European and Asian Integration: Achievements and Challenges

V. Macroeconomic Interdependence

Asia needs to manage its growing exposure to external shocks-both to reduce the economic volatility and risk they generate, and to create an environment for deepening regional linkages.

With globalization, macroeconomic variables-such as growth, inflation, exchange rates-are affected by exogenous shocks, whether driven by price, demand, or contagion from financial crisis. This underscores the need to coordinate monetary, fiscal, and exchange-rate policies, along with foreign exchange reserve management.

For example, over the past 5 years, a sharp buildup in foreign exchange reserves in East and Southeast Asia, and more recently in India, provided a buffer against external shocks. Now, however, these reserves are considered by many as excessive. Costs of holding large reserves are significant not only in terms of increasingly difficult price stabilization and monetary policy operations, but also in terms of foregone investment. Better returns on reserves could help finance needed infrastructure, supply essential public goods, or retire public debt. The region’s policy makers are increasingly interested in ways to better use these international reserves. Also, multilateralization of the Chiang Mai Initiative is already underway, and we await the ASEAN+3 Finance Ministers Meeting-on the sidelines of the ADB annual meeting this May in Madrid-to see if any agreement will be announced.

In general, Asia’s open regionalism and the various surveillance and dialogue processes allow effective communication on monetary policies between economies, particularly within ASEAN+3. Because the continuous depreciation of the US dollar could destabilize Asian economies, there is a need for closer dialogue and cooperation in the area of monetary and exchange rate policies. One of the presentations this afternoon will discuss a possible means of effecting this.

VI. Asia’s Approach to Regionalism

All in all, a feasible, workable approach for Asian integration is evolving-one that is market-friendly, multi-track, and multi-speed, and allows for a healthy dose of pragmatism among a collegial group of economies.

There are several advantages to cooperating in limited areas first, and then gradually deepen and widen the scope of cooperation. First, any group of countries, economies, subregions, or territories can integrate according to their particular levels of development and the specific opportunities that regionalism offers them. Second, as such partnerships strengthen, smaller units are more likely to merge into larger ones, leading to wider and deeper partnerships across an ever-growing swathe of Asia. Third, and extremely important, this approach has the potential to ensure that Asia’s economic integration remains market-friendly, as its integrating framework remains responsive to private sector needs.

Subregional cooperation is the building block of Asia’s regional integration, given our diversity and size. Cooperation at the subregional level is only logical as a way to move forward. Whether in the middle income ASEAN countries, South Asia, Central Asia or the Pacific, different subregions will inevitably have different scope and speed for regional cooperation. As they develop, bridges naturally form across subregional boundaries, leading eventually to wider and more comprehensive cooperation and integration.

Asia remains “institution”-light compared to the EU structure-even if ASEAN’s new Charter has begun the transition to a more rules-based system. But even here, the institutional framework toward integration will develop from the bottom up, in a gradual fashion, to bring about an inclusive, equitable, and prosperous integrated Asia.

VII. Conclusion

In closing, Asia has learned much from the European experience. With Europe and Asia growing ever closer, I am confident we will continue to do so, working together as our regions deal with the global economic challenges of the day. I look forward to today’s discussions as one way of furthering the process of building effective regionalism across Asia.

Thank you.

(pinoypress.net)