Economic crisis acts as catalyst for closer cooperation

Date: 23/07/1998

By Chris Johnstone

HISTORY repeats itself and economic remedies repeat each other. Fed up with having the framework of their economic policy and currency rates set by Uncle Sam, with sporadic jolts from Japan, South East Asian countries are casting around for ways to cooperate and insulate themselves.

Like their European counterparts 30 years ago, the nine members of ASEAN are taking the first tentative steps by reducing the role of the mighty dollar, at least in payments, in their regional trade.

The Philippines and Malaysia have already signed a deal aimed at converting most of their bilateral trade into their own currencies, with only the outstanding balance payable in dollars. Kuala Lumpur is also urging Japan to consider a similar arrangement to sideline the dollar and has made parallel overtures to Taiwan.

Two of the countries hardest hit by the current financial crisis, Thailand and Indonesia, broached the same subject in talks last week, suggesting that an agreement struck last December between Thailand, Malaysia and Singapore to conduct local trade in local currencies be expanded.

The effect of such deals will be economically small. However, they come at a crucial time. The approaching ASEAN conference is being dubbed as a defining moment for a region at a crossroads.

“We are witnessing what might be the most defining moment for the post-war world: a re-evaluation of the current economic and financial architecture,” says Philippine Foreign Affairs Secretary Domingo Saizon.

The next step is, however, far from clear.

So far, countries in the region have not taken a beggar-thy-neighbour approach to solving their problems. Protectionist walls have not gone up around countries, although migrant workers are being encouraged, if not forced, to go back where they came from as work dries up and economies head for the unheard-of experience of recession.

However, this does not yet mean that a foundation for something more is being laid. An Asian version of the euro is not likely tomorrow, or the day after tomorrow.

“It is a good idea but it is still premature. It might be possible by around 2015,” believes Dr Willem van der Geest, research director of the European Institute for Asian Studies.

ASEAN is far from a homogeneous bloc of countries. The mixed bag contains everything from Singapore's open, export-orientated economy to the half-closed models of Laos, Burma and Vietnam.

Parts of Asia have already experienced a common currency before, albeit with a colonial overtone. Discarding currency independence will not be an easy option for countries in the region which only relatively recently acquired such indicators of self-determination. The practical problems of closer monetary cooperation have already been brought home to ASEAN countries.

When they proposed pushing the Singapore dollar to the fore as a trading currency for the region, the prosperous city-state, whose sound economic fundamentals have not saved it from being buffeted by the Asian crisis, got cold feet about such a high-profile role and demurred.

“It has a small currency and did not think it had enough reserves for this to be envisaged,” explains an ASEAN diplomat who stresses, nevertheless, that the idea of the Singapore dollar being an equivalent of the deutschemark has been set back but not totally set aside.

In the meantime, ASEAN governments are taking the more straightforward step of reinforcing coordination of their economic policies.

“I see more cooperation on economic policy and regional development,” says the diplomat.

“Even before the crisis, regular discussions were already being held between the central bank governors of ASEAN countries.”

In the ordinary run of events, greater economic cooperation would be the natural outcome of the increasing regional trade which should be fostered by the completion of the Asian Free Trade Area by 2003.

Other options also raised in Europe, such as punitive taxes on speculative trading, have also been mooted but have not yet become common currency.