BALI, INDONESIA — There is nothing like a global crisis to give relevance to multilateral organizations. And nothing like China-Japan rivalry to breathe life — or at least money — into Asian regional cooperation.
So the annual meeting here this week of the Asian Development Bank has been a window into what Asia can do to help itself, and how enhanced regional cooperation can help the global economy both grow and avoid protectionism and division into blocs. But the meeting has also reflected deep concerns among Asian finance ministers about the difficulties of adjusting their economies to a changed world in which growth can no longer be led by exports to the West. Few of them displayed much faith this week in the durability of the current bounce in financial markets.
Two years ago, the ADB was searching for a role in an Asia that was growing fast with surplus savings, burgeoning foreign exchange reserves and easy access to capital. Now the bank finds itself in the position of being courted both as a focus of regional cooperation and as a source of funds to help Asian countries face the crisis. Middle income countries like Indonesia and the Philippines have come knocking on the bank’s door, looking for funds to boost government spending, particularly on infrastructure and for social safety nets as unemployment rises.
To meet demand, ADB member countries have agreed to a 200 percent increase in the bank’s ordinary capital resources and to speed up disbursements from its soft-loan Asian Development Fund for the poorest countries. Overall, ADB lending is aimed to increase by 50 percent over the next two years, to around $16 billion.
In the context of developing economies this is small, but together with increased funding from the World Bank and other agencies — agreed to at the G-20 meeting in London — it is important in giving Asian countries the confidence to pursue expansionary policies.
Equally important is the agreement among the 10 members of the Association of South East Asian Nations and China, Japan and South Korea (known as the Asean-Plus-3 Group) on the creation of a $120 billion currency pool — to which China and Japan would both contribute $38.4 billion — from which smaller countries could borrow.
Thus, the desire of China, Japan and South Korea to court Asean is proving far more effective in enhancing regional cooperation than the efforts of Asean itself, which often consist of words more than actions. The creation of the fund, the outcome of a 10-year process known as the Chiang Mai Initiative, is a significant step toward creating an Asian IMF, an idea proposed by Japan back during the financial crisis in 1997 but blocked by the United States, which didn’t want to see the IMF’s role diminished. But today, given the monetary fund’s own problems in finding financial resources, a regional financing mechanism would not be seen supplanting the IMF in Asia.
There is a close link between the Asean-Plus-3 initiatives and the ADB, which is to play a key role in creating an economic surveillance mechanism. The ADB will also be able to build on its role in developing regional bond markets through the creation of a corporate bond guarantee scheme. At the same time, the ADB has few illusions that a “Fortress Asia” is either possible or desirable.
Driving all this activity is not just Chinese and Japanese cash. It is the stark realization that the strategy of development via exports to the old rich countries is no long valid. A new one, based on domestic demand and regional trade, is what’s needed. Recognized too is that much of Asia is sorely in need of infrastructure investment and that too much of its savings have been invested in low-yielding assets in the West rather than within the region. Now it will need to mobilize savings for development just when savings are diminishing in the East as they begin to recover in the West.
Thus, growing cooperation in Asia should be seen more as a defensive response to global conditions than as an aggressive pan-Asian regionalism. But the practical effect of these efforts in keeping markets open has yet to be tested by the recession, which at least in Asia, is still in its early days.