Crisis spurs Asia to hasten cooperation, a little

By Alan Wheatley, China Economics Editor - Analysis

BEIJING (Reuters) - Advocates of closer Asian economic integration should keep the champagne on ice, but there are signs that the global financial crisis is finally pushing governments in the region to cooperate more actively.

To be clear: Asia is not about to set up an Asian Monetary Fund or sacrifice its sacrosanct principle of non-interference to create the institutional basis for anything that looks like a fledgling European Community or Union.

But, after years of talk, governments are on course to pool part of their vast holdings of currency reserves in an initiative that could sow the seeds for Asia eventually to project more collective power in a world where the writ of the Group of Seven rich industrial states no longer goes unchallenged.

"I sense a change in attitude, with Asia seeing an opportunity," said Wendy Dobson, an economics professor at the University of Toronto and author of a book, "Gravity Shift," on how economic influence is moving from West to East.

Asia has failed miserably so far to turn its rapid growth into political clout. But since the Group of 20 anointed itself last month as the pre-eminent forum for global economic coordination, eclipsing the G7, Asia has a chance to make its voice heard. Japan, China, South Korea, India, Indonesia and Australia are all members of the G20.

Peter Drysdale, a professor at Australian National University in Canberra, has been scathing about East Asia's 'mickey-mouse' financial cooperation.

"What has changed," Drysdale said in an email, "is participation from the leadership group in East Asia in the G20 process, and that could deliver the promise of more effective and relevant regional cooperation."

BUILDING BLOCKS

An early test looms next month when regional finance ministers are due to finalize plans for a $120 billion fund, drawn from members' currency reserves, to be tapped by participants in the event of a fresh crisis.

The fund has its roots in the Chiang Mai Initiative (CMI), a web of bilateral currency swaps slung together in 2000 by the central banks of ASEAN Plus Three -- the 10 members of the Association of South East Asian Nations plus China, Japan and South Korea.

The CMI had one overriding purpose: no Asian countries would ever again have to go cap in hand to the International Monetary Fund (IMF), as several did after the region's 1997/98 meltdown.

Rather, they would be able to turn to their neighbors for cash to stave off any runs on their currencies.

The CMI was cumbersome and the amount of emergency funds on offer was meager. The swaps were never activated. But the initiative was a symbolically important starting point.

By 2007, governments had agreed to transform the network of bilateral deals into a much more practicable common pot of money.

By "multilateralizing" the CMI, in the jargon, a member country in financial straits could be able to draw more quickly on a deeper pool of funds.