ASEAN countries should move to shift from a passive position to a pro-active role in global financial system by strengthening cooperation and convergence in exchange rate policies and foreign reserve investing strategies, Thailand's Finance Minister Chalongphob Sussangkarn said.
As the ASEAN celebrated its 40th birthday on Aug. 8, in an exclusive interview with Xinhua, the Minister looked to the potential of ASEAN, plus its three East Asia partners -- China, Japan and South Korea, to insert bigger influence on global financial system by promoting convergence of exchange rate policies and coordinating management of the region's huge foreign reserves.
Looking back, the Association of Southeast Asian Nations (ASEAN) has launched some initiatives to promote regional financial cooperation, one of the notable is the Chiang Mai Initiative.
The Chiang Mai Initiative (CMI) is a scheme of bilateral swap arrangements introduced in 2000 in order to prevent a recurrence of the 1997-1998 Asian financial crisis. Under the scheme, the central banks of participating countries can swap foreign exchange reserves to counter speculative moves on their currencies.
The amount of money involved in the 16 signed bilateral arrangements has surpassed 80 billion U.S. dollars. The next step, as has been agreed at the last ASEAN+3 Finance Ministers' meeting in Kyoto this May, would be moving from the bilateral system to multilateral one.
The proposal holds that by setting up a common pooling reserve, in which each country would input an amount of foreign reserve under a single agreement, any country in the framework could draw from the fund to cope with short-term liquidity difficulties.
Details of the single agreement, in regard to the size of the pooling amount and conditions on which country could draw the money, might take about two years to finalize, the Minister suggested. It would also require the establishment of a mechanism to monitor the fund.
However, the Minister conceded, the CMI, whether in bilateral or multilateral terms, would act more as a contingency plan which aims to provide self-help inside the region. With only a limited amount of foreign reserves to be involved, the system would not have impact on the regional or global market. Nor would it be sufficient to deal with a new financial crisis in a form different from the one that hit 10 years ago.
"In the past, if you ask who is guiding the global financial system, people would say the Federal Reserve (of the United States) . But in fact the Federal Reserve has now very limited influence even inside the U.S., let alone the global market," the Minister said.
While ASEAN, and its three East Asia partners -- China, Japan and South Korea, under the so-called ASEAN+3 framework, holding altogether foreign reserves of some 3 trillion U.S. dollars, would be able to insert huge influence on global financial market, not only in the exchange rates, but also the interest rates of the major currencies, he said.
"We have been very passive as individual countries in the past, simply witnessing and following what is happening in the global financial market. We should change to be more pro-active.
"It is time for us to think about which role we can play, and how we can play. We could also consider cooperating with the Federal Reserve, with the same goal to stabilize the global financial system".
The need to push exchange policy convergence could be reflected in the currency appreciation pressure faced by Thailand currently.
Since last year, due to the huge amount of foreign capital inflow to the local stock market, the exchange rate of the Thai baht has strengthened in a way much more rapidly than most of the other currencies of its neighbor countries, prompting the government to launch intervening measures to keep the currency stable.
Working separately on different exchange rate policies, each country in the region has tried to stabilize its currency so as to maintain competitiveness of its export sector, despite the continuous weakening of the U.S. dollar.
However, this would not be the sustainable way. The better way, the Minister suggested, is to find a sustainable regional solution, by converging the exchange policies.
"The challenge is to make our exchange policies more similar. If the currency rates in different countries are changing in the same direction, or at the same amount, exporters would not feel the pressure."
Chalongphob admitted that there has been less progress made on the exchange rate cooperation issue. In the past, whenever the issue of exchange rate cooperation was raised, the proposals put forward tended to be too extreme, said Chalongphob.
One proposal was the idea of a single currency for the region as euro for the European Union, which Chalongphob believed was too unrealistic. The economic development levels of the EU member countries are similar, while it has not been the case with ASEAN, he explained, "It might need another 50 years to realize."
Although a single currency solution has been put aside, every nation agreed that a greater convergence in exchange policy has to be further discussed.
Equally important is the issue on seeking a common strategy for the region on how to manage the huge amount of foreign assets it holds.
A suggestion is to set up a forum that acts like an ASEAN+3 central bank to monitor the global financial system and decide investment strategy and policy direction for the region.
"We have the instrument, the resources, and the duty to seek a more pro-active stance. At least we need to have some input, or message into the global financial system."
A more concrete achievement in the ASEAN integration progress was the Free Trade Area (FTA) agreements. Most commodities being traded between ASEAN countries are now under 0 to 5 percent tariff. But beyond low tariffs, there still exist many other barriers to the free flows of products in the region that need to be cleared, Chalongphob said.
The target for ASEAN is to form the so-called ASEAN economic community by 2015, which aims to shape ASEAN as a single production and investment community. "That means when foreign investors think of ASEAN, they don't separate ASEAN countries, rather think of ASEAN as one region."
To further promote cooperation in economic or financial sectors depends on the political determination of the leaders, the Thai financial head said.
A major step towards that target being taken is the development of the ASEAN Charter.
"The ASEAN is still a very loose organization. Now, after 40 years, we began working on a Charter. We hope this would formalize ASEAN as a bloc."
Source: Xinhua
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