There has been plenty of talk about strengthening monetary cooperation within Asia since the region’s 1997'98 financial crisis. Now officials seem determined to put action behind their words.
The Asian Development Bank has announced that it will open an office for regional economic integration in September under the guidance of Japanese economist Masahiro Kawai.
Kawai, 57, who is also policy adviser to ADB head Haruhiko Kuroda, will have to juggle several priorities: facilitating efforts to forge free-trade agreements between the Association of Southeast Asian Nations and China, Japan and South Korea; strengthening regional economic surveillance to head off crises; and increasing cooperation on exchange rate and capital flow issues. “This is a new attempt,” Kawai told Institutional Investor last month after meeting with government officials at the ADB’s annual meeting in Istanbul.
All signs indicate that Kawai can expect the support of key players in the region. Meeting on the margins of the ADB gathering, finance ministers from ASEAN, China, Japan and South Korea called for a doubling, to $70 billion, of the money earmarked by the so-called Chiang Mai initiative, a series of bilateral currency swap agreements designed for use in a crisis. The ASEAN+3 ministers also proposed to move toward collective, rather than bilateral, decision making over the use of the funds and agreed to double the amount of money that a country can draw without having to sign up for an International Monetary Fund program.
The proposals promise to transform the four-year-old Chiang Mai initiative, a patchwork arrangement at best, into something much more like an Asian monetary fund. Japan pushed for such a fund as a response to the Asian crisis, only to see it vetoed by Washington, which viewed it as a rival to the U.S.-dominated IMF.
Kawai sees support for the plan as proof of a strong desire among Asian countries to use the region’s growing economic clout for common purposes. He is too diplomatic to get into the exchange rate debate now raging between Washington and Beijing, but as chief Asian economist at the World Bank from 1998 to 2001, Kawai advocated Asian countries’ pegging their exchange rates to a basket of currencies rather than just to the dollar. Many analysts now believe that that is how China will revalue the renminbi.
The policy dialogue among Asian finance ministers is growing increasingly frank about regional issues as well as global matters like the U.S. current-account deficit, Kawai contends. But it remains to be seen whether Asian intentions will lead to common action. “The direction is toward a single currency, but that’s several decades ahead,” Kawai says. “At this point, it’s hard to say that a strong political commitment exists” for an Asian monetary union.
