Workshop on Asian Economy after the Global Financial Crisis

The workshop on Asian Economy after the Global Financial Crisis, jointly organized by ADBI and the North East Asia Research (NEAR) Foundation, was held on 20 August 2010 at ADBI, Tokyo. The workshop had four sessions, namely:

• The impacts of the global financial crisis in Asia
• Rebalancing Asia through macroeconomic adjustment measures
• Regional financial architecture after the global financial crisis
• Asia's exchange rates and monetary cooperation

The first session had two papers. The first paper provided an overview of the economic impacts of the global financial crisis on Asia. It noted that while the global financial crisis adversely affected Asia's real sector, the banking sector remained sound. It emphasized the need for looking for new sources of growth in Asia that would be less susceptible to negative shocks from advanced economies. The second paper discussed the balance sheet problems and currency crisis in Korea. To minimize this problem in the future, the paper suggested that regulatory reforms need to take into account both currency and maturity mismatches of financial institutions. The paper also outlined the importance of establishing global financial safety nets to avoid a crisis in the future similar to that experienced by Korea during the height of the global financial crisis.

The second session had two papers. The first paper discussed how macroeconomic management could be structured in the postcrisis period. It argued that improvement in the framework for macroeconomic and financial stability can support domestic demand by reducing uncertainty and the need for precautionary savings. This includes giving more explicit weight to financial stability as an objective of monetary policy, developing a macro prudential framework for financial surveillance and regulation, and refining policy tools for management of capital flows. The second paper dealt with global current account imbalances. It argued that developing Asia's current account surplus would fall if precautionary savings decline, and more importantly, if the People's Republic of China's (PRC) high savings rate declines towards levels that are more in line with economic fundamentals.

In the third session, the first paper examined the types of regional architecture needed for Asia in the future. The paper argued that Asia needs to transform the Chiang Mai Initiative Multilateralization (CMIM) into an Asian Monetary Fund to provide financial safety nets for East Asian economies, initiate intensive policy dialogue on exchange rates, and to create an Asian currency unit (ACU) for surveillance purposes. It also pointed out the need to establish an Asian infrastructure fund which would serve as a financing framework to help mobilize the region's vast savings. The second paper stressed the point that to develop a viable regional financial architecture for Asia, the role of big countries such as the PRC and Japan in regional cooperation is crucial.

The fourth session had two papers. The first paper tested the feasibility for the PRC, Japan, and Korea to join the US dollar zone in relation to the nature of macroeconomic shocks and discussed its implications for monetary and exchange rate policy. The paper found that a rise in domestic interest rates would lead to an appreciation of the won-dollar exchange rate, but it would not have a significant impact on the yen-dollar and the yuan-dollar exchange rates. It implied that an exit strategy in the form of upward adjustment in the domestic interest rates in the PRC and Japan would not affect the yen-dollar and yuan-dollar exchange rates. The second paper discussed the Asian Monetary Unit (AMU) and monetary cooperation in Asia. The paper found that the AMU peg system stabilizes each East Asian country's nominal effective exchange rate. The paper also found that the AMU and AMU deviation indicators could indicate overvaluation of exchange rates of some countries in the region and of Asia as a whole.

The conference concluded with a panel session. The panel members agreed that the region's first task is to achieve full recovery from the crisis. They also agreed that countries in the region should give more attention to expanding domestic demand, but that this should be done with the development of regional and global financial safety nets. Apart from focusing on integration, Asian countries should also tap the potential of South-South trade because it can establish new trade linkages for Asia and mitigate the exposure of Asian economies to the shocks coming from advanced economies.