1. Asian Financial Industry: Background and Important Issues
1.1 Regional economic integration accelerating the process of financial
cooperation
With the large increase in trade and investment between Asian nations,
economic ties in the region are being greatly strengthened. This situation
not only establishes a solid foundation for regional financial cooperation, but
also provides for higher levels of financial cooperation within the
region.
1.2 Asia's financial crisis strengthening the consensus on regional
financial cooperation among Asian countries
After the Asian financial crisis, many East Asian countries began to realize
that effective methods to stabilize the financial market and protect the region
from another crisis was to create a mechanism strengthening financial
cooperation within the region.
1.3 The common economic and financial structure in Asia is calling for
a unified Asian Bond Market
Firstly, indirect finance through banks plays a dominant role in the Asian
financial market. This type of structure is better suited to supporting
developing countries in catching up with more developed countries. But
obviously, it will be difficult to bear the strategic responsibility of economic
structural reform. Furthermore, it will render the existing financial systems in
these countries with a lack of mobility, transparency and elasticity when faced
with great changes. Developing the bond market is one way to make changes taking
place in such a financial system.
Secondly, it takes a long period of time to establish financial cooperation
in the Asian region. Therefore there the need exists to establish long-term
dialogues amongst nations and set up a coordinating mechanism.
Thirdly, Asian economic entities generally hold a large amount of US dollar
assets, which are in turn prone to be dominated by the US dollar. Developing the
Asian bond markets will help to gradually mitigate these effects.
2. Solution Proposals
2.1 Framework for the Solution Proposals
As proposed by officials and specialists from the Asian Development Bank and
other international organizations, Asia must set up an independent organization
in the near future. This organization will guarantee dialogue on the
formulation of regional policy, to be supported and evaluated in the same manner
among policy makers. It is the responsibility of Asian nations to monitor
financial development within the region, to expand the network of bilateral
currency exchange as prescribed by the Chiangmai Agreement, and to provide
short-term liquidity support to its member nations with the foreign reserves set
aside by its contract members.
The second step is to substitute the bilateral currency exchange system with
one (Asian) central reserve and work out the corresponding rule of payment for
the reserve. The standardization of documents and coordination among banks
should also be promoted. Furthermore, the Asian Monetary Cooperation Fund
should be set up to manage dialogues on regional policy, the administration of
central reserves and to monitor development in the finance industry.
Thirdly, judging from a long-term perspective, Asia should implement a
regional exchange rate mechanism to defend the stability of exchange rates
within the region. And it also has to standardize and coordinate rules of safety
within each country's banking sector.
2.2 East Asian Monetary Fund
On October 18, 1999 Malaysian Prime Minister Mahadir proposed the
establishment of an "East Asian Currency Fund" at the "East Asia Summit
Meeting".
At the 2nd annual Boao Forum in 2003, the Vice-Minister of the Korean Finance
and Economy Department called for the construction of a mechanism to allow all
Asian nations to share in the region's 1 billion US dollar capital funds.
"Mr.Yen" Eisuke Sakakibara believes that it is time to carry out the proposal of
establishing an "Asian monetary fund", which was first raised in 1997 by the
Japanese government. And what should be done now is to coordinate
political wills among its members.
2.3 The ASEAN 10+ 3 monitoring process
The ASEAN 10+3 group was established in November 1999. In May 2000, the
first conference of the ASEAN 10+3 was held after the annual meeting of the
Asian Development Bank. All members agreed unanimously to strengthen dialogues
on regional policy and cooperation between nations, including the implementation
of capital control, self-saving and self-regulating mechanism, as well as
international finance reform.
2.4 AAB (AAB – Asian Arrangements to Borrow)
Korean scholars (Tae-jun Kim, Jai-Won Ryon and Yunjong Wang 2000) put forth
the proposal called the AAB (Asian Arrangements to Borrow), which is similar to
the IMF's GAB (General Agreements to Borrow) loan program. In order to reduce
the risk of moral hazard, AAB connects the upper limit of loans with the
contract signed by both sides of the credit loans.
2.5 The ASEAN 10+3 Early Warning System
The ASEAN 10+3 Early Warning System was first raised in the announcement by
the Ministers of Finance conference at the Asian Alliance 10+3 meeting held on
May 2001 in Hawaii. The Asian Development Bank is providing technical aid to
prevent any future financial crisis. This type of aid supports:
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