Keynote address at the regional conference on
"Common Currency for East Asia: Dream or Reality,"
sponsored by the Asian Institute for Development Communication 
and the Konrad Adenauer Stiftung,
Penang, 5 August 1999

A common currency for ASEAN, not to mention one for East Asia, was until two years ago all but unthinkable. Now, people are not only thinking about it, they are seriously talking about it in respectable company like this. This shows how strongly the financial crisis has jolted our ways of thinking, how significantly it has stretched the horizons of the possible, how, indeed, things will never be the same again. The fact that we can now talk about a common currency for ASEAN and even for East Asia shows how much, in a fairly short time, we have come to think about ourselves as a region, how much our economies have become integrated, and about the possibilities for regionalism in the future.

I will not go into the technicalities of the advantages and Disadvantages or the likelihood of a regional currency. You are much more qualified to do this than me. But I can tell you about the state of ASEAN thinking on the subject. I can talk about the new realities in ASEAN and East Asia which your choice of the subject reveals.

No less than ASEAN's heads of state and government affirmed the value of looking into this subject. In the Hanoi Plan of Action, which they issued in December 1998, they directed ASEAN to "Study the feasibility of establishing an ASEAN currency and exchange rate system."

This formulation obviously indicates that an ASEAN currency is far from being a reality. There remain many obstacles to be overcome. Regional economies have to be sufficiently integrated. Rivalries and mutual suspicions lingering from history have to be overcome. Questions of sovereignty have to be resolved.

But it also denotes the ASEAN leaders' discernment of the Emerging possibilities for the future, possibilities brought about by the progress of regional integration and impelled by the financial crisis.

In the meantime, ASEAN has taken steps to cooperate in the financial area short of creating a common currency. ASEAN has been encouraging the use of ASEAN currencies in the settlement of intra-ASEAN trade. This is to be done largely through bilateral payments arrangements. Malaysia and the Philippines have concluded one such arrangement. Others are under negotiation. ASEAN's leaders have called for the development of capital markets in the region, so as to reduce ASEAN's dependence on capital from the developed world. They prescribed in the Hanoi Plan of Action certain concrete measures for accomplishing this. They agreed to open up their financial sectors, mainly within the context of the negotiations on trade in services that are about to be launched. They decided to cooperate in improving the regulation and transparency of the financial system.

ASEAN has set up an economic surveillance system, in which ministers and officials exchange data and share opinions on economic trends and macroeconomic policies in the ASEAN countries. In this way, which is a process of peer review, they intend to avert future financial crises and encourage one another in the pursuit of reform. A unit in the ASEAN Secretariat has been established to manage the process, with support from the Asian Development Bank, in which a counterpart unit operates.

Deepening Economic Integration

These moves, as well as the mandate for studying the feasibility of an ASEAN currency and exchange rate system, manifest both how far ASEAN has gone in economic integration and how determined it is to deepen integration even more.

The ASEAN Free Trade Area not only is on track; it has been accelerated, so that, for the six original signatories to the AFTA treaty, the free trade area is to be completed at the beginning of 2002. In fact, by the beginning of 2000, or in less than five months from now, it will be ninety-percent done, creating, for all practical purposes, a huge market of half a billion people with a combined gross domestic product of US$700 billion. The premises and parameters for the negotiations on trade in services have been laid. Those negotiations must begin this year. Barriers to investment are likewise being dismantled, with ASEAN investors becoming free to invest, without hindrance, in much of the manufacturing sector of the other ASEAN countries.

Because of the degree of economic integration that has been achieved, the idea of an ASEAN currency, like a customs union and a common market, has at least become thinkable.

What about East Asia? Unlike in ASEAN, there are no special Arrangements for the integration of East Asia's economies. Indeed, seemingly insurmountable differences continue to divide East Asia. ASEAN and Northeast Asia continue to be regarded as distinct from each other by virtue of the differences in their economic structures and levels of development. Northeast Asia itself is divided by historical Antagonisms and contemporary rivalries.

Yet, in recent years, East Asia has been coming together in Almost imperceptible ways, slowly but steadily. ASEAN exports to Northeast Asia, for example, increased by a remarkable thirty percent in 1997 and accounted for twenty-four percent of ASEAN's total exports in that year. Northeast Asia's share of ASEAN exports surpassed those of the United States, at twenty percent, and those of the European Union, at fifteen percent. This trend was interrupted by the financial crisis but, with the economic recovery of East Asia, promises to resume with renewed vigor.

A large proportion of this bustling East Asian trade is carried Out between units of the same conglomerate located in different parts of the region. Trade within the region is, therefore, closely linked with intra-regional investments. Japan is the primary foreign investor in South Korea. Japan and South Korea are leading sources of foreign direct investment in ASEAN and China. The magnitudes grow if one brings in Taiwan and Hong Kong, but that is another story. Eventually, a place in this scheme of things ought to be found also for Mongolia, which is now a participant in the ASEAN Regional Forum.

The East Asian Synergy

The synergies of trade and investment intensify, as each batch of East Asian countries moves up the development ladder - first, Japan and South Korea, then, at different paces, the first six ASEAN members and China, and finally the newer members of ASEAN. Historically, investments from and markets in the more developed countries have nourished the growth of the less developed ones and helped pull them up the ladder. The process involves not only markets and capital but also services and the transfer of technology and the development of human skills. Unless something happens to break it up, the continuation of this process can hold great potential for further economic integration in East Asia.

On the negative side, the contagion effect of the financial Crisis spotlighted the reality of the inter-connection of East Asia's economies, with almost all countries in the region affected, as victim or factor or both. Only China, it seems, has emerged relatively unscathed.

The increasing economic closeness of East Asia explains why ASEAN is so sensitive to the stability and value of the renminbi and why it has indicated its receptivity to the idea of internationalizing the yen. It is why ASEAN pays so much attention to the state of Japan's economy. It is also part of the reason why ASEAN is so concerned over the state of relations across the Taiwan Straits.

The immutable reality of geography, of course, underpins the Strengthening bonds among the countries of East Asia, geography leavened by history and culture. But East Asia is no regional fortress. Each of the countries of the region is open to the world or is opening to it. The United States and Europe remain leading trading and economic partners of the countries of East Asia, each of which is a member of the World Trade Organization or is aspiring to be one. All of them have absorbed much of Western culture and ways of doing things. Nevertheless, the geographical expression that is East Asia is becoming, to an increasing degree, a regional economic entity.

Until recently, the region's economic convergence has been driven by the trade and investment decisions and impulses of corporations. For the most part, it has received little conscious guidance or support from governments outside of the purely economic sphere. But, in the past few years, governments have taken deliberate steps to nurture East Asia's burgeoning coherence. A recognition of the emerging economic, as well as geographical, realities has made ASEAN's "dialogues" with China, Japan and the Republic of Korea among the most active in ASEAN's relations with its ten dialogue partners. As part of the dialogues, efforts have intensified to promote cultural exchanges between ASEAN and each of the Northeast Asian countries.

An East Asian Forum

Beyond the ASEAN dialogue system, an East Asian forum is developing among the thirteen countries of the region. The leaders of China, Japan and Korea met, as a group and individually, with those of ASEAN on the occasion of the ASEAN summits of 1997, in Kuala Lumpur, and 1998, in Hanoi. In late November, they will meet again in Manila in what is becoming an annual event. Just before the summit in Manila, all the thirteen countries will meet for the first time at the level of senior officials. Seven of the ten Southeast Asian nations and the three Northeast Asian countries make up the Asian contingent to the Asia-Europe Meeting, or ASEM. They have had many opportunities to interact in this context.

At what has been called the ASEAN-plus-three and ASEAN-plus-one summits, East Asian leaders have had the occasion to discuss a broadening range of issues pertaining to regional security, such as the South China Sea. They have also dealt with the prospects of Asia's economic recovery and ways to hasten it, the promise of information technology, and cooperation on social safety nets in the region.

The finance ministers of the thirteen countries met for the first time in Manila last April; their deputies had been meeting with increasing frequency. The ministers and deputies discuss ways of dealing cooperatively with the demands of economic recovery and preventing future crises. They develop Asia's thinking on the reform of the international financial architecture.

The East Asians are now trying to add further substance to the content of their interaction. In Hanoi last December, President Kim Dae-jung of the Republic of Korea proposed the convening of an East Asian Vision Group of eminent intellectuals from around the region. The other heads of government accepted the idea. The vision group will meet several times from October this year through 2000 and 2001. It is charged with proposing concrete steps for closer cooperation in East Asia politically, economically, culturally and in other ways.

The force of logic is behind the closer integration of East Asia, but there is nothing inevitable about it, much less about such fundamental decisions as a common currency. Even measures far short of a common currency do not have any certainty in them. Many such measures, if they are of any substance, require a level of mutual trust and even the surrender of a degree of sovereignty that is not yet within sight. Issues and emotions rooted in history or in current rivalries continue to divide East Asian nations.

East Asian economies have often been likened to flying geese, with Japan leading the flock and the newly industrialized countries and then the less developed ones following in that order. Will the East Asian geese continue to fly in formation? Can the lead goose continue to lead effectively? Will it be challenged for leadership in the future?

There are other questions. Will the development gap between East Asian nations be sufficiently narrowed? Will sufficient technology be transferred to the less developed ones? Will the latter be able to absorb the technology? Can historic rivalries and mutual suspicions be sufficiently overcome? Will enough sovereignty be given up?

Such questions need to be sorted out before a common currency - or less demanding forms of economic integration - can be seriously discussed. But one thing is clear: Recent events have made clear that there is no other course but closer economic integration and political solidarity in ASEAN, there are precious few alternatives to closer cooperation in the larger region of East Asia.

East Asia's leaders realize this. The actions that they and their governments, business communities and peoples take in this direction will determine whether a common currency for East Asia, or even a lesser degree of economic convergence, is an ephemeral dream or a realistic possibility. Their actions will decide whether the growing closeness of East Asia that we now see is an enduring reality or turns out to be a fleeting mirage.

I have every confidence that ASEAN and East Asia will take the right course.