The leaders of the 10 countries that make up the Association of Southeast Asian Nations (Asean) showed remarkable maturity during their recently concluded summit in Thailand. India needs to plug into the strategy this union is developing to get through what could be a tough and volatile period.
The Asean countries plus China, Japan and South Korea—the so-called Asean+3 group—have decided to form a $120 billion pool of hard currency that they will lend to each other when any of their currencies have to be defended. This is $40 billion more than the size of the original swap facility decided in 2008 under the so-called Chiang Mai Initiative (CMI).
Illustration: Jayachandran / Mint
Such swap lines could be an important source of insurance against sudden bouts of volatility in Asian currencies. The US Federal Reserve, too, has offered swap lines to some countries in Europe and Asia to help them manage tight money markets. India is neither a CMI member, nor has it been offered a swap line by the Americans. The government should start thinking about entering into swap agreements, even though India continues to have a comforting pile of foreign exchange reserves and a low debt-service ratio.
The second good thing that came out of the Asean summit in Thailand is the reiteration of the benefits of free trade. “The leaders reaffirmed their determination to ensure free flow of goods, services and investment,” Asean said in a statement after meeting in the Thai resort of Cha-am. “They agreed to stand firm against protectionism and to refrain from introducing and raising new barriers.”
The group signed a free trade agreement (FTA) with Australia and New Zealand that is due to become operational in December. This happened even as protectionist pressures are rising in many parts of the world, especially the US.
India seems to be intent on going slow on its proposed FTA with Asean, as this newspaper had reported on 19 February. While it is true that Asean members are more dependent on trade and hence have a greater incentive to keep borders open even in the midst of a global recession, their commitment to free trade has been exemplary. This is something that India should keep in mind, even as it strives to keep the negotiations for a regional FTA on.
A combination of short-term insurance against a run on their currencies and a long-term commitment to free trade— there is a lot that India and the rest of the world can learn from the Asean bloc in the weeks before the big Group of 20 summit which is to be held in London in April.
Asean: what lessons should India emulate? Tell us at firstname.lastname@example.org