"Setting up a Financial Pillar"

"I forecast this trend [six years ago] and wanted to make it happen," he explained in an interview last week.Olarn, former president of Siam Commercial Bank and senior adviser at the Finance Ministry, said the current global financial crisis had sped up the need for Asian economies to play a bigger role in the global financial system.

He said he foresees the proposed community as a pillar for the global economic and financial system, after the United States and Europe plunged into the worst financial turmoil in decades.

According to Olarn, who earnedhis PhD at the Massachusetts Institute of Technology, as much as US$600 billion (Bt21 trillion) would be lost in terms of money stock and real assets as a result of the current crisis. Plus, he said, given the magnitude of the crisis, prices and transactions will also decline sharply.

"If countries want to expand their trade and GDP growth by, say, 5 per cent, the global money stock must expand by 5 per cent as well as from the current $7,400 billion to $7,770 billion, which means an additional $370 billion is needed.

"If not, these countries' trade volume and real GDP will probably contract and not grow," he warned, before posing: "How can we add another $370 billion to the world money stock, especially within the financial and economically strong Asian countries?"

In his opinion, it's not possible to create additional creditable money stock from weakened countries as has been done over the past 60 years.

In a speech delivered at the October 31 meeting of the Asia Pacific Bankers Council in Bangkok, Olarn proposed Asian countries initially put up 10 per cent of their combined foreign reserves as a down payment for the $370 billion new stock.

"The composition of new reserves in Asian convertible currencies can be based on the proportions of each coun¬try's international reserve, popula¬tion and GDP. This will be a meaningful step towards the emergence of the Asian Financial Community," he said.

Olarn also suggested that all Asian countries use the newlycreated money stock denominated in Asian convertible units to lubricate not only intraAsian trade, investment and tourism, but also to finance domestic spending via supportive fiscal, monetary and credit policies.

On October 23, leaders of the 10country Asean grouping, plus China, Japan and South Korea, confirmed that member countries would work together to recommend methods of multilateralisation and expansion of the Chiang Mai Initiative - a regionwide arrangement set up in the wake of the 1997 Asian financial crisis. The meeting was held in Beijing.

Finance ministers and central bank governors are set to follow up on this commitment in Manila on November 12, while a final decision is expected from leaders at the Asean plus3 Summit in Bangkok in December.

If Asian countries had their way, Olarn could be remembered as the archi¬tect of the Asian Financial Community, which could lead to the settingup of a regional monetary fund in the future.