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ASEAN + 3 Finance Ministers' Meeting Press Release: Roadmap towards greater regional integration

05 May 2005


I note the concerns that have been raised on the increasing global imbalances particularly the huge and rising US current account deficit and what the impact might be on Asia if the market decides not to continue funding it.

These are valid concerns. The conventional wisdom is that the adjustment would then come through the exchange rate. If there are sharp exchange rate movements and sudden capital reversals, would these destabilise the financial systems in Asia?

I do not think so. Yes, it would be disruptive but not be destabilising as in the Asian Financial Crisis of 1997-1998. Why?

First, many Asian countries are running current account surpluses which, together with their sizeable reserves, provide a buffer to sudden capital reversals. Unlike the pre-crisis period, the current level of reserves more than covers the amount of short-term external debt ? many Asian economies currently maintain reserves to short term external debt ratios of at least 2.

Second, Asian capital markets have become broader and deeper, and dependence on banking flows has lessened. Asian countries have actively sought to promote regional bond markets. The Asian Bond Markets Initiative represents the collective effort by Asean + 3 members to share ways to enhance bond market infrastructure and liquidity. These efforts to broaden and deepen regional capital markets would help minimise the risk of currency dislocations triggering a banking crisis.

Third, much restructuring has taken place as Asian corporates have made good progress in optimising capital structures. More significantly, many financial institutions have reduced bad loans and recapitalised. Improved risk management practices have also led Asian corporates and financial instititutions to address and better manage maturity and currency mismatches.

Just as important as these measures to get individual houses in order, is the increasing common resolve in Asia towards greater regional financial cooperation. Asean countries for instance had recently agreed to a doubling of the Asean Swap Arrangement from US1b to US$2b. And in this meeting we are looking at enhancements to the Chiang Mai Initiative - from how best to effect economic surveillance to the responsiveness of the swap arrangements. These are important issues as they would contribute significantly to improving the region's ability to manage volatile capital flows.

Going forward, the challenge for the region is also to continue the momentum on other areas of financial cooperation, such as further liberalisation of financial markets and greater linkages of the securities markets. Strategic alliances among exchanges create value in an increasingly competitive market place. Closer collaboration among regional exchanges will create a larger network to attract both international investor interest as well as the growing pool of Asian savings. This may bring about a broader product offering and greater liquidity in the markets.

This then is the roadmap towards greater regional integration and sustained growth for our countries. It is up to us to make it happen.