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Almost a quarter of a century ago, 12 Asian and
Pacific countriesmet in Canberra onNovember
5-6, 1989 to establish the Asian and Pacific Economic
Cooperation (APEC), still alive and well and
with a small permanent secretariat in Singapore. APEC
was established with the aim of developing a closer
economic collaboration in the vast and potentially
most dynamic area of theworld. In the corridors of the
first APEC meetings, the word ‘integration’ was occasionally
stammered; the eyeswere, at least partly, set on
the process of economic integration in Europe, on the
benefits such integration was providing to the Old
Continent in terms of growth, quality of life and convergence
between countries at different levels of development
andwith quite diverse histories, traditions,
languages and culture. In short, theOld Continentwas
seen as the giant Gulliver to imitate, in terms of technology
and growth, even though with amuch smaller
area and population.NowAPEC has 31member countries
(including theUnited States, Canada, the Russian
Federation and all the Latin American countries bordering
on the Pacific Ocean). On September 19-20,
APEC FinanceMinisters held their 20th annual regular
meeting inNusaDua, Bali (Indonesia).Themain theme
was “Resilient Asia-Pacific, Engine of Growth,” as spelt
out in the very title of the basic report prepared for the
reunion. In short, the giant Gulliver was no longer the
Old Continent but the set of countries around the Pacific
Ocean. Indeed, Europe was seen as an old man
who had lately made manymistakes.
APEC provides, of course, for only a very loose economic
cooperation: it is mostly a forum for dialogue
rather than a mechanism to mold common policies
and strategies and to open trade and financialmarkets.
Meanwhile, a large number of smaller and closer
organizations have been created within the Pacific
Basin. A full page of this magazine would be needed
only to list the acronyms and to summarize their
meanings and functions. The most significant is the
ASEANFreeTrade Area (AFTA), created in 1993 and full
operational since 2000. ASEAN stands for the Association
of Southeast Asian Nations, a geopolitical and
economic organization of ten countries located in
Southeast Asia which was formed on August 8, 1967 –
thus 22 years before APEC – by Indonesia, Malaysia,
the Philippines, Singapore and Thailand. Since then,
membership has expanded to include Brunei, Cambodia,
Laos,Myanmar, andVietnam. Its aims include
accelerating economic growth, social progress, cultural
development among itsmembers, protection of
regional peace and stability, and opportunities for
member countries to discuss differences peacefully.
ASEAN covers a land area of 4.46 million square kilometers,
which is 3%of the total land area of Earth, and
has a population of approximately 600million people,
which is 8.8% of the world’s population. The sea area
of ASEAN is about three times larger than its land
counterpart. In 2011, its combined nominal GDP had
grown tomore than $2 trillion. If ASEAN were a single
entity, it would rank as the eighth largest economy in
the world.
In the first stages of its evolution, ASEANborrowed
many ideas fromthe EuropeanUnion. In 1992, a Common
Effective Preferential Tariff (CEPT) scheme was
signed as a schedule for phasing tariffs and as a goal to
increase the region’s competitive advantage as a production
base geared for the world market. CEPT was
clearly patterned after the EUcommon tariff. CEPT acted
as the framework for AFTA. After the East Asian Financial
Crisis of 1997-98, a cooperation mechanism
was establishedwith the EU(the Asia EuropeMeeting,
ASEM) to examine, for example, what Asian countries
could borrowfromthe European social policies, especially
fromthe social protection network,with the view
of alleviating the burden of financial and economic
stringency on the poorer population. Italy had an important
role with a major ASEM meeting held in the
Caserta Royal Palace.
Then onMarch 24, 2010, at a ASEANsummit in Chiang-
Mai known as the Chiang-Mai Initiative (CMI), a
Malaysian proposal was revived, which called for better
integration between the economies of ASEAN as
well as three other countries (Japan, China and South
Korea) grouped in a ASEAN-Plus compact. In February
2013, ASEANbegan the first round of negotiationswith
the group’s sixmajor trading partners – Australia, India,
Japan, New Zealand, China and South Korea – on the
establishment of the Regional Comprehensive Economic
Partnershipwhich includes a roadmap toward
a free trade area and a single market. Aside from improving
eachmember state’s economy, the bloc also focused
on peace and stability in the region. On December
15, 1995, the Southeast AsianNuclearWeapon
Free Zone Treaty was signed and after a long ratification
process it became fully effective on June 21, 2001.
While after the establishment of the CEPT,work toward
a free trade area was making progress, the CMI
was seen as the start of a financial and monetary cooperation
through the establishment a network of
agreements (nowthere are about 20) broadly patterned
after the European exchange rate agreements and
mechanism (colloquially called the European Monetary
System, or EMS) which paved the way to the EuropeanMonetaryUnion
(EMU) and the euro as a common
currency. A study carried out by Pradumma B.
Rana, then a senior official of the Asian Development
Bank (ADB) and published in 2002, “Monetary and Financial
cooperation in East Asia: The ChiangMai Initiative
and Beyond,”was clear on this point.The analysis
pointed out that until then, not much attention
had been paid to the need to promote regional monetary
and financial cooperation. This was considered
“surprising” as cooperation in finance provides more
opportunities for “win-win” situations. However, the
pace ofmonetary and financial cooperation had picked
up in the post 1997-98 crisis period. The study concluded:
“Countries in East Asia appear to have mustered
a certain amount of political will to propel the
process further. Cooperation has ranged from information
exchange and surveillance, to establishing regional
financing facilities and early warning systems.
Beyond the Chiang Mai Initiative, efforts are also under
way to coordinate macroeconomic and exchange
rate policies mainly under the ASEAN. Task Force on
ASEAN Currency and Exchange Rate Mechanism of
the Asia-Europe FinanceMinisters group. As a regional
development bank, the Asian Development Bank is
supporting the efforts of its developingmember countries
to strengthen regional monetary and financial
cooperation.” In other terms, in 2002, it appeared possible
and desirable to replicate the European path from
a free trade area to a singlemarket in the trade area and
Gulliver’s
troubles
Why is Asia afraid of a monetary union? One look at
the giant experiment of a single currency in Europe and
it is clear how daunting such an ambitious undertaking
can be.
Children at Gullivers
World Theme Park,
Mount Fuji.
CHRIS STEELE-PERKINS/MAGNUM
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Asian nance
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World economy
froma network of exchange rate agreements to a fully
fledged monetary union. In the monetary area, the
Asia Europe Finance Minister group was a parallel to
the ASEM group working on social protection during
crisis period.
A few later, in 2005, a study by Masahiro Kawai of
the Institute of Social Science of theUniversity ofTokyo
entitled “East Asian Economic Regionalism: Progress
and Challenges,” published in the Journal of Asia Economics
demonstrated that the East Asian economies
had achieved strong economic interdependence, particularly
through external liberalization, domestic
structural reforms andmarket-driven integrationwith
the global and regional economies. Expansion of foreign
trade, direct investment and financial flows has
created a “naturally” integrated economic zone in East
Asia. Reflecting the rising economic interdependence
and in response to the traumatic financial crisis of
1997-98, East Asia has embarked on various initiatives
for economic regionalism. Such initiatives include the
formation of several bilateral free trade agreements
(FTA), the beginning of negotiations for sub-regional
FTAs, the establishment of a regional surveillance
mechanism, the introduction of a regional liquidity
support system (CMI) and Asian bond market development.
These essentially entail the formal institutionalization
of de facto economic integration and interdependence
in East Asia in away that complements
global frameworks of theWTOand the IMF.The paper
identifies a number of challenges facing the region, including
the need to begin negotiations on a regionwide
FTA and to initiate exchange rate policy coordination.
Many other studies in this direction may be
quoted; especially interesting are those by Yoo-Duk
Kang of the Korean Institute for International Economic
Policy, comparing inter-industry trade (particularly
in Information Technology) in East Asia and in
the EU. Of special relevance is the volume edited by
Michael Plummer and Chia SiowYue published in 2009
by the Singapore-based Institute of Southeast Asian
Studies “Realizing the ASEAN Economic Community:
A Comprehensive Assessment”; it is a full blueprint
for a single market and beyond.
In May 2013, 12 years after Rana’s work, a good
study by RobertOwen of theTokyo based ADB Institute,
ADBI, “Governance and Economic Integration – Stakes
for Asia” appeared much less sanguine. As the very
summary states: “The paper assesses the nexus between
changes in governance structures – at national
and cooperative international levels – and evolutionary
processes of economic integration in light of regional
policy targets in Asia.The analysis highlights the
importance of improved governance as an essential
condition for effectively attaining an “Asian Economic
Community”while arguing that the experience of the
EUoffers valuable insights regarding the process of integration.”
Thus, outright endorsement, the approach
has changed tomuch less committal “valuable insights
regarding the process of integration.” In another recent
ADBI paper “Lessons fromEuropean Spaghetti Bowl,”
the respected specialist in international economics,
Robert Baldwin of the Graduate Institute of International
Studies of theUniversity ofGeneva, purports that
European economic integration fascinates and inspires
Asia (and namely ASEAN) for theway it brought
peace to a continent torn by violent and long-standing
rivalries.The lessons fromEurope, however, cannot be
applied directly as the degree of the EU’s supra-nationality
is unthinkable elsewhere.
In 2002, the European currency union appeared set
to soon become a dynamic area with the euro as a
strong competitor to othermajor currencies, specifically
to the US dollar. Now, even from the Asian viewpoint,
it seems that the euro’s founding documents (i.e. the
Maastricht Treaty) enshrined such principles as fiscal
constraints, the “no bailout clause,” and assignment
to the European Central Bank (ECB) of the goal of low
inflation to the exclusion ofmonetizing national debts.
Yet these very principles have been permanently compromised
within EMU. On the one hand, German taxpayers
cannot be expected to continually bail out profligate
euromembers.On the other hand, if theywere to
insist on those founding principles, the eurowould not
survive. It is especially important to recognize that the
(predictable) impact of fiscal austerity has been to reduce
output in the periphery countries, not to raise it,
and thereby to raise debt/GDP ratios, not lower them.
The movement toward a banking union is one of the
steps in the right direction; others are more adjustment
time for Greece, Portugal and Spain; and ECB
bond purchases. But for the countries that are to remain
in the euro, much adjustment still lies ahead: more
debt-reduction (painful for the creditor North) and
more internal devaluation (even more painful for the
uncompetitive South). As to a long-run fiscal regime
that addresses the now exacerbated problemofmoral
hazard, the Fiscal Compact is not enough in itself.
These steps need to be complemented, at least,with the
red-bonds/blue-bonds proposal and with the delegation
of forecasting to independent fiscal agencies. Such
departures from the Maastricht Treaty could become
the frame of a patchwork ofmeasures.
East Asia has its own monetary integration problems
and issues. For instance, South Korea would not
actively participate in any discussion of establishing a
regional monetary and exchange rate arrangement,
as it is expected to maintain a weakly managed floating
regime. China has been fostering the yuan as an international
currency,whichwill lay the groundwork for
forming a yuan area among China, ASEAN,Hong Kong
andTaiwan. Japan has shown less interest in assuming
a greater role in East Asia’s economic integration due
to deflation, a strong yen, slowgrowth, and political instability.
Japan would not eschew free floating. These
recent developments demand a newmodality ofmonetary
cooperation among the South Korea, Japan, and
China. Otherwise, ASEAN may lose its rationale for
steering regional economic integration in East Asia.
Nonetheless, Gulliver’s (the Old Continent) troubles
in struggling with its own monetary union seem to
suggest to the ASEAN-Plus leaders to go slow in their
own financial and monetary integration – and perhaps
to set it aside until they have seen how Europe
sorts out its own issues and problems.
Also, since 2007 the EU crisis has shown an additional
aspect, East Asian governments are quite concerned
about the fact that integration appears to promote
divergence rather than convergences, between
the “have” and the “have not” countries. This is clearly
depicted in a recent paper by Richard Pomfret,
“ASEAN’s New Frontier: Integrating the NewestMembers
into ASEANEconomic Community” in Asian Economic
Policy Review. Before accepting a full professor
position in the University of Adelaide, Pomfret has
taught for more than a decade in Bologna and published
widely on the issues of economic integration of
the poorer areas (i.e. the Italian Mezzogiorno) in the
EU. Since Vietnam, Laos, Myanmar, and Cambodia
joined ASEANin the 1990s, concerns have been raised
over a development divide. The real division is between
ASEAN members that participate in the integrated
East Asian economy and those that do not. The
older ASEAN members have become more efficient
traders, and Cambodia, Laos,Myanmar, andVietnam
must reform faster if they are to catch up. Cambodia,
Laos andMyanmar are notmeeting the challenge, but
Vietnam may be leaving the laggards, and the Philippines
is lagging behind the leaders. The challenge is
howto avoid a two-tier ASEANwith fast growingmodern
economies coexisting besides inward looking poor
countries. A challenge very similar to that faced within
the EU, and more specifically within the EMU.
This is an additional reason why, after setting the
path toward amonetary unionwith theCMI, Asia is now
leery ofmoving forward.Until it is crystal clear howthe
EMUwill sort its own troubles out andwhere it is going,
Asia will continue to be tepid about a single currency.
Indonesia’s President
Susilo Bambang
Yudhoyono shakes
hands with China’s
President Xi Jinping as
Japan’s Prime Minister
Shinzo Abe, Australia’s
Prime Minister Tony
Abbott, South Korean
President Park Geun-
Hye, Brunei’s Sultan
Hassanal Bolkiah,
Malaysia’s Prime
Minister Najib Razak
and Mexico’s President
Enrique Pena Nieto
gather for the
traditional “leaders’
family photo” on the
5nal day of the APEC
Summit in Bali,
Indonesia, October 8,
2013.
Diplomats listen to
Vietnamese Prime
Minister Nguyen Tan
Dung’s main economic
report during the
opening ceremony of
the second annual
session of the National
Assembly in Hanoi on
October 21, 2013.
HOANG DINH NAM/AFP/GETTY IMAGES
DENNIS M. SABANGAN/AFP/GETTY IMAGES
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" is a professor at Università Europea di Roma.
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