At last month’s Boao Forum for Asia, the gathering’s secretary-general, Long Yongtu, offered a sobering guesstimate: Asia needs at least 50 years to integrate its economies the way Europe has.
An equally sobering thought is that many of those funnelling into Kyoto this week for the Asian Development Bank’s annual meeting may not live to see the Manila-based institution’s dream of a truly amalgamated Asia.
“Countries in Asia are a long way from the economic convergence that you would need to make monetary integration a realistic possibility,” David Burton, director of the International Monetary Fund’s Asia-Pacific department, said in Washington last month.
In other words, Asia has a lot of work to do to get to a point where replicating Europe’s single currency and its level of economic integration is even a possibility.
Asian Development Bank president Haruhiko Kuroda is undeterred, and thank the gods for big thinkers like him. Asia will need more such high-profile cheerleaders if it’s going to have its own euro.
Kuroda, a former vice-minister at Japan’s finance ministry, rarely misses an opportunity to muse about how far Asia has come. One of his boiler-plate comments is that when he attended Oxford University from 1969 to 1971, the idea of a peaceful, prosperous Asia was barely conceivable.
Now, Kuroda argues, that outcome is well on its way to becoming a reality. His vision for the future is of a poverty- free Asia that is diverse, yet united, and well integrated within itself and the global economy.
“Some critics may call this vision of a deeply integrated Asia a pipe dream,” Kuroda said in December. “Some say the disparities are too wide, the political divides too deep. But strong bridges for a united Asia, open to the world, are already being built.”
The difficulty, of course, is turning such dreams into reality. And with all due respect to Kuroda, one wonders if Asia is ready to join hands as he hopes. A more immediate challenge is proving how far Asia has come from 1997’s financial crisis. The hot money that fled the region during the turmoil is returning and Asia needs to prove its financial systems are sound and transparent enough to handle the inflows this time around.
“The world of growing and quite volatile capital flows appears to be here to stay,” Burton wrote in an 18 April op-ed in South’s Korea’s Dong-A Ilbo newspaper. “But the right policies can help ensure that the benefits of financial liberalization are realized, that inflows are put to productive use, and the risks from volatility are limited.”
Successfully withstanding the current rush of capital will go a long way towards convincing investors that Asia has grown up since the late 1990s. It also would allow the region to take integration efforts to the next level.
Next comes the really hard part. Europe’s road to the euro took about three decades of planning, compromise and considerable heavy lifting to get economies on a similar footing. All this occurred well after World War II and in an environment of relative trust. And Europe’s experiment, don’t forget, is still a work in progress.
Asia is enjoying nothing like that. Its three biggest economies—Japan, China and South Korea—are barely on speaking terms amid differing versions of what happened six or seven decades ago. Recent meetings between Japanese Prime Minister Shinzo Abe and Chinese Premier Wen Jiabao were steps in the right direction, yet their countries have squandered many opportunities to join forces.
Europe also didn’t face a huge leadership battle. Everyone knew decades ago that Germany and France would drive the process. Asia has at least three economies with designs of playing a leadership role: Japan, China and India. East Asian leaders also seem to have differing opinions as to whether India would even be part of an Asian monetary union.
A bigger problem is the disparate nature of Asia’s economies. Take the 10-member Association of Southeast Asian Nations, or Asean, which exists to promote regional growth and development. Among its members are democracies, Communist regimes, authoritarian leaderships and military governments.
Nor are Asean’s standards of living remotely compatible. According to the World Bank, Singapore’s per-capita income was $27,490 in 2006. Aligning those economic fundamentals with, say, Indonesia’s ($1,280) and Cambodia’s ($380) will require Herculean efforts. Things would get more complicated when you added Japan, China, Korea and India to the mix.
That’s not to say Asia shouldn’t try. Even if an Asian euro doesn’t emerge for 50 years, plenty of benefits will flow from greater integration. For example, much good will come from increased cooperation on infrastructure to connect the region’s roads, ports, bridges, power grids and telecommunications network. Ditto for linking bond and stock markets.
Asean and the Asian Development Bank have been at the core of efforts to increase financial ties. In Kyoto this week, finance ministers are working to pool part of Asia’s $2.7 trillion in foreign-exchange holdings to prevent a repeat of the crisis that depleted reserves 10 years ago. Officials also will discuss lowering barriers to trade and investment—another reason for optimism.
Yes, there’s much to be done and it will take many, many years. Asians should indeed work harder to come together. Yet anyone who thinks the region can do what Europe did anytime soon should think again.