Harmonising exchange rates ranks high among Asean finance concerns
Closer exchange-rate coordination among Asean+3 countries is a critical step for regional economic stability.
Finance Minister Chalongphob Sussangkarn will chair the 11th Asean Finance Ministers' Meeting in Chiang Mai today and tomorrow.
He and his counterparts from the other nine Asean countries have an important agenda - the roadmap for financial and monetary integration which would pave the way to achieve an Asean Economic Community by 2015.
The meeting will highlight capital market development, financial services liberalisation, capital account liberalisation and Asean currency cooperation.
Yesterday senior officials of central banks and finance ministries from Asean+3 (China, Japan and South Korea) met in Chiang Mai.
The most interesting topic at the ministers' meeting, however, is expected to be the appreciation of regional currencies against the US dollar and how to deal with the trend to produce a win-win result, as East Asian countries also compete with each other for export markets in the United States, Europe and other parts of the world.
Capital flows into the region have strengthened regional currencies in general and the baht in particular. Thailand would be a centre of focus as its central bank in December imposed severe capital controls that shocked the market.
Chalongphob earlier said he would brief his colleagues on the latest developments on the matter. He conceded that Thailand had not yet found a better solution to the capital-inflow problem. He hoped to learn from the experiences of the other ministers, and vice versa.
Individual countries have been trying to solve their own problems, however. If they have to cooperate more closely, some suggest that they should hold more financial assets denominated in Asean currencies, such as baht bonds.
Officials have agreed that this would be an important part of how they could use surplus savings to invest in the region's infrastructure.
And cooperation among small countries in Asean is inadequate. Chalongphob said he would also discuss the exchange-rate issue with China, Japan and South Korea ahead of the Asean+3 meeting in Japan next month.
Suparut Kawatkul, permanent secretary for the Finance Ministry, said yesterday's meeting reached a broad consensus that interest rates should be low in order to discourage capital inflows.
Officials also apparently acknowledged that a flexible exchange-rate or floating-rate regime could cause volatility in currencies and would be more efficient when the market was deeper and wider.
They realised that effective communications with the market were necessary and supervision of financial markets must be done carefully.
The senior officials also urged member countries to expand domestic demand. They needed to boost consumption and private investment. They agreed to promote Asian bonds as an important tool for promoting investment infrastructure in both Asean and Asean+3. They would keep a close eye on hedge funds that are behind short-term capital flows, potentially creating instability in the region.
In the wake of the 1997 Asian financial crisis, competitive devaluation of currencies erupted among East Asian countries. Then other countries, however, praised China for not devaluing its yuan, which saved the region from a deeper crisis.
The situation today is different. Many countries, especially Thailand, watch China with unease, as China has kept the yuan virtually unchanged against the US dollar, while Thailand has suffered from the fast-rising baht due to its floating exchange-rate regime. And Thailand is worried that its exports could lose competitiveness against China's exports.
Asean and China have agreed on the Chiang Mai Initiative (CMI), a swap arrangement that serves as a reserve pool that a member could borrow from when it runs into financial problems. Asean plans to strengthen the CMI, which would be further discussed in Japan.
Europe has celebrated 50 years of cooperation which brought them a single currency market. Asean and Asean+3 have only started to implement some common policies. The success story of Europe and the growing imbalance in the global financial market are likely to force East Asia to accelerate cooperation. And it is interesting to see how they can coordinate exchange-rate policies.
Wichit Chaitrong
The Nation
