Participants at the conference. At the lectern is John Hopkins Professor Anne Krueger, a former IMF First Deputy Manager Director, who remarked on the need for Asia, as the fastest growing region in the world, to provide leadership on trade matters (photo: OAP/IMF)
Regional Collaboration
In his opening remarks, IMF Deputy Managing Director Mitsuhiro Furusawa emphasized Asia’s progress in economic integration. “In addition to trade, Asia has made important strides in the area of financial integration as well,” he said. “Motivated by the Asian financial crisis of 1997-98, significant steps have been taken, such as regional liquidity support arrangements through the Chiang Mai Initiative Multilateralization, the Asian Bond Fund, and the Asian Bond Market Initiative.”
IMF Deputy Managing Director Mitsuhiro Furusawa.
The Advances and Challenges in Regional Integration conference hosted on March 3–4 by the Regional Office for Asia and the Pacific (OAP) of the IMF, and Hitotsubashi University brought together senior policy makers, officials from the IMF and the Asian Development Bank (ADB), academics, and private sector representatives.
The event, addressed by Japan’s Vice Minister of Finance Masatsugu Asakawa, was financed by the Japanese government as part of Japan’s efforts to foster policy dialogue and capacity building in the region. It discussed Asia’s experience with economic integration, including in the areas of trade, financial markets, and labor mobility
The benefits of further integration
Professor Anne O. Krueger of Johns Hopkins University stressed in her keynote speech the synergies between pursuing regional and global trade integration. “In order to fully reap the benefits of regional trade agreements (RTAs) and make sure they do not result in regional protectionism, it is crucial to pursue RTAs in the context of multilateral trade liberalization,” she said. “As the fastest growing region in the world, Asia has a special responsibility in providing leadership and pushing the international community for a revival of WTO agreements.”
The discussion highlighted that behind-the-border barriers to trade remain, and should be dealt with, for example by reducing transportation costs. At the same time, countries need to strengthen trade integration—including by mutual recognition of trade standards and the removal of remaining trade barriers—as a prerequisite for further financial integration.
Participants also noted that, given complementarities amongst factors of production, labor mobility is important to fully reap the benefits of trade and financial integration. They broadly agreed that removing barriers to labor mobility in the region would be economically beneficial, even though it remains a politically sensitive area.
A safe financial integration
Alex Mourmouras, Division Chief in the IMF’s Asia and Pacific Department addressed the fragmentation of the financial space and the restrictions on capital account transactions as barriers to financial integration. Noting that the process of financial integration needed to be made safe as Asian markets were wary of the Asian financial crisis and European crisis experiences, he called for the harmonization of national regulations and standards across the region.
Participants agreed on the need to accelerate banking integration in the region, including by following the blueprint of the ASEAN Banking Integration Framework (ABIF), in order to increase cross-border investment and financial flows. Mourmouras pointed out that, while liberalization in the region should be gradual, gradualism should not be an excuse for inaction.
Coping with the global risks and opportunities
The conference also discussed current challenges facing the region. Cyn-Young Park, Director of the Regional Cooperation and Integration Division at the ADB, noted that China’s economic influence on the region’s business cycles has significantly increased since the global financial crisis. In order to address the challenges arising from the fall of commodity prices and China’s rebalancing, Park said that Asian countries must accelerate the pace of reform and innovation to take advantage of the opportunities arising from China’s structural transformation to less labor intensive exports and move up the global value chain.
Park also encouraged Asian governments to develop their capital (equity and local currency bond) markets in order to balance the swings in investor confidence associated with the growth slowdown and structural adjustments in China.
In his closing remarks, Hitotsubashi University Professor Akira Ariyoshi stressed that the conference raised new questions. For example, it became clear during the discussions that financial integration is much more difficult to define and assess than trade integration. Ariyoshi also called for a deeper discussion of labor mobility, an often ignored aspect of the integration process.
Echoing his comments, OAP Deputy Head of Office, Giovanni Ganelli, noted that OAP will continue to foster policy dialogue in the region.
