The first relates to stabilization of the world economy and world markets, both financial and real. East Asia has scope for significant fiscal and monetary expansion. Many of the region’s economies enjoy robust budgetary positions and the scope to wind monetary policy back. The EAS group should collectively identify the measures they have, already in place and in contemplation, to boost domestic demand and promote recovery, and (using the resources of the ADB or IMF) it should immediately quantify the impact of these measures on regional and global demand for announcement and for presentation to the G20 Summit. In circumstances in which the North American and European economies are likely to recover slowly from the crisis, the articulation of measures to promote early recovery of the Asian economies will boost confidence and position the East Asian economy as a leading centre of global recovery. EAS finance ministers and central banks need to meet and be charged immediately with enunciating a collective East Asian program for stabilising the regional and global economy.
The second relates to measures to strengthen and maintain the momentum of reform in financial markets. East Asian economies can assume policy leadership in asserting their paramount interest in 1) the development of internationally agreed standards for regulation of banking systems and non-bank financial markets and 2) promote continued reform of their own financial markets. Both are priorities if demand expansion in the regional and global economies is to have a rapid and sustained effect on lifting incomes. The distortions in financial markets are an important factor in the perpetuation of inefficient saving-investment and payments balances. They also hobble the effective allocation of resources to the most dynamic element of East Asia’s most rapidly growing economies, for growth and recovery. Policy reforms that allow, and encourage through proper regulation of financial markets, private financial institutions to provide efficient intermediation of regional savings into productive domestic investment is a top policy priority in East Asian economies. This is an aspect of global recovery strategy on which East Asia can speak with an authoritative voice and through which it will garner international respect and influence.
EAS needs to prepare for organising these representations effectively through the new G20 forum and also through the IMF, other global forums and international financial institutions. This requires strengthening the process of economic and financial cooperation around the EAS.
East Asia needs to strengthen the currency swap arrangements that were put in place steadily by the ASEAN+3 group after the East Asian financial crisis. This year the bilateral swap arrangements that were put in place under the Chiang Mai Initiative were multilateralised. This is but the first small step in making these arrangements operational. The US$80 billion dollar fund remains totally inadequate for meeting the liquidity contingencies that regional economies might face in circumstances such as those they currently face. All EAS members should be invited to participate in regional reserve pooling and the establishment of effective governance of these reserve pooling arrangements. EAS can commit to at least doubling the scale of these funds and establishing a credible surveillance mechanism. Getting this right will require proactively working with the IMF and ADB. Closer, more institutionalised arrangements with the Fund provides entry to negotiating further reform of IMF governance arrangements of importance to East Asia.
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See also:
East Asia’s response to the global economic crisis
W(h)ither East Asian financial cooperation?