Olarn calls for creation of Asian financial community

In a keynote speech delivered at the annual meeting of the Asia Pacific Bankers Council in Bangkok, Olarn said Asian countries had a combined capacity to take up the role of the next pillar for the world economic and financial system.

"The [global] financial crisis began in the US and has continued to spread throughout the world.

"Although Asian and Thai banks remain strong with relatively low exposure to sub-prime loans, CDOs [collateralised debt obligations] and CDS [credit default swaps], we might have to come up with a solid solution on how to contain such risks from spreading to Asia and play a part in contributing to the global solution," he said.

Olarn said the US and European financial systems were now weakened to the extent of needing massive funds to plug an estimated US$600-billion (Bt21 trillion) hole in banks and other financial institutions.

As a result, the less-damaged Asian financial systems - especially those of China and Japan - may be able to help stabilise the global system, stock markets, and hence the global economy, he added.

The 10-country Asean grouping plus China, Japan and South Korea are already implementing a short-term, $150-billion liquidity-support scheme known as the Chiang Mai Initiative.

In addition, there will be a pool of sovereign wealth funds worth up to $200 billion to invest in long-term Asian equities and bonds for the financing of Asian infrastructure projects.

As the next step, Olarn, a former president of Siam Commercial Bank, proposed that Asian countries put together an initial 10 per cent of their foreign-exchange reserves to create a new combined financial stock of $350 billion.

The composition of new reserves in Asian convertible currencies should be based on the proportion of each country's international reserves, population and gross domestic product.

"This is what I consider the initial and meaningful step towards the emergence of an Asian Financial Community," he said.

Olarn also proposed that Asian countries could use the proposed financial stock denominated in Asia's convertible units to lubricate not only intra-Asia trade, investment and tourism, but also to finance domestic spending along with supportive fiscal, monetary and credit policies.

He said finance ministers and central bank governors of Asean countries, China, Japan and South Korea would meet in Manila on November 12 to work out the details of the Chiang Mai Initiative, which will then be finalised by the Asean plus-3 summit in December.