Experts blame EA government's slow response

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Speaking at a Thammasat University seminar, economist Chalongphob Sussangkarn expressed his pessimism over economic cooperation among the 10Asean members plus China, Japan and South Korea, in the wake of the global financial crisis.

While South Korea has faced capital flight and currency depreciation due largely to its high shortterm debt relative to its foreign reserves, it so far cannot access credit facilities under the Chiang Mai Initiative. The emergency credit line was established by Asean and the three East Asian countries following the 1997fianncial crisis, aiming to help each member facing massive capital outflows.

Chalongphob, a former finance minister, blamed the slow progress in changing what had been bilateral agreements into a multilateral one, which was supposed to work better. Recently member countries have agreed in principle to pool their international reserves, worth about US$80 billion (Bt2.8 trillion), under the new multilateral agreement .

However, they have not yet reached agreement on the details of each country's contribution and voting rights, Chalongphob said at the seminar, which was cohosted by Thammasat's faculty of economics and the Japan Bank for International Cooperation. Japan and China in particularly each competes to have a big say in this new institution, thereby dragging out the process of its creation, Chalongphob said.

He warned that if East Asia cannot move forward on financial integration in the next few months, their cooperation would dissipate. He said that currently it is apparent that the G20 group of advanced and emerging economies has become an important force that could rescue the global economy, but the G20 represents largely the interest of the advanced economies.

Rajiv Kumar, chief executive of the Indian Council for Research on International Economic Relations, urged Asia as a whole to prepare for the economic downturn caused by a crisis in the centre of capitalism that is likely to do more damage to the world economy than the Asian financial crisis, which hit at the periphery of capitalism.

He urged East Asia, South Asia, Central Asia and the Middle East to join together and set up an Asian Investment Bank that would provide financing for investment in infrastructures in Asia.

Meanwhile, Raymond Atje, head of the economic department at the Centre for Strategic and International Studies, based in Indonesia, argued that economic integration in Asia is still fragile and risks slipping back to protectionism during this crisis.  

Takatoshi Ito, professor at the University of Tokyo, said that although Asia economies have been resilient in the face of the current crisis they have nevertheless suffered from the sharp falls of equity markets as US investors sell off their holdings to repatriate cash back to their headquarters. He said equities in Japan are currently underpriced.