Sakakibara played a key role in arranging financial aid for Thailand after the 1997 financial crisis. At the time, he was Japan's vice finance minister for international affairs. He is currently a professor at Waseda University in Japan and a prominent participant in several international forums.

The following is an edited transcript of the interview:

In order to avoid another crisis like that in 1997, Asian countries have gone through a process of becoming more self-reliant and independent of foreign influence and integration. What now is the prospect for economic integration in Asia?

Intra-regional trade has reached close to 55 per cent of the total trade of Asian countries. So integration driven by markets and private corporations has been proceeding very rapidly. Cooperation among authorities has also been proceeding. We now have the Chiang Mai Agreement [between Asean members], and the [member] countries are trying to expand this agreement to make it multilateral rather than bilateral. The Asean-plus-three finance ministers have agreed to study [a single] Asian currency. Now, lots of free-trade agreements, or economic agreements, are being negotiated among the countries. Compared with 1997-98, I think financial cooperation among Asian countries is developing quite dramatically.

Some say the "Asian consensus" on cooperation has so far been a move against a "Washington consensus" or policies implemented by international organisations led by the US , such as the International Monetary Fund (IMF) or the World Bank. What do you think?

I think the day of the Washington consensus is over. Even those in Washington do not think the paradigm of policies of capital liberalisation will work. We need to be very careful in liberalising our capital, particularly when the domestic banking system is weak. We need to create a local bond market.

At the time of the Asian [financial] crisis, people talked about "dual mismatch" - the mismatch of currencies and maturity. These problems have now been addressed by Asian countries, including Thailand and Japan. We have created a local bond market called the Asian Bond Market Initiative. I think we now have a different regime. Neither Thailand nor Indonesia is under the supervision of the IMF any more.

How do you foresee the prospect of an Asian consensus in the near future?

Well, I think the Asian consensus may finally become an Asean-plus-three consensus, and we'd probably eventually include countries like India and some other South Asian countries. This is sort of network production. Integration has been completed in terms of trade and direct investment. The slow integration of monetary- and foreign-exchange areas is also developing.

Do you think that, unlike the European Union, the differences between various countries will be an obstacle to financial integration in Asia?

One of our characteristics is diversity. Asian countries can coexist with diversity. We're not proponents of monoism. We have hundreds of gods. I think we could integrate - in our Asian way - although we have diverse cultures, diverse religions and diverse histories. This is the main character of Asia when compared with Europe. The Asian markets have now integrated despite the differences in the development stage, different cultures and political regimes. But market-driven integration is proceeding very rapidly.

Even the political relationship between Japan and China is intense. Both recognise that in terms of economy, we [Japan] need China, and China needs Japan. Eventually, the political tension will be solved. Yes, political tension is a problem. But if economic integration [continues to] proceed at its present pace, eventually we will be able to get rid of political tension. The direction that we've been following is the right direction.

Maybe the financial and economic integration in this region will be led by both China and Japan.

It could be led by the Asean countries, it could be led by China, South Korea and Japan, and India will eventually be involved. But I don't think there will be any political power in the region. So, we [Japan] should not be competing with China in terms of economic cooperation. We need to integrate the economies of Asian countries.

What are the prospects of the single Asian currency policy?

Well, this is a long-term proposal. As economic integration proceeds, eventually foreign-exchange policies will require cooperation. I think it may happen 30-40 years from now. It took about 50 years in Europe. In Asia, it may be a little bit faster than in Europe. I think we need at least 35 years.

What further policies do we need to adopt in order to reach that goal?

Basically, we need integration of our economies, and that is proceeding. Intra-regional trade is now 55 per cent of total trade. The trade among [members of the] European Union is about 65 per cent. As economic integration and intra-regional trade increase, there will be an initiative to create foreign-exchange cooperation. This will eventually lead to the creation of a single Asian currency. We don't need to be too hasty.

In the process of achieving a single Asian currency, who will be the anchor? Could it be Japan, similar to the way that Germany was the anchor for the euro?

Asean will be the initiator. Most of the countries do not want either China or Japan to be the initiator. We're two big guys. Led by Asean, China and Japan will be able to follow. Led by Japan , China will not follow, and vice versa.

With the emerging role of China and India in the international trading community, what role should Japan be playing?

As a matter of fact, over the next 45 years, China will become the biggest economic power in the world. India will eventually follow it. In terms of population, these two will emerge as the two major economies of the world. Japan has to cooperate with China, Asean and India. And [Japan] must play the role that Japan can play. At the moment, it has an advantage in manufacturing technology. It needs to retain this advantage as being advanced in technology.

Having played a key role in arranging financial support for Thailand in 1997, how do you see Thailand 's stability right now?

Thailand has recovered from 1997-98. Japanese-Thai relations have been very close over the past 20 years, and that has not changed. There are a lot of Japanese operations in Bangkok. There are some political tensions in Thailand at the moment. I hope they will be resolved quickly. [This interview was conducted on September 15, four days before the recent coup. - Editor] The economic performances of Thailand and Asean have been very smooth, but there are some slowdowns at the moment.

I think most Asian countries have learned their lesson, including Thailand, Indonesia and South Korea. The important things are consolidation of the domestic financial system, creation of a regional bond market, taking care with financial supervision and not being too hasty about financial liberalisation.

So you don't expect another 1997 financial crisis to occur?

I don't expect that to happen. What I'm worried about is a crisis in the US itself, because of the global imbalance and the increasing US deficit. There is also political tension. The US will have a general election in November. There is an expectation that George W Bush and the Republicans will lose. So there are two sources of possible major problems: overconsumption in the US and overinvestment in China. 

Jiwamol Kanoksilp

The Nation

Tokyo