The concentric circles around the ASEAN nations’ core were not weakened by the Asian financial crisis. Instead, they were strengthened by another layer being added in the guise of East Asia Summit.

Asia was wise enough not to give in to Asia-centric temptations. This is corroborated by Asia having not ‘decoupled’ from the West, contrary to the claims of some analysts.

Asia has been in the thick of the global economic crisis, given its extensive financial and trade exposure to the West. Asia is an integral part of not only the problem but also the solution, for it can play a pivotal role in the post-crisis rebalancing exercise, just as it had contributed to the global imbalances.

Crises may vary in causes and impacts, but they all give wake-up calls. Crises not only expose weaknesses but also help unlock potential by demanding new approaches.

It is in this sense that crises are blessings in disguise. The global economic crisis is no exception. It is important that Asia does not let this crisis go to waste, as it provides a precious opportunity for Asia to undo the disconnect between its global and regional commitments.

That trans-Pacific and East Asian regional cooperation arrangements have overlapping agendas is a case in point. The G20 process, in particular, is very promising not only because it cuts across North-South and East-West divides but, more importantly, for its impressive proactive stance in dealing with the crisis.

What was touted to be the ‘Great Recession’ appears to have mellowed considerably, thanks partly to international cooperation in loosely coordinated monetary and fiscal interventions and denouncement of beggar-thy-neighbour measures. Without this, the crisis would have deepened and widened, as was the case with the Great Depression.

Financial cooperation is the weakest link in East Asian cooperation. The Chiang Mai Initiative (CMI) of ASEAN + 3, in response to the Asian financial crisis, did not go far, as it constituted no more than bilateral swap arrangements.

The subsequent multilateralisation of CMI (now labelled CMIM) is a far cry from the aborted Asian Monetary Fund (AMF) idea.

It is instructive that South Korea opted to go to the Fed for help instead of the regional facility. CMIM is subjected to the ignominious International Monetary Fund (IMF) conditionality, as it does not have the technical capacity to oversee lending.

CMIM is a watered-down version of AMF. There is a need to revisit the AMF concept, as the world has turned 180 degrees since the idea was summarily shot down in 1998.

CMIM may well be the embryo of AMF, as it can evolve into a much bigger regional ‘lender of last resort’ with much greater powers and resources. This calls for an extension of AMF membership beyond Asean+3 to include others on the periphery, especially India, Australia and New Zealand.

A powerful AMF would obviate the need for huge external reserves through current account surpluses that contribute to trans-Pacific imbalances.

It is impossible for the United States to reduce its current account deficit as long as its trade partners on the other side of the Pacific Basin are unwilling or unable to reduce their current account surpluses, as external balance is collectively a zero-sum game.

East Asia needs to consume more and save less, just as the US needs to consume less and save more, which means that the US and East Asia need to export more and import more, respectively.

To be sure, rebalancing does not imply zero balance in the balance of payments. It merely means trimming it to a sustainable level, and Asian economies must do their part in bringing this about as responsible global players.

To do this effectively, Asia needs intra-regional institutional support. Thus, there is a need to formalise and institutionalise such ad-hoc arrangements as the central banks’ and finance ministers’ dialogues.

Exchange-rate misalignment lies at the crux of the imbalance issue. Rebalancing warrants exchange rate realignment, especially between the US dollar and the Chinese yuan.

The pegging of a hugely undervalued yuan to a hugely overvalued dollar is untenable.

While China will not succumb to external pressure, gentle persuasion by East Asian countries in the spirit of regional cooperation may yield positive results. If this does not work, East Asian partners may have no choice but to peg their currencies to the yuan so as not to lose out.

While a common currency for East Asia is still an outlandish idea, a common exchange rate regime for East Asia is not. A common basket peg for East Asian currencies would ensure intra-regional exchange rate stability, a boon for intra-regional trade and investment.

The proliferation of bilateral trade agreements is problematic, with many pros and cons. Instead of dissipating its energies and resources on preferential trade arrangements, Asia should focus on reviving the stalled Doha Round of the WTO.

Neither the US nor the EU would champion the cause of global free trade, given their high unemployment at home.

Arguably, the time has come for Asia to take on the leadership role.

Emeritus Professor Datuk Dr Mohamed Ariff is distinguished fellow of the Malaysian Institute of Economic Research.