The 1997-1998 financial crisis prompted ASEAN to accelerate regional financial cooperation. In the ASEAN Vision 2020 which they issued in December 1997, ASEAN leaders resolved to: (a) maintain regional macroeconomic and financial stability by promoting closer consultations on macroeconomic and financial policies and (b) continue to liberalise the financial services sector and closely cooperate in money and capital market, tax, insurance and customs matters.
To carry out the mandate, officials have drawn up an ASEAN Finance Work Programme. Included in the Programme are measures to establish sound international financial practices and standards, deepen capital markets and improve corporate governance. ASEAN countries have resolved to ensure that the liberalisation of capital accounts is properly sequenced so as to allow the freer flow of capital while cushioning the impact of sudden shifts in capital flows.
ASEAN Surveillance Process
To prevent a recurrence of the financial crisis, the ASEAN finance ministers agreed in October 1998 on a framework for closer consultations on economic policies called the ASEAN Surveillance Process.
This process has two major elements. The first is the monitoring of global as well as regional and national economic and financial developments. Monitoring serves at least two purposes: to keep track of the recovery process and to detect any sign of recurring vulnerability in the ASEAN financial systems and economies. The outcome of the monitoring exercise is reported to the ASEAN finance ministers twice a year. The ASEAN Surveillance Report, as the report is formally called, highlights recent economic and financial trends and recommends policy measures for the ministers to discuss during their peer review sessions.
The peer review, the second element of the ASP, provides a forum at which ASEAN finance ministers exchange views and information on developments in their domestic economies, including policy measures carried out and the progress of structural reforms. The review provides an opportunity to consider jointly unilateral or collective action to counter potential threats to any member economy.
The ASEAN finance ministers have conducted four peer reviews since March 1999. The discussions focused on policy measures that contribute to the economic recovery. Among them are measures to stimulate domestic demand, maintain prudent fiscal management and expedite bank and corporate restructuring.
The mechanisms involved in the ASEAN Surveillance Process are the ASEAN Finance Ministers’ Meeting and the ASEAN Finance and Central Bank Deputies’ Meeting. Their surveillance-related activities are coordinated and supported by the ASEAN Surveillance Coordinating Unit (ASCU) based at the ASEAN Secretariat in Jakarta.
The Asian Development Bank provides technical assistance, such as training of ASEAN finance and central bank officials, the writing of independent economic reports and studies on specific issues, and capacity building of ASCUs and national surveillance units in some countries.
ASEAN + 3 Financial Cooperation
In recognition of the financial interdependence in East Asia, ASEAN has stepped up its cooperation with China, Japan and the Republic of Korea. To implement the Joint Statement on East Asia Cooperation, issued at the Manila Summit in November 1999, the ASEAN+3 finance ministers, assisted by the ASEAN+3 finance and central bank deputies, have been holding periodic consultations.
At their meeting in Bandar Seri Begawan in March 2000, the ASEAN+3 finance and central bank deputies proposed a regional support mechanism that would include setting up a network of East Asian training and research institutes and establishing a regional financing arrangement to supplement existing international facilities. In addition, they agreed to set up a system of monitoring capital flows and to strengthen the regional surveillance mechanism in East Asia. Toward this end, ASEAN is conducting a study to explore the modalities and structures of such a financing arrangement, and a network of contact persons is being formed to coordinate surveillance activities in the region.
The Chiang Mai Initiative
In May 2000, the ASEAN+3 finance ministers agreed to establish a regional financing arrangement called the “Chiang Mai Initiative.” It consists of two components: an expanded ASEAN Swap Arrangement and a network of bilateral swap arrangements among ASEAN countries, China, Japan and the Republic of Korea.
To help countries meet temporary liquidity problems, the ASEAN central bank and monetary authorities have agreed to expand the ASEAN Swap Arrangement originally set up by the five founding member countries of ASEAN to provide financial support to members with balance-of-payments difficulties. The arrangement would now include all ASEAN countries. The expanded facility will have a total amount to US$1 billion.
The basic framework of a network of bilateral swap arrangements and repurchase agreements among ASEAN countries, China, Japan and the Republic of Korea has been agreed upon. This supplementary facility aims to provide temporary financing for members which may be in balance-of-payments difficulties. The combined foreign exchange reserves of these 13 East Asian countries are estimated at more than US$ 800 billion.
Conclusion
Financial cooperation in ASEAN is expected to complement efforts at the national level in undertaking corporate and financial sector reforms to promote macroeconomic and financial stability in the region and in the individual member countries. The ASEAN Surveillance Process is an early warning system that is expected to contribute to preventing future financial crisis. The expanded ASEAN Swap Arrangement among Southeast Asian countries and the Bilateral Swap Arrangements between ASEAN and China, Japan and the Republic of Korea are aimed at containing the impact of a situation of financial instability in the future.
At the global level, ASEAN has articulated its common position on reforming the international financial architecture. In that statement, ASEAN called for closer and more coordinated monitoring of short-term capital flows. In particular, there should be global agreement on the disclosure requirements for such flows and closer collaboration and information sharing among national and international regulators. Measures to strengthen the international financial architecture would need to include a review of the roles of the international regulatory bodies, in order to enhance their capacity and capability to contain and resolve crises. ASEAN believes that global financial stability and development will play an important role in sustaining the economic resurgence of the ASEAN region.
The Association of Southeast Asian Nations (ASEAN) was established on 8 August 1967. The members of the Association are Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam.
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