Hadi Soesastro reckons that the East Asian members of the G20 (Australia, the PRC, India, Indonesia, Japan, and Korea) have to step forward in crafting collective measures for global recovery and define what role the region can play in ensuring a sustained and effective recovery, at the same time as mobilizing the G20 to re-shape global economic governance.
A group of 17 economists (Asian GOE) from around the region, under the aegis of the Asian Development Bank Research Institute, have now set out an agenda for leading East Asia out of the global financial and economic crisis.
What are its headlines? The details are expected to be released next week.
A priority for East Asian leaders, according to the Asian GOE, is to set up an Asian Financial Stability Dialogue (AFSD), the Asian equivalent of the Financial Stability Forum with some additional responsibilities. This could be an agent of policy dialogue, policy development on financial reform and regulation, financial policy management, the like of which the region sorely lacks.
The AFSD would help monitor the region’s financial markets and develop a plan of action in response to the immediate challenges of the global financial crisis. The forum would be created among finance ministries, central banks, and financial market regulators and supervisors. The forum could share information, harmonise prudential indicators, increase coordination on conducting early warning system analysis, and discuss more openly national and regional policy interventions. The forum could also promote longer-term financial market development and integration, establish standards for governance and transparency, and improve investor confidence. There is presently no regional forum adequate to this task and this initiative would represent a substantial strengthening of the instruments available for regional cooperation to secure stability with sustainable growth.
East Asian finance ministers and central bank governors need to meet urgently and set out a collective East Asian program for stabilizing the regional and global economies. An outcome of this meeting would be the establishment of the Asian Financial Stability Dialogue. The articulation of measures to promote early recovery in East Asia will boost confidence and position the region as a leading centre of global recovery. East Asian leaders work through the G20 summit in London on developing policy strategies and to follow through with the international financial institutions and other forums. All this will require an intensification of economic and financial cooperation in East Asia.
There are six headline recommendations from the Asian GOE to East Asian G20 leaders as they begin to head for London.
They are urged to undertake more drastic easing of regional monetary policies, with central bank underwriting liquidity in both domestic and US dollar markets, including using lender of last resort facilities, expanding the types of assets to be purchased, and promoting bilateral and multilateral currency swap measures. East Asia, with only one or two exceptions, has much more room to move on easing monetary policy than the rest of the world. Central banks need to review monetary policymaking to strengthen macro-prudential frameworks so that asset price developments and systemic risks—in addition to goods price inflation — are taken into account.
Setting up an Asian Financial Stability Dialogue (AFSD) — with participation by regional finance ministry officials, central bankers, and financial market regulators and supervisors — to facilitate policy coordination for financial sector stability, reform and development is a priority. The deliberations of AFSD need to include initiatives to strengthen regional Bond and other financial markets and a ‘road map’ for financial integration.
The expansion of public investment in infrastructure, especially in projects consistent with energy conservation, environmental improvement, and climate change adaptation needs to be accelerated. Again, East Asian economies have much more room to move, because of their robust fiscal circumstances, that most economies around the world. The establishment of an Asian Infrastructure Investment Fund (AIIF), facilitated by the Asian Development Bank (ADB) is endorsed. Fiscal programs should also include employment expansion schemes, expansion of social safety nets, and measures to improve income distribution to encourage broad-based consumer spending as Asia moves to broader based domestic demand-driven sustainable growth.
There needs to be stronger East Asian commitment to free trade and regional economic cooperation, and abstention from using export subsidies or import restrictions. Policies to promote free trade in East Asia should be directed to leading global liberalisation, not to traditional inward-looking FTAs.
The region needs to cooperate in avoiding competitive exchange rate depreciation as a way to escape from the crisis. The Chiang Mai Initiative (CMI) should be vastly expanded, fully multilateralised, and de-linked from International Monetary Fund (IMF) programs. And there needs to be active dialogue and policy coordination on exchange rate policies.
East Asia needs to play an active and leading role in the development of the G20 agenda and global forums on reform of national and international financial systems and the global financial architecture. East Asian leaders should seek to lead in reform of national financial regulation and global financial supervision of institutions operating across borders. ASFD can serve as an effective agent in this work. East Asian leaders should feed regional views and initiatives on these matters into development of the G20 process through East Asian members of the G20 and seek to increase the voice of emerging economies in the governance structure of the Bretton Woods institutions.
Their larger global role requires East Asian economies to actively participate in reforming the global financial system as well as to support promote more vigorous regional cooperation and integration initiatives. Existing institutions such as the IMF, WTO, and newer institutions such as the G-20, and the Financial Stability Forum need to be backed strongly, but East Asian economies need to promote reforms of the international architecture so that it takes account of East Asian interests and capacities to buttress the global economy.
It is particularly important that the six members of EAS participating in the G-20 meetings—Australia, the PRC, India, Indonesia, Japan, and Korea—work with other East Asian economies to present a united front at the G-20 process. The regional financial cooperative arrangements in East Asia—such as the CMI and a proposed Asian Financial Stability Dialogue (AFSD)—may be considered as building blocks for an improved inter-linked international financial architecture.
So if there’s one thing that East Asia can and should do urgently, it is to get behind its representatives in the G20 and forge an agenda on macro-stabilisation and financial reform that leads the way out of the crisis, as no other region is better placed to do it. East Asia’s G20 members need in turn to forge their position in East Asia and East Asian institutions (the East Asian Summit and ASEAN + 3) so as to effectively bring the region’s weight to bear on it new global responsibilities.