Asean
Monetary integration in ASEAN+3: the next steps
Author: Pradumna B. Rana, RSIS
On 3 May 2012, on the sidelines of the Asian Development Bank’s (ADB) Annual Meeting in Manila, ASEAN+3 took a number of significant steps to further deepen monetary integration in the region.
In the midst of a flurry of other activities and announcements — including the sharp increase in ADB lending last year and the launching of the ASEAN Infrastructure Fund — these important steps went relatively unnoticed.
The most significant outcome of the Manila meeting was the upgrading of the ASEAN+3 Finance Ministers Meeting (AFMM+3) to the ASEAN+3 Finance Ministers and Central Bank Governors’ Meeting (AFMGM+3), with the central banker governors of the 13 member countries (plus Hong Kong) being invited to join. In the past, the region’s firewall for crisis prevention and crisis resolution had been run solely by finance officials responsible for tax and expenditure policies. Officials responsible for monetary and exchange rate policies were left out. This major gap is now finally filled.
The size of the US$120 billion crisis fund, or the Chiang Mai Initiative Multilateralisation (CMIM), was doubled — although it still continues to be only a small fraction of the bailout fund in Europe. The amount that can be borrowed without an IMF program in place was increased to 30 per cent and is targeted to reach 40 per cent in 2014. The AFMGM+3 also established a CMIM Precautionary Line which will permit countries with strong economic fundamentals to borrow large amounts of liquidity for crisis prevention.
While the details of the credit line are yet to be worked out, those responsible should note that a similar facility at the IMF has been used by only three countries. Can the ASEAN+3 succeed where the IMF has failed?
The Ministers and Governors also commended the ASEAN+3 Macroeconomic Research Office (AMRO) for its success in staff recruitment and its regional surveillance activities, and requested their deputies to find out how AMRO’s organisational capacity could be further strengthened. They also welcomed Singapore’s commitment to provide necessary host country support to AMRO.
Despite its commendable performance under Director Benhua Wei, AMRO faces a number of challenges. Aside from the above mentioned, two others need highlighting.
Firstly, AMRO must find out why at the height of the global economic crisis countries like South Korea chose to borrow from the US Federal Reserve instead of the CMIM, the region’s own crisis fund. Remedial measures should be put in place quickly lest capital once again flows out of the region in response to the rapidly deteriorating situation in the euro zone with a Greek exit no longer fanciful.
Secondly, modalities must be found so that AMRO can work jointly and smoothly with the IMF. Regional financial safety nets should complement the global financial net, not undermine it. Europe’s experience where the IMF is working closely with the European Union and the European Central Bank as a member of the troika could be useful.
AMRO is now just over a year old and its plate is full. It should not be over-burdened. But two more steps, which require relatively less resources, should be considered. The first is that AMRO should start introducing the Regional Monetary Unit (RMU), a regional weighted currency basket. The RMU would provide more stable currency values. It could also facilitate AMRO’s surveillance activities.
It could do so by making sure that countries are avoiding competitive devaluations among each other and converging their macroeconomic policies for deeper integration. Eventually the RMU could be an alternative international reserve asset to the ailing US dollar, but this is only a longer term possibility at the present time.
A survey conducted by NTU researchers for the ASEAN Secretariat found that over two-thirds of ASEAN+3 ‘opinion leaders’ (comprising government officials, academics and bankers) felt that AMRO should be tasked with calculating the RMU, using the CMIM weights, and publicising it on a daily basis. A similar number felt that AMRO should use the RMU for regional surveillance, its key activity. A large number also felt that AMRO’s budget and the operations of AMRO and CMIM should be denominated in the RMU like the IMF’s Special Drawing Rights (SDRs).
The next step is that the membership of ASEAN+3, including AMRO, and CMIM should be expanded because, among others, this would increase the size of the region’s crisis fund. Two years ago, former Thai Minister of Finance Chalongphob Sussangkarn and present chair of the AMRO Advisory Panel had proposed that India, Australia and New Zealand be made associate members and contributing partners — short of full membership — of the CMIM.
Such expanded membership of ASEAN+3 could also strengthen Asia’s voice at the G20 high-table. Joint policy coordination meetings of the expanded ASEAN+3 would provide a robust regional agenda for the ASEAN chair to table at the G20 Summits. With the next AFMGM+3 meeting slated for New Delhi in May 2013, this is an opportune moment to expand membership not to be missed.
Pradumna B. Rana is Associate Professor at the S. Rajaratnam School of International Studies, Nanyang Technological University. The survey results mentioned above were recently published in the Journal of Asian Economics, 23 (2012) 1–12.
A version of this article was first published here as RSIS Commentary No 083/2012.
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Monetary integration in ASEAN+3: the next steps
Asean
ASEAN weathering the COVID-19 typhoon
Author: Sandra Seno-Alday, Sydney University
The roughly 20 typhoons that hit Southeast Asia each year pale in comparison to the impact on the region of COVID-19 — a storm of a very different sort striking not just Southeast Asia but the world.
Just how badly is the COVID-19 typhoon thrashing the region? And what might the post-crisis recovery and reconstruction look like? To answer these questions, it is necessary to investigate the strengths and vulnerabilities of Southeast Asia’s pre-COVID-19 economic infrastructure.
Understanding the structure of the region’s economic house requires going back to 1967, when Southeast Asian countries decided to pledge friendship to one another under the ASEAN framework. While other integrated regions such as NAFTA and the European Union have aggressively broken down trade barriers and significantly boosted intra-regional trade, ASEAN regional economic integration has chugged along slower.
Southeast Asian countries have not viewed trade between each other as a top priority. The trade agreements in the region have been forged around suggestions for ASEAN countries to lower tariffs on intra-regional trade to within a certain range and across limited industries. This has lowered but not eliminated barriers to intra-regional trade. Consequently, a relatively significant share of Southeast Asian trade is with countries outside the region. This active extra-regional engagement has resulted in ASEAN countries’ successful integration into global value chain networks.
A historically outward-facing region, in 2010 around 75 per cent of Southeast Asian commodity imports and exports came from countries outside of ASEAN. This share of extra-regional trade nudged closer to 80 per cent in 2018. This indicates that ASEAN’s global value chain network embeddedness has deepened over time.
Around 40 per cent of ASEAN’s extra-regional trade is with the rest of Asia. From 2010 to 2018 Southeast Asian countries forged major trade relationships with four Asian countries: China, Japan, South Korea and India. Outside Asia, the United States is the region’s major trading partner. ASEAN’s trade focus on Asia’s largest markets is not surprising. Countries tend to establish trade relationships with large, geographically close, and culturally similar markets.
Fostering deep relationships with a few large markets, however, is a double-edged sword. While it has allowed ASEAN to benefit from integration in global value chains, it has also resulted in increased vulnerability to the shocks affecting its network connections.
ASEAN’s participation in global value chains has allowed it to transition from a net regional importer in 1990 to a net regional exporter in 2018. But the region’s deep embeddedness in a small and tightly-coupled network cluster of extra-regional global value chain partners has exposed it to disruption to any and all of its external partners. By contrast, ASEAN’s intra-regional trade network structure is much more loosely-coupled: a consequence of persistent intra-regional trade barriers and thus lower intra-regional trade intensity.
In the pre-COVID-19 period, ASEAN built for itself an economic house held up by just five extra-regional markets, while doing less to expand and diversify its intra-regional trade network. The data shows that ASEAN trade became increasingly concentrated in these few external markets between 2010 and 2018.
This dependence on a handful of markets does not bode well for risk and crisis management. All of the region’s major trading partners have been significantly affected by COVID-19 and this in turn is blowing the ASEAN economic house down.
What are the ways forward? The immediate task at hand is to get a better picture of the region’s position in global value chain networks and to get on top of managing its network risk exposure. Already there are red flags around the region’s food security arising from its position in food value chains. It is critical to look for ways to introduce flexibility into existing supply chains for greater agility in responding to crises.
It is also an opportune time for ASEAN to harness the technology transfer gains of global value chain participation and invest in innovation-driven diversification of products and markets. The region’s embeddedness in global value chain networks certainly places it in a strong position to readily access large export markets not just in Asia but also Europe and the Americas.
Over the longer term, ASEAN is faced with the question of whether it should seriously look…
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