratruangkrai

 The Nation