Transcript East Asian Community -Concepts, Reality and

East Asian Community
and East Asian Summit
-Concepts, Reality and Opportunities
May 11, 2006
Regional Anatomy I
Ken JIMBO
Review 1)
Divergence of East Asia: Four Dimensions
Historical Background
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Cultural Diversity
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China-Centered Tribunal System
(Pre-Modern)
Great Power Imperialism (Modern)
Cold-War Fragmentation (Post
WWII)
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Language
Religion
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Political Diversity
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Liberal Democracy
Authoritarian
Communism
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Economic Diversity
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Advanced
Growing
Under-Developed
Review2)
‘Regionalization’ and
Economic Convergence in Asia
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‘De Facto’ Economic Integration
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‘Flying Geese’ Model (Kojima, 2001)
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Production Cycle Model (R. Vernon, 1966)
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Production Networks
Fragmentation Model
Benefit of export-oriented ‘late comer’
Four Drivers to Promote Regionalism
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Governments (APEC / ARF)
Corporations (Production Networks, Investments)
Functional Cooperation
Growing Middle-Class Networks
Asian Financial Crisis in 1997
Asian Financial Crisis
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Capital Flows
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capital inflow :$93 billion into ASEAN5 (Thailand,
Malaysia, Indonesia, Philippines) and Korea
In 1997: net outflow of $12 > Large Scale Capital
Flight
Abrupt Crisis end-1997
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Currency Devaluations
Stock Market Collapses
Asian Financial Crisis
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Spill-over Effect
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From Thailand to Asian Countries
From Asian to Wide-Stock Markets
Depreciations of Currencies
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Indonesian Rupiah: 75%
Malaysia Ringgit: 40%
Philippines Peso: 40%
Thai Bahts and Korean Won: 50%
> From East Asian Miracle to East Asian Meltdown?
Causes of Asian Financial Crisis
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Common Elements Contributing to the Crisis
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Credit-Fueled Investment Boom
Weak and Unsound Banking Sector and Financial System
Pegged (Fixed) Exchange Rate Regime
Current account deficits and composition of foreign
liabilities
Double-Mismatch (M. Yoshitomi)
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Currency Mismatch
Maturity Mismatch
Banking Crisis
Deterioration of Balance Sheet
Two Major Components of the Crisis
I. Massive Volume of Capital Inflows
surpassing underlying current account deficit
Policy Prescriptions
II. Composition of Capital Inflows dominated by
short-term loans
(1) Capital Controls over
short-term inflows
Balance of payments surplus:
Externals reserves increase
Domestic credit
expansion
Absorbtion increases
Domestic boom
Current account
deficit widens
Bubble burst
Excess capacity
(2) More appropriate exchange
rate regime
"Double Mismatches"
Maturity mismatch
Currency mismatch
(3) Maturity transformation:
a. Strenghtening monitoring
functions by banks and supervision
b. Development of corporate
bond and equity markets
(4) Good corporate governance
Reversal of capital inflows,
sudden and massive
Rapid deterioration of the balance sheet
(5) Sequencing issue between
strenghtening the finance system
and capital account convertibility.
Balance of payments deficit:
Reserves drain
Currency crisis
+
Banking crisis
[=Twin Crises]
Masaru Yoshitomi, “Capital Account Crisis and Appropriate Policy Responses”
IMF Rescue Package
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The Rescue Package (P. Krugman, 1998)
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Loan on the condition of economic reform Korea: US$58.4,
Thailand:$17.2, Indonesia: $42.3B
Maintain high interest rates to entire capital into staying in
the country
Wait for confidence to return and for the vicious circle to turn
into a virtuous circle
IMF ‘Strained Assistance’
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Same Old Medicine
 Macroeconomic Policy of Higher Taxes, Reduced Spending,
Higher Interest Rates
Damage in Political System
 Korea, Indonesia, Thailand
IMF Conditionality
Macroeconomic
Targets
Indonesia
Korea
Thailand
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Reduced public subsidies and
tax privileges
Divestiture of state
enterprises
Cancellation of some
infrastructure projects
Macroeconomic targets for
1998
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Financial Sector
Reforms
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Real Sector
Reform
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Selective increase in income
and corporate taxes
Broadening of VAT base
Macroeconomic targets for
1998
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Inflation 20%
GDP growth 0%
Budgetary deficit of 1%
of GDP
Current a/c deficit of
2.2% of GDP
Official reserves of 5.2
months of imports
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Inflation 5.2%
GDP growth 2.5%
Budgetary surplus of 0.2%
of GDP
Current a/c deficit of 2.3%
of GDP
VAT increase
Reduced subsidies
Divestiture of state enterprises
Flexible exchange rate
Macroeconomic targets for
1998
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Comprehensive financial
restructuring including
closure of troubled banks
Strengthening regulatory
framework
Deposit guarantees for small
depositors
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Removal of state regulated
monopolies and cartels
Abolition of restrictions on
marketing arrangements
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Comprehensive financial
restructuring including closure
of troubled financial institution
Improving accounting and
disclosure rules
Consolidated supervisory
function
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Elimination of trade-related
subsidies
Removal of restrictive import
licensing and FDI rules
Promotion of labor market
flexibility
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Inflation 5.0%
GDP growth 3.5%
Budgetary surplus of 1% of
GDP
Current a/c deficit of 3.0%
of GDP
Official reserves of 4
months of imports
Restructuring of financial
institutions
Improving accounting and
disclosure rules
Removal of unconditional
financial support to insolvent
institutions
Enhancing export sector
competitiveness through
emphasis on education and
training
Source: Choi, J. Jay ed., Asian Financial Crisis: financial, structural and international dimensions, p.69
Rise of Regional Financial Cooperation
(1997.7-1998.1)
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Asian Monetary Fund (AMF) Initiative
→ Failure (1997.9)
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$10 billion Package （MoF Initiative）
Opposition from US and China
Manila Framework (1997.11)
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Economic Surveillance within Asian Countries
Demand for Technical Support to International Finance
Organization
IMF Mechanism to Provide Short-Term Credits
Rise of Regional Financial Cooperation
(1998.1-)
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New Miyazawa Initiative (Approx. $30 billion)
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Under the New Miyazawa Initiative, Japan is prepared to
provide a package of support measures totaling $30 billion
in order to assist Asian countries in overcoming their
economic difficulties and to contribute to the stability of
international financial markets. The package will be set aside
as follows:
$15 billion for medium- to long-term financial assistance to
promote economic recovery (e.g., ODA yen loans and
Export-Import Bank of Japan loans)
$15 billion for possible short-term capital needs during the
process of implementing economic reforms
Rise of Regional Financial Cooperation
(1998.1-)
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The Chiang Mai Initiative (CMI) of May 2000
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Network of bilateral currency swaps among countries
Seen by some as functional equivalent to an “Asian
Monetary Fund”
Japan’s role as leader and arbitrator of intra-regional
interests
Outcome: 90% linkage to IMF program in place; review
planned this year
Key factor limiting greater regional independence:
“surveillance” capacity
Basic Elements of Bilateral Swaps Under
Chiang Mai Initiative
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Modality:
U.S. dollar and local currencies
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Maturity:
90 days, renewable for up to 2 years
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Drawing conditions:
Activation linked to IMF programs but up to 10
percent may be disbursed without linkage to
IMF programs.
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Interest rate:
Market interest rate + premium
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Other:
Guarantee or collateral provided by the
Government of country requesting the swap.
ASEAN+3 Process
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Creation Process
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Asian Crisis Management
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Hashimoto Proposal “ASEAN-Japan” Summit
ASEAN Counter-Proposal “ASEAN+3 Summit”
Chaing Mai Initiative
Joint Declaration of East Asian Cooperation
Functional Cooperation
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17 Areas 48 Meetings
Progress of ASEAN+3
Progress of ASEAN+3
Related Events
1997: Asian Financial Crisis
１９９７: The First ASEAN+3 Summit
1997: ASEAN Vision2020
1998: Hanoi Plan of Action
1999: Joint Statement on East Asian
Cooperation (The Third ASEAN+3 Summit)
1999: ASEAN+3 Finance Ministers’ Meeting
1999: ASEAN10 (Cambodia)
2001: East Asian Vision Group (EAVG)
Final Report
2002: East Asian Study Group (EASG)
Final Report
“Issue Paper” on East Asian Community,
Functional Cooperation, East Asian Summit
2001: September11 Terrorist Attack
2002: Koizumi Singapore Speech
2002: ASEAN-India Summit Meeting
2003: Japan-ASEAN Special Summit Meeting
2003: China-ASEAN Strategic Partnership
2003: Bali Concord II
2004: ASEAN+3 Foreign Minister’s Meeting
(Jakarta)
2004: ASEAN+3 Summit (Vientiane)
Decision to Hold East Asian Summit
2004: Aus-NZ-ASEAN Summit Meeting
(Vientiane)
2005: ASEAN Emergency Summit Meeting
(Tsunami Disaster Relief)
EAVG and EASG
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East Asian Vision Group (EAVG)
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Korean Proposal (1999)
EAVG Final Report (2001)
East Asian Study Group (EASG)
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EASG Final Report (2002)
19 Long-term 9 Shot-term Recommendations
Issue Paper (JPN Government)
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JPN Government Perspectives on EAC and EAS
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Issue Paper (June 2004 / Viantianne)
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East Asian Community
Functional Cooperation
East Asian Summit
On East Asian Summit
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Fundamental Objectives of East Asian Summit
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Difference Between ASEAN+3 Summit and East Asian Summit
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Aim for Full-Fledged East Asian Community?
Objectives and Agendas
Membership
Organizational Questions
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Who will Take a Lead ? (Who Sits on the Driver’s Seat?)
Who will Host the Meeting?
Who will Chair the Meeting?
East Asian Summit Political Process Ｉ
【Modality A】（Oct 2004）
2005 Host C: Malaysia
2007 Host C: China
(Chinese Proposal)
Bi-Annual Meeting
Alternative Host: ASEAN / Non-ASEAN
Membership: ASEAN + 3
ASEAN+3 Summit Coexist
【JPN Counter Proposal】（July 2004～March 2005）
1) East Asian Summit should be Co-hosted by ASEAN and NonASEAN Member States. The First Meeting in Kuala Lumpur should
be Co-hosted by Malaysia and Japan
2) Australia and NZ should be invited to EAS as Dialogue-Partners
(two-tier approach)
【Philippines’ Response】
Philippines will be a chair country for ASEAN in 2007. If China holds
EAS in 2007, ASEAN+3 Summit in Philippine will be deteriorated.
(cf. Myammer has given up their chairmanship in 2006)
【Indonesian Response】
ASEAN should focus on ASEAN-integration rather than EAC (SBY)
East Asian Summit Political Process II
【Modality B】 (April 2005)
2005 Host C: Malaysia
2006 Host C: ASEAN
Mod B. Approval
Singapore
Indonesia
Vietnam
【Criteria on EAS Membership】
1) Dialogue Partner of ASEAN
2) Accede Treaty of Amity and Cooperation
in Southeast Asia (TAC)
3) Having Substantive Relations with ASEAN
New Member: Australia, New Zealand, India
ASEAN+3+3 = 16 Member States
Additional Approval
【JPN Counter Proposal】（July 2004～March 2005）
1) East Asian Summit should be Co-hosted by ASEAN and Non- ASEAN
Member States. The First Meeting in Kuala Lumpur should be Cohosted by Malaysia and Japan
2) Australia and NZ should be invited to EAS as Dialogue-Partners
(two-tier approach)
【Modality A】（Oct 2004）
2005 Host C: Malaysia
2007 Host C: China
(Chinese Proposal)
Bi-Annual Meeting
Alternative Host: ASEAN / Non-ASEAN
Membership: ASEAN + 3
ASEAN+3 Summit Coexist
【Agreed Modality】
1) ASEAN sits on a Driver’s Seat
2) Inclusive Membership
3) Co-exist with ASEAN+3 Summit
Some US Responses:
Another Side of Coin
“My view is this is a thinly veiled way to make the
point that the United States is not totally welcomed
in Asia. I think that's a real mistake.“
"But it's the direction. What worries me about it (is)
if it's the beginning of an erosion."
"It seems that China is quite willing to be involved
in fora that don't include the United States,"
－Richard Armitage, Asahi Shimbun May 1, 2005
East Asian Summit
Joint Statement I
(Dec 14, 2005)
SHARING the view that the East Asia Summit could play a significant role in
community building in this region;
FURTHER RECOGNISING the need to support efforts to build a strong ASEAN
Community which will serve as a solid foundation for our common peace and
prosperity;
DO HEREBY DECLARE:
FIRST, that we have established the East Asia Summit as a forum for
dialogue on broad strategic, political and economic issues of common
interest and concern with the aim of promoting peace, stability and economic
prosperity in East Asia.
SECOND, that the efforts of the East Asia Summit to promote community
building in this region will be consistent with and reinforce the realisation of
the ASEAN Community, and will form an integral part of the evolving regional
architecture.
East Asian Summit
Joint Statement II
(Dec 14, 2005)
THIRD, that the East Asia Summit will be an open, inclusive, transparent
and outward-looking forum in which we strive to strengthen global norms
and universally recognised values with ASEAN as the driving force working
in partnership with the other participants of the East Asia Summit.
FIFTH, that:
Participation will be based on the criteria for participation established by
ASEAN;
The East Asia Summit will be convened regularly;
The East Asia Summit will be hosted and chaired by an ASEAN Member
Country that assumes the ASEAN Chairmanship and held back-to-back with
the annual ASEAN Summit; and
The modalities of the East Asia Summit will be reviewed by ASEAN and all
other participating countries of the East Asia Summit.