GREATER economic cooperation between Asean countries, particularly in the areas of trade and finance, could help the region carry itself beyond the economic uncertainties of the US and Europe and provide a buff er against the effects of a slowing Chinese economy.
International Monetary Fund (IMF) managing director Christine Lagarde said in terms of trade integration, trade within Asia has tripled over the past decade, with regional trade among emerging Asian countries growing even faster.
In her address at the Bank Negara Malaysia headquarters on Wednesday, she said: “A typical pattern is that Asian economies send intermediate goods to China, which assembles them into final goods for exports. In fact, intermediate goods now account for over 70% of all Asian exports.”
Lagarde urged Asean countries to increase trade be tween themselves as China’s current account surplus drops to 3% of gross domestic product (GDP) from 10%, driven by the shift from investment to consumption.
Asean countries, in response to this, will also need to turn their attention inward to domestic consumption, led by a growing middle-class.
“Further regional integration can help with this, by offering new avenues for mutual gain.”
She said the proposed formation of the Asean Economic Community by 2015 will open up a common market.
The Trans-Pacific Partnership will also bring benefit to this area by bringing to the forefront service markets.
Lagarde said financial integration in the region was currently lagging behind trade integration because of the region’s reliance on trade outside Asia.
“More than 90% of Asean cross-border portfolio investment flows are with advanced economies outside Asia. Asia — with its current account surpluses — is simply not investing enough of its savings in itself.”
She acknowledged the existence of foreign direct investments by Malaysia in Cambodia, Indonesia, Thailand, and Vietnam, but greater financial integration can boost domestic demand by making it easier for small businesses to gain access to credit.
The integration of Asean stock markets would also help, as would a large regional bond market as envisaged by the Asian Bond Market Initiative, said Lagarde.
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