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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