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East Asian Community and East Asian Summit -Concepts, Reality and Opportunities. May 11, 2006 Regional Anatomy I Ken JIMBO. Cultural Diversity Language Religion. Historical Background China-Centered Tribunal System (Pre-Modern) Great Power Imperialism (Modern) - PowerPoint PPT Presentation
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East Asian Community and East Asian Summit -Concepts, Reality and Opportunities
May 11, 2006
Regional Anatomy I Ken JIMBO
Review 1) Divergence of East Asia: Four Dimensions
Cultural Diversity Language Religion
Historical Background China-Centered Tribunal
System (Pre-Modern) Great Power Imperialism
(Modern) Cold-War Fragmentation (Post
WWII)
Political Diversity Liberal Democracy Authoritarian Communism
Economic Diversity Advanced Growing Under-Developed
Review2)‘Regionalization’ and Economic Convergence in Asia
‘De Facto’ Economic Integration ‘Flying Geese’ Model (Kojima, 2001)
Production Networks Fragmentation Model
Production Cycle Model (R. Vernon, 1966) Benefit of export-oriented ‘late comer’
Four Drivers to Promote Regionalism Governments (APEC / ARF) Corporations (Production Networks, Investments) Functional Cooperation Growing Middle-Class Networks
Asian Financial Crisis in 1997
Asian Financial Crisis
Capital Flows capital inflow :$93 billion into ASEAN5
(Thailand, Malaysia, Indonesia, Philippines) and Korea
In 1997: net outflow of $12 > Large Scale Capital Flight
Abrupt Crisis end-1997 Currency Devaluations Stock Market Collapses
Asian Financial Crisis
Spill-over Effect From Thailand to Asian Countries From Asian to Wide-Stock Markets
Depreciations of Currencies Indonesian Rupiah: 75% Malaysia Ringgit: 40% Philippines Peso: 40% Thai Bahts and Korean Won: 50%
> From East Asian Miracle to East Asian Meltdown?
Causes of Asian Financial Crisis
Common Elements Contributing to the Crisis Credit-Fueled Investment Boom Weak and Unsound Banking Sector and Financial
System Pegged (Fixed) Exchange Rate Regime Current account deficits and composition of foreign
liabilities
Double-Mismatch (M. Yoshitomi) Currency Mismatch Maturity Mismatch
Banking CrisisDeterioration of Balance Sheet
Policy Prescriptions
(1) Capital Controls overshort-term inflows
(2) More appropriate exchange rate regime
Domestic credit Absorbtion increases (3) Maturity transformation:expansion Domestic boom a. Strenghtening monitoring
functions by banks and supervision b. Development of corporate
Current account Bubble burst Maturity mismatch Currency mismatch bond and equity marketsdeficit widens Excess capacity
(4) Good corporate governance
Rapid deterioration of the balance sheet(5) Sequencing issue between strenghtening the finance systemand capital account convertibility.
+ [=Twin Crises]
Two Major Components of the Crisis
I. Massive Volume of Capital Inflows surpassing underlying current account deficit
II. Composition of Capital Inflows dominated by short-term loans
Balance of payments surplus:Externals reserves increase
"Double Mismatches"
Reversal of capital inflows,sudden and massive
Balance of payments deficit:Reserves drain
Currency crisis Banking crisis
Masaru Yoshitomi, “Capital Account Crisis and Appropriate Policy Responses”
IMF Rescue Package
The Rescue Package (P. Krugman, 1998) Loan on the condition of economic reform Korea:
US$58.4, Thailand:$17.2, Indonesia: $42.3B Maintain high interest rates to entire capital into
staying in the country Wait for confidence to return and for the vicious circle
to turn into a virtuous circle
IMF ‘Strained Assistance’ Same Old Medicine
Macroeconomic Policy of Higher Taxes, Reduced Spending, Higher Interest Rates
Damage in Political System Korea, Indonesia, Thailand
IMF ConditionalityIMF ConditionalityIndonesia Korea Thailand
Macro-economic Targets
Reduced public subsidies and tax privileges
Divestiture of state enterprises
Cancellation of some infrastructure projects
Macroeconomic targets for 1998
Inflation 20% GDP growth 0% Budgetary deficit of 1%
of GDP Current a/c deficit of
2.2% of GDP Official reserves of 5.2
months of imports
Selective increase in income and corporate taxes
Broadening of VAT base Macroeconomic targets for
1998 Inflation 5.2% GDP growth 2.5% Budgetary surplus of 0.2%
of GDP Current a/c deficit of 2.3%
of GDP
VAT increase Reduced subsidies Divestiture of state enterprises Flexible exchange rate Macroeconomic targets for
1998 Inflation 5.0% GDP growth 3.5% Budgetary surplus of 1% of
GDP Current a/c deficit of 3.0%
of GDP Official reserves of 4
months of imports
Financial Sector Reforms
Comprehensive financial restructuring including closure of troubled banks
Strengthening regulatory framework
Deposit guarantees for small depositors
Comprehensive financial restructuring including closure of troubled financial institution
Improving accounting and disclosure rules
Consolidated supervisory function
Restructuring of financial institutions
Improving accounting and disclosure rules
Removal of unconditional financial support to insolvent institutions
Real Sector Reform
Removal of state regulated monopolies and cartels
Abolition of restrictions on marketing arrangements
Elimination of trade-related subsidies
Removal of restrictive import licensing and FDI rules
Promotion of labor market flexibility
Enhancing export sector competitiveness through emphasis on education and training
Source: Choi, J. Jay ed., Asian Financial Crisis: financial, structural and international dimensions, p.69
Rise of Regional Financial Cooperation (1997.7-1998.1)
Asian Monetary Fund (AMF) Initiative → Failure (1997.9)
$10 billion Package ( MoF Initiative ) Opposition from US and China
Manila Framework (1997.11) Economic Surveillance within Asian Countries Demand for Technical Support to International Finance Organi
zation IMF Mechanism to Provide Short-Term Credits
New Miyazawa Initiative (Approx. $30 billion) Under the New Miyazawa Initiative, Japan is prepared
to provide a package of support measures totaling $30 billion in order to assist Asian countries in overcoming their economic difficulties and to contribute to the stability of international financial markets. The package will be set aside as follows:
$15 billion for medium- to long-term financial assistance to promote economic recovery (e.g., ODA yen loans and Export-Import Bank of Japan loans)
$15 billion for possible short-term capital needs during the process of implementing economic reforms
Rise of Regional Financial Cooperation (1998.1-)
The Chiang Mai Initiative (CMI) of May 2000 Network of bilateral currency swaps among countries Seen by some as functional equivalent to an “Asian
Monetary Fund” Japan’s role as leader and arbitrator of intra-regional
interests Outcome: 90% linkage to IMF program in place;
review planned this year Key factor limiting greater regional independence:
“surveillance” capacity
Rise of Regional Financial Cooperation (1998.1-)
Basic Elements of Bilateral Swaps Under Chiang Mai Initiative
Modality: U.S. dollar and local currencies
Maturity: 90 days, renewable for up to 2 years
Drawing conditions: Activation linked to IMF programs but up to 10 percent may be disbursed without linkage to IMF programs.
Interest rate: Market interest rate + premium
Other: Guarantee or collateral provided by the Government of country
requesting the swap.
ASEAN+3 Process
Creation Process Hashimoto Proposal “ASEAN-Japan” Summit ASEAN Counter-Proposal “ASEAN+3
Summit” Asian Crisis Management
Chaing Mai Initiative Joint Declaration of East Asian Cooperation
Functional Cooperation 17 Areas 48 Meetings
2001: East Asian Vision Group (EAVG) Final Report
2002: East Asian Study Group (EASG) Final Report
2004: ASEAN+3 Summit (Vientiane)
2004: ASEAN+3 Foreign Minister’s Meeting (Jakarta)
Progress of ASEAN+3
“Issue Paper” on East Asian Community, Functional Cooperation,
East Asian Summit
Decision to Hold East Asian Summit
Progress of ASEAN+3
1997 : The First ASEAN+3 Summit
1999: Joint Statement on East Asian Cooperation (The Third ASEAN+3 Summit)
1997: Asian Financial Crisis
Related Events
1999: ASEAN+3 Finance Ministers’ Meeting1999: ASEAN10 (Cambodia)
2001: September11 Terrorist Attack
2002: Koizumi Singapore Speech2002: ASEAN-India Summit Meeting
2003: Japan-ASEAN Special Summit Meeting2003: China-ASEAN Strategic Partnership2003: Bali Concord II
2004: Aus-NZ-ASEAN Summit Meeting (Vientiane)
2005: ASEAN Emergency Summit Meeting (Tsunami Disaster Relief)
1997: ASEAN Vision20201998: Hanoi Plan of Action
EAVG and EASG
East Asian Vision Group (EAVG) Korean Proposal (1999) EAVG Final Report (2001)
East Asian Study Group (EASG) EASG Final Report (2002) 19 Long-term 9 Shot-term
Recommendations
Issue Paper (JPN Government)
JPN Government Perspectives on EAC and EAS Issue Paper (June 2004 / Viantianne)
East Asian Community Functional Cooperation East Asian Summit
On East Asian Summit Fundamental Objectives of East Asian Summit
Aim for Full-Fledged East Asian Community? Difference Between ASEAN+3 Summit and East Asian Summit
Objectives and Agendas Membership
Organizational Questions Who will Take a Lead ? (Who Sits on the Driver’s Seat?) Who will Host the Meeting? Who will Chair the Meeting?
East Asian Summit Political Process I
Bi-Annual MeetingAlternative Host: ASEAN / Non-ASEANMembership: ASEAN + 3ASEAN+3 Summit Coexist
【 Modality A 】( Oct 2004 )
2005 Host C: Malaysia 2007 Host C: China (Chinese
Proposal)
【【 JPN Counter ProposalJPN Counter Proposal 】(】( July 2004July 2004~~ March 2005March 2005))1)1) East Asian Summit should be Co-hosted by ASEAN and East Asian Summit should be Co-hosted by ASEAN and
Non- ASEAN Member States. The First Meeting in Kuala Non- ASEAN Member States. The First Meeting in Kuala Lumpur should be Co-hosted by Malaysia and JapanLumpur should be Co-hosted by Malaysia and Japan
2)2) Australia and NZ should be invited to EAS as Dialogue-Australia and NZ should be invited to EAS as Dialogue-Partners (two-tier approach)Partners (two-tier approach)
【 Philippines’ Response 】 Philippines will be a chair country for ASEAN in 2007. If China holds EAS in 2007, ASEAN+3 Summit in Philippine will be deteriorated. (cf. Myammer has given up their chairmanship in 2006)【 Indonesian Response 】 ASEAN should focus on ASEAN-integration rather than EAC (SBY)
【 Criteria on EAS Membership】 1) Dialogue Partner of ASEAN 2) Accede Treaty of Amity and
Cooperation in Southeast Asia (TAC) 3) Having Substantive Relations with
ASEAN
New Member: Australia, New Zealand, India
ASEAN+3+3 = 16 Member States
【 Modality B 】 (April 2005) 2005 Host C: Malaysia2005 Host C: Malaysia 2006 Host C: ASEAN2006 Host C: ASEAN
【【 JPN Counter ProposalJPN Counter Proposal 】(】( July 2004July 2004 ~~ March 2005March 2005 )) 1) East Asian Summit should be Co-hosted by ASEAN and Non- 1) East Asian Summit should be Co-hosted by ASEAN and Non-
ASEAN ASEAN Member States. The First Meeting in Kuala Lumpur should Member States. The First Meeting in Kuala Lumpur should
be Co- be Co- hosted by Malaysia and Japanhosted by Malaysia and Japan 2) Australia and NZ should be invited to EAS as Dialogue-2) Australia and NZ should be invited to EAS as Dialogue-
Partners Partners (two-tier approach)(two-tier approach)
Mod B. ApprovalSingaporeIndonesiaVietnam
Additional Approval
【 Agreed Modality 】1) ASEAN sits on a Driver’s Seat2) Inclusive Membership3) Co-exist with ASEAN+3 Summit
East Asian Summit Political Process II
【 Modality A 】( Oct 2004 )
2005 Host C: Malaysia 2007 Host C: China (Chinese
Proposal)
Bi-Annual MeetingAlternative Host: ASEAN / Non-ASEANMembership: ASEAN + 3ASEAN+3 Summit Coexist
Some US Responses: Another Side of Coin
“ “ My view is this is a thinly veiled way to make the point thaMy view is this is a thinly veiled way to make the point tha
t the United States is not totally welcomed in Asia. I think tt the United States is not totally welcomed in Asia. I think that's a real mistake.“hat's a real mistake.“
"But it's the direction. What worries me about it (is) if it's th"But it's the direction. What worries me about it (is) if it's the beginning of an erosion."e beginning of an erosion."
"It seems that China is quite willing to be involved "It seems that China is quite willing to be involved in fora that don't include the United States,"in fora that don't include the United States,"
- - Richard Armitage, Asahi Shimbun May 1, 2005Richard Armitage, Asahi Shimbun May 1, 2005
East Asian Summit (Dec 14, 2005)
Joint Statement I
SHARING the view that the East Asia Summit could play a significant role in community building in this region;
FURTHER RECOGNISING the need to support efforts to build a strong ASEAN Community which will serve as a solid foundation for our common peace and prosperity;
DO HEREBY DECLARE:
FIRST, that we have established the East Asia Summit as a forum for dialogue on broad strategic, political and economic issues of common interest and concern with the aim of promoting peace, stability and economic prosperity in East Asia.
SECOND, that the efforts of the East Asia Summit to promote community building in this region will be consistent with and reinforce the realisation of the ASEAN Community, and will form an integral part of the evolving regional architecture.
THIRD, that the East Asia Summit will be an open, inclusive, transparent and outward-looking forum in which we strive to strengthen global norms and universally recognised values with ASEAN as the driving force working in partnership with the other participants of the East Asia Summit.
FIFTH, that:Participation will be based on the criteria for participation established by ASEAN;
The East Asia Summit will be convened regularly; The East Asia Summit will be hosted and chaired by an ASEAN Member Country that assumes the ASEAN Chairmanship and held back-to-back with the annual ASEAN Summit; and
The modalities of the East Asia Summit will be reviewed by ASEAN and all other participating countries of the East Asia Summit.
East Asian Summit (Dec 14, 2005)
Joint Statement II