Conference on Global Financial Crisis: Regional Cooperation and Architecture Policy Issues

The conference on Regional Cooperation and Architecture Policy Issues was held on 16 July 2009, as a part of Global Financial Crisis conference series organized by the Asian Development Bank Institute. The conference had five sessions, each with one paper presentation, and a concluding session.

The first paper discussed the desirability of creating an "Asian financial stability dialogue" (AFSD) analogous to the Financial Stability Forum at the global level. The AFSD, which could be launched under the ASEAN+3 framework, would be composed of finance ministers, central bank governors, and financial market regulators and supervisors. The expansion of the membership to include India, Australia, and New Zealand has also been proposed. The AFSD is expected to enhance information-sharing, harmonize prudential indicators, increase coordination on early warning system analysis, and facilitate a more open discussion of national and regional policy interventions. The paper argued that the AFSD's creation is long overdue.

The second paper focused on fiscal policy issues, including the creation of an Asian investment infrastructure fund (AIIF) and long-term bilateral regional infrastructure loans. Various mechanisms to assist Asian countries facing funding constraints in implementing stimulus packages were discussed. Yet, the lack of political will appears to be the biggest obstacle to the successful creation of a regional and/or cross-border infrastructure investment fund, and a framework for regional cooperation is deemed necessary to achieve this end.

The third paper argued that an integrated East Asia needs close exchange-rate policy cooperation for better macroeconomic and financial management, and to promote intra-regional stability. A crucial institution for macroeconomic policy coordination in Asia is the Chiang Mai Initiative (CMI), thus there is a need to expedite the CMI's multilateralization process and to upgrade the CMI framework to allow the creation of an Asian monetary fund. To facilitate exchange rate policy coordination, an Asian currency unit (ACU) to serve as a reference currency for surveillance purposes based on a basket of Asian currencies was proposed.

The fourth paper focused on regional trade policy cooperation, and discussed issues surrounding the Doha Development Round of the World Trade Organization, the proliferation of free trade agreements (FTAs) and their corresponding benefits, and prospects of an East Asian FTA. The paper argued for a high-priority commitment for the completion of the Doha Round as Asia is greatly dependent on external trade and investment. The case for a region wide FTA (ASEAN+3+3) was recommended to overcome the "noodle bowl" effect of FTAs in the region and its associated commercial costs. With the continued proliferation of plurilateral and bilateral FTAs, and it is important to aim for high-quality FTAs that complement the WTO framework.

The fifth paper focused on the political economy of regional integration and cooperation. The paper identified three elements of institutional design that promote regional cooperation: (i) the level at which governments are willing to compromise their sovereignty and political autonomy for the sake of regional cooperation; (ii) the creation of mechanisms through which losers can be compensated; and (iii) a clear definition of accession criteria and benefits of membership. The paper argued that regional cooperation in finance has achieved more success than that in trade, as evidenced in the region's handling of the 1997-1998 crisis and the patchwork of FTA networks in Asia.

A panel discussion wrapped up the conference. The session highlighted the challenges Asia faces to sustain long-term economic growth. One way of addressing this issue is by increasing trade in final products, not just simply in intermediate goods; reducing the cost of intra-regional exchange-rate volatility. The conclusions of the session included: (i) promotion of comprehensive FTAs that include trade in services (particularly Mode 4 type of services), and foreign direct investment liberalization and facilitation; (ii) institutional support and creation of a full-time professional secretariat for the proposed AFSD; and (iii) continued employment of fiscal stimulus to expand domestic economy, particularly spending on infrastructure.