Long, Rough Road Lies Ahead for Regional Economic Union
There was a significant agreement among the finance ministers of 13 Asian nations in Kyoto, Japan, over the weekend. On the sidelines of the Asian Development Bank's annual meeting, the ``ASEAN+3'' (Korea, China and Japan) group agreed to pool their vast foreign exchange reserves to weather future financial crises like the one that hit the region a decade ago. If nurtured well, this could develop into an Asian version of the International Monetary Fund. But don't hold your breath, yet.
The Kyoto accord represents a big step toward regional financial unity, as an expanded and multilateral version of the ``Chiang Mai Initiative'' in 2000 _ a bilateral currency swap arrangement in times of financial emergencies. The regional attempts for closer financial cooperation started during the 1997-98 currency crisis, but failed to make much progress because of internal problems and strenuous U.S. opposition. Now, the conditions seem far more favorable. The biggest stumbling block still remains within, however.
Behind this renewed attempt are Asia's deep foreign currency reserves. Among the world's top-8 countries in currency reserves, all, except Russia, are Asian nations, whose combined reserves account for two thirds of the global total. Asian countries' currency reserves stood at $500 billion a decade ago but have grown six-fold to $3.1 trillion now. This does not mean, however, the region's ability to deal with a potential crisis has grown as well. The portion of speculative hot money has even risen.
All this attests to a strong need for a regional monetary agency. The problem is whether they can turn the wish into a reality. Unlike Europe, the three Northeast Asian nations have yet to come to terms with what happened in this part of the world several decades ago. The rivalry between China and Japan over regional hegemony will become even more complicated if India joins the fray. A bigger and fundamental problem is the wide disparity _ political and economic _ among Asian nations.
As in politics, Asia has awakened to the need to make some distance from America economically, but finds it unable to do so both because of internal and external problems. Some analysts have called for the withdrawal of some Asian money from U.S. Treasury bonds to use them to replenish the regional infrastructure and enhance industries. This will prove to be far easier said than done as long as Asian dependency on exports to the U.S. market remains unchanged.
For now, Asian nations may have to be content with an old saying, ``Even a thousand-mile journey starts with but a single step.'' Unless major Asian powers become armed with strategic thinking, taking both regional and global perspectives into account, the Asian Monetary Fund initiative could remain a storm in a teacup.