Arjun Goswami :
Countries in Asia and the Pacific grow at different rates and have differing social and economic priorities. In Asia there is no serious consideration of a single currency and related supra national institutions. Intra-regional trade in Asia continues to show robust growth due to ongoing harmonization of markets.
As Greece negotiates its debt crisis with the European Union, there are lessons to be learned for Asia as it moves toward greater cooperation and integration.
Asian countries have for more than a decade been working toward greater cooperation and integration. Regional trade and cooperation groups have been formed in Central Asia, the Mekong, South Asia, East ASEAN, and Indonesia, Malaysia and Thailand. This has included work to integrate trade, improve intraregional supply chains and strengthen financial links between countries.
“Countries in Asia and the Pacific are growing at different rates and have differing social and economic priorities,” notes an ADB overview of Asian regional integration efforts. “Although there has been progress in regional cooperation and integration, more is needed to better link national with regional priorities so that countries may fully benefit from each other’s strengths and overcome mutual problems.”
Though Asian integration has been pursued on multiple levels, a single Asian currency similar to the Euro has only been discussed and studied. The Greek debt crisis, which began in 2009, highlights the complexities of taking regional integration to the point of establishing a unified regional currency.
Is Asia on the right path in terms of economic cooperation, and how much risk of contagion does it face from the crisis in Europe? Arjun Goswami, the Director of ADB’s Regional Cooperation and Integration Division, responds.
“Asian countries have been cautious about supra national institutions. Given this, in the case of Asia, and ASEAN in particular, there is no serious consideration of a single currency and related supra national institutions.”
Historically European regionalism emerged from two world wars and the need to prevent further conflict. It adopted an approach of establishing institutions and procedures to integrate economies. By contrast, Asian regionalism has been more modest and was founded on independence from colonial rule. Asian countries have been cautious about supra national institutions. Given this, in the case of Asia, and ASEAN in particular, there is no serious consideration of a single currency and related supra national institutions.
How does trade within the Eurozone compare to trade within Asia?
Intra-regional trade was an important driver for both. However, with the adoption of European monetary union (which was expected to have substantial trade effects on the real economy) intra-regional trade stagnated and then declined. In comparison, intra-regional trade in Asia has continued to show robust growth, due in part to the harmonizing rules on market-related activities that are at the core of the Asian trade integration process.
How does the financial crisis in Europe compare with the Asian financial crisis in years past?
For the Eurozone, currency unification resulted in substantial capital flows from the capital rich north to the capital poor south, mostly through wholesale interbank markets. This meant that risk was concentrated in the banking system of the south and there was a substantial rise in government, corporate, and household debt stemming from that. The global financial crisis resulted in a sudden reversal, leaving governments and banks deeply exposed.
This means the very nature of the financial integration process in Europe made the Eurozone countries vulnerable. In the case of the Asian financial crisis, this was created by a surge of private sector flows in foreign currency denominated debt that was largely short term and un-hedged, triggered by investor over-confidence in the region and a lack of prudential supervision. This has resulted in development of local currency bond markets, regional financial safety nets, and the establishment of the ASEAN+3 Macroeconomic Research Office on surveillance.
How much risk of contagion does Asian trade face as a result of the debt crisis in Greece?
The extent of Asia’s trade exposure to Greece itself is probably limited. To the extent this has exacerbated Eurozone growth prospects
(Arjun Goswami, Director of ADB’s Regional Cooperation and Integration Division)
