Huang Shuo

A rising Asia, once suffering from the 2008 international financial crisis, should now play a significant role in the rebalancing process in the post-crisis period.

Although regional cooperation efforts in Asia after the 1997 Asian financial crisis were largely reactive and inward-looking, individual economies in the region maintained their outward-looking posture.

The concentric circles drawn around the ASEAN nations' core were not weakened by the Asian financial crisis. Instead, they were strengthened by another layer being added in the form of the East Asia Summit.

Asia was wise enough not to give in to Asia-centric temptations. This is corroborated by Asia having not "decoupled" from the West, contrary to the claims of some analysts.

Asia has been in the thick of the global economic crisis due to its extensive financial and trade exposure to the West. Asia is an integral part of not only the problem but also the solution. It can play a pivotal role in post-crisis rebalancing, just as it has contributed to global imbalances.

Crises may vary in causes and effects, but they all give wake-up calls. Crises not only expose weaknesses but also help unlock potential by demanding new approaches.

It is in this sense that crises are blessings in disguise. The global economic crisis is no exception. It is important that Asia not let this crisis go to waste, as it provides a precious opportunity for Asia to undo the disconnect between its global and regional commitments.

That trans-Pacific and East Asian regional cooperation arrangements have overlapping agendas is a case in point. The G20 process, in particular, is very promising not only because it cuts across North-South and East-West divides but, more importantly, for its impressively proactive stance in dealing with the crisis.

What was touted to be the "Great Recession" appears to have mellowed considerably, thanks in part to international cooperation on loosely coordinated monetary and fiscal interventions and denouncement of beggar-thy-neighbor measures. Without this, the crisis would have deepened and widened, as was the case with the Great Depression.

Financial cooperation is the weakest link in East Asian's bonds. The Chiang Mai Initiative (CMIM) of ASEAN+3, in response to the Asian financial crisis, did not go far, as it constituted no more than bilateral swap arrangements.

The subsequent multilateralization of CMIM is a far cry from the aborted Asian Monetary Fund (AMF) idea.

It is instructive that South Korea opted to go to the Fed for help instead of the regional facility. CMIM is dependent on the ignominious International Monetary Fund (IMF), as it does not have the technical capacity to lend overseas.

CMIM is a watered-down version of the AMF. There is a need to revisit the AMF concept, as the world has turned 180 degrees since the idea was summarily shot down in 1998.

The initiative may well be the embryo of the AMF. It could evolve into a much bigger regional "lender of last resort" with much greater powers and resources. This calls for an extension of AMF membership beyond ASEAN+3 to include other nations on the periphery, especially India, Australia and New Zealand.

A powerful AMF would obviate the need for huge external reserves through current account surpluses that contribute to trans-Pacific imbalances.

It is impossible for the United States to reduce its current account deficit as long as its trade partners on the other side of the Pacific Basin are unwilling or unable to reduce their current account surpluses, as external balance is collectively a zero-sum game.

East Asia needs to consume more and save less, just as the U.S. needs to consume less and save more, which means that the U.S. and East Asia need to export more and import more, respectively.

To be sure, rebalancing does not imply exports must equal imports. It merely means trimming trade deficits and surpluses to a sustainable level. And Asian economies must do their part in bringing this about as responsible global players.

To achieve this goal, Asia needs intra-regional institutional support. Thus, there is a need to formalize and institutionalize such ad-hoc arrangements as the central banks' and finance ministers' dialogues.

Exchange-rate misalignment lies at the crux of the imbalance issue. Rebalancing warrants exchange-rate realignment, especially between the U.S. dollar and the Chinese yuan.

The pegging of a hugely undervalued yuan to a hugely overvalued dollar is untenable.

While China will not succumb to external pressure, gentle persuasion by East Asian countries in the spirit of regional cooperation may yield positive results. If this does not work, East Asian partners may have no choice but to peg their currencies to the yuan so as not to lose out.

While a common currency for East Asia is still an outlandish idea, a common exchange rate regime for East Asia is not. A common basket peg for East Asian currencies would ensure intra-regional exchange rate stability, a boon for intra-regional trade and investment.

The proliferation of bilateral trade agreements is problematic, with many pros and cons. Instead of dissipating its energies and resources on preferential trade arrangements, Asia should focus on reviving the stalled Doha Round of the World Trade Organization.

Neither the U.S. nor the EU would champion the cause of global free trade, given their high unemployment at home.

Obviously, it is a proper time for Asia to take on a leadership role on the global stage.

Huang Shuo is a Beijing-based freelance writer and current affairs commentator. He can be reached at [email protected].

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