East Asia needs to work more closely together as the region tries to cope with the global financial crisis, journalists from Southeast Asian countries told a recent symposium in Tokyo.
An agreement reached in late October among the 10 members of the Association of Southeast Asian Nations, and Japan, China and South Korea to create an $80 billion emergency fund marked an important first step in that direction, they said.
The five veteran journalists from newspapers in Thailand, Singapore, Malaysia, Indonesia and Vietnam took part in the Oct. 30 symposium organized by the Keizai Koho Center to explore ways for cooperation between Japan and ASEAN to deal with global financial instability. They were joined by Yasuhiro Goto, editor of the Asia and Oceania news department of the Nikkei business daily, who served as moderator of the discussions.
About a decade ago, East Asia was hit by a regionwide financial crisis. Thanong Khanthong, editor of The Nation newspaper, said he sees certain similarities between what happened in Thailand in the years leading up to the 1997 crisis and the developments that led to the ongoing crisis in the United States.
“In the pre-1997 crisis years, we lived beyond our means. The financial institutions were overleveraged — they made speculative loans in the property market,” said Thanong. “The country ran a current account deficit of 8 percent to its gross domestic product, relying largely on foreign capital to finance this. We had $120 billion in foreign currency debt, as opposed to foreign currency reserves of $39 billion . . . and finally this could not be sustained.”
The United States, mired in a deep economic crisis that was triggered by subprime mortgage woes, was also “not living within its means,” he said. The bubbles in the U.S. economy were even more serious because there was overconsumption in the federal government and among consumers, as well as excess lending by financial institutions, he pointed out.
More than 10 years after its crisis, Thailand’s macroeconomic fundamentals are “pretty solid,” despite continuing political turmoil in the country, Thanong said. Its foreign debt is about half of its foreign currency reserves and its export destinations are much more diversified than in the late 1990s, he said.
Still, Thanong described ASEAN countries like Thailand as “small vessels sailing the ocean,” trying to navigate through the huge waves created by passing big tankers. “It’s difficult for us to survive (the global crisis), so we have to pack together,” he said.
Thanong said many Southeast Asian economies are “trying to protect their interests” by boosting domestic demand or increasing public-sector spending.
“But they look to China and Japan to act as leaders during these difficult times so that they provide a healthy environment for economic growth in the years to come,” he said. “The collapse of the U.S. bubbles means that we can’t count on the U.S. as the locomotive of global growth any longer.”
A major problem with the current international financial regime is the lack of a “lender of last resort,” Thanong said. While the Federal Reserve bails out troubled American financial institutions, the International Monetary Fund is “largely a broker” that acts as a “go-between trying to woo international donors,” he said.
In that sense, Thanong said the accord reached among ASEAN, Japan, China and South Korea for the $80 billion fund, from which they would be able to borrow when facing a liquidity crunch, “marked the beginning probably of a new era of regional financial cooperation.”
The agreement builds on the so-called Chang Mai Initiative, under which the 13 nations set up bilateral contracts to supply funds through currency swap lines. The initiative is one of the schemes for regional financial cooperation created in the wake of the 1997 crisis.
Thanong said the size of the fund, details of whose functions are still not clear, is apparently not sufficient given that during the 1997 crisis, more than $100 billion was needed to bail out Thailand, Indonesia and South Korea. “But I think it’s a good start,” he added.
An earlier proposal by Japan to create an Asian monetary fund following the 1997 crisis was opposed by the U.S. and the IMF. But today, “I don’t think the U.S. or any other country would oppose” such an idea, Thanong told the audience.
“A lot needs to be done (in terms of regional financial cooperation) and done very quickly, not just to lessen the effect of the current crisis but also to avoid a future crisis,” said Bunn Nagara, associate editor at The Star newspaper in Malaysia.
“Even in the current crisis, the worst may be yet to come. It may come perhaps in the next year or two,” Nagara said.
Dennis Chan, deputy money editor at The Straits Times in Singapore, also suggested that the full impact of the global crisis may not have yet hit the country.
“Some people say this crisis is not as bad as 1997 because we have not had massive layoffs and wage freezes (that took place during the 1997 crisis),” Chan said.
“But the crisis is still in its early stages. . . . Back in early 1997, people were saying it’s not that bad, and there was pain ahead. So as this crisis continues to unfold, we may have to take more drastic measures to remain competitive,” he said.
Chan said the ASEAN-Japan economic partnership agreement, which is set to take effect in December, “will be a win-win” for everyone that would boost trade and investments in East Asia.
Goto of the Nikkei daily noted that as the global crisis prompts East Asian countries to try to step up regional financial cooperation, it may even accelerate moves toward regional economic integration.
While East Asian economies have achieved a high degree of de facto, market-based integration based on cross-border production and distribution networks, they have lagged behind other major regions of the world in building region-wide institutional frameworks to back up their close ties.
Nagara said an important issue for East Asia remains since the 1997 crisis — or perhaps even since the 1980s — that countries in the region need to act as one. “We need to have a regional cohesiveness, acting as one on issues that are important in the interests of the region, in creating better opportunities for ourselves — diplomatically and economically — and to guard against negative development such as crises,” he said.
The 1997 crisis led to the creation of the ASEAN-plus-three mechanism involving Japan, China and South Korea. But East Asia still needs a “regional organization that can take firm, concrete actions, quickly whenever necessary, to protect our interests,” Nagara said, adding that countries in the region need to “go beyond what other countries and other regions say we should have or cannot have.”
And areas where the region can and should work together are not just limited to finance but the environment, energy and academia, he said.
“These all require people-to-people relations, not just government-to-government relations. So it is multilayered, multisector cooperation that is required,” he added.