For Asia, the financial crisis has meant fresh ideas, like a bold new monetary fund.
THE idea of an US$80bil (RM287bil) Asian monetary fund as announced in Beijing on Friday is five months old. Yet it made the headlines, indicating how noteworthy the proposal still is.
The project by Asean Plus Three (APT, the 10 Asean countries with China, Japan and South Korea) is still so new that it does not yet have an official name. Financial concerns across East Asian borders had mooted the idea, and the overpowering need for it in the current global financial crisis simply made it a reality.
First, some history.
The Uruguay Round of trade negotiations that began in the mid-1980s was supposed to conclude by December 1990, but matters drifted over US-EU disagreements on agriculture. Australia, feeling left out “down under”, proposed an Asia-Pacific Economic Cooperation (Apec) forum in 1989 that included the United States.
In December 1990, Malaysia proposed an East Asia Economic Grouping (EAEG) as a more workable project, without altogether rejecting Apec. The United States opposed it, Japan lacked the moral courage to participate, and the EAEG evolved into a vague Asean-sponsored East Asia Economic Caucus (EAEC).
It looked like East Asia was determined to have its own institutions despite US disapproval, daring to produce alternatives to Western-centric instruments like the Uruguay Round. But Japan still seemed hesitant over the EAEC.
Meanwhile, countries in East Asia (later to be the 13 APT countries) enjoyed high growth with increasing economic integration, without a regional coordinating body to ensure smooth operations. Then, in 1997, the Asian financial crisis struck.
Businesses collapsed, earnings were lost and national economies were shattered. Without a regional economic organisation for East Asia, there had been no warning before the crisis and few cooperative efforts after it.
A battered South Korea then worked hard to return to the EAEG/C idea, pushing for the same 13 countries to come together under the banner of Asean Plus Three. This time, Japan found itself able to join.
Tokyo even proposed an Asian monetary fund in September 1997. However, this was at the G7-IMF meeting in Hong Kong, and Western interests rejected the proposal for fear it might threaten their global economic dominance.
The International Monetary Fund (IMF) expectedly rebuffed it, fearing that an Asian fund might compete with it and even work better. The US Treasury across town in Washington, DC, also rejected it for much the same reason.
So matters drifted again, with economists debating the merits of the proposed Asian fund while an East Asia was left without a regional organisation to look after its economic interests. Then this year’s US-led financial crisis erupted, sending shockwaves around the world.
The 1990s Asian crisis had already led to the APT and the Chiangmai Initiative, a mechanism facilitating bilateral currency swaps. By 2005 the APT agreed to take this further; now an Asian monetary fund will be established by next June, providing a network for multilateral swaps among central banks.
As a complement, there would be a regional financial watchdog to warn of impending crises.
It is ironic that a United States that had blocked such efforts in Asia should trigger a financial crisis that now makes such a fund inevitable and necessary.
Significantly, the Asian fund was officially announced in Beijing, the capital of a rising China. Interestingly, the announcement just preceded the two-day Asia-Europe Meeting (Asem), when Europe was excluded from Apec before and now suffers from the US contagion.
Better late than never
The focus is on China also because Europe seeks a greater leadership role from Beijing. It is an expectation that China intends to fulfil.
The current crisis also proves how major geopolitical differences are no longer between different ideologies, but within the dominant capitalist paradigm. The strongest criticisms of the US-made crisis come from Washington’s closest allies Britain and Japan, followed closely by France and Germany despite their conservative leadership.
The crisis has now seen closer cooperation between Asia and Europe, and within Asia itself. Japanese Prime Minister Taro Aso, a public relations disaster as foreign minister in ties with China and South Korea, now strides confidently in Beijing on his best-ever behaviour.
Aso may be eyeing Japan’s impending election in which greater statesmanship would be an asset, but he could also be redeeming himself. Beyond damage control for the crisis, he is planning a summit in Japan later this year to improve ties with China and South Korea.
The Asian monetary fund is significant for coming into being at all, if not for its size. France alone is setting up a 100 billion euro (RM454bil) fund, Europe a more than US$2tril (RM7tril) fund, and the world at large funds in excess of US$3tril (RM10.7tril).
The Western excuse for opposing the Asian fund idea had been that Asians might not know how to handle their money. Now that the world has seen US recklessness and inept regulation in the present crisis, following IMF failures in the 1990s, such excuses no longer work.
The Asian fund has come late, but better late than never. The hope is that it would develop all necessary functions to mitigate this crisis and ward off the next one, probably in the next decade.
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