Thank you, Chair, Deputy Prime Minister Kittiratt.
I am honored to be here at the 10th Asia-Europe Finance Ministers’ Meeting and to be given the opportunity to speak on the important issue of strengthening financial cooperation and supervision.
I would like to mention that I have been impressed as well as pleased to see that the Thai economy has recovered strongly from the floods last year. This is the third time I visited Thailand since the end of last year and I have noticed its resilience and steady recovery every time I came here.
Today, I would like to share my views and experiences, and touch upon two issues. The first is a brief overview of financial cooperation in East Asia. Second are lessons we learned from the Asian and European experiences of financial crisis.
Let me briefly overview the history of regional financial cooperation and our office, the ASEAN+3 Macroeconomic Research Office. This Asia-Europe Meeting (ASEM process) actually played a historical role of initiating the ASEAN+3 process in the late 1990’s. As the Deputy Prime Minister introduced in his opening remarks, the first ASEM Summit was held here in Bangkok in 1996. This was Europe’s initiative to strengthen the relationship between Europe and Asia. The Asian side consisted of ASEAN countries (7 countries) and China, Japan and Korea. East Asian leaders met among themselves before the ASEM summit and this was the first time that leaders of ASEAN and China, Japan and Korea discussed policy issues. They instantly found the meeting to be useful and decided to meet next year on the occasion of the ASEAN summit.
The first ASEM Finance Minsters’ Meeting was held in September 1997, also here in Bangkok. As you may notice, it was in the middle of the Asian Financial Crisis.
The East Asian leaders and finance ministers have come to realize that it would be crucial to enhance East Asia’s financial mutual-support framework given the experience of 1997-1998.
In May 2000 in Chiang Mai, Thailand, Finance Ministers agreed to establish the “Chiang Mai Initiative (CMI)” as a regional financing facility comprising a collection of bilateral swap arrangements between members.
Over the next 10 years, the CMI continued to evolve and reached another milestone last year with the establishment of AMRO (ASEAN+3 Macroeconomic Research Office) as the surveillance unit of the CMIM. Let me emphasize that AMRO is for surveillance functions, and has no financing capability. Today AMRO is just over a year old with a total of 21 staff, from nationalities of 10 members.
With the global environment turning even more volatile in recent years, Finance Ministers and Central Bank Governors took precautionary measures to strengthen the CMIM further in May this year by doubling the size of the CMIM to US$240 billion and introducing a crisis prevention facility.
Let me move on to some Lessons from Asian Crisis and Eurozone Debt Crisis.
This region experienced a severe financial crisis more than a decade ago and now Eurozone economies are facing a similar predicament. I think there are many important lessons to be learnt from our shared experiences from the perspectives of future crisis prevention.
First, I would like to emphasize that independent surveillance work can help deter a potential financial crisis from developing. If the surveillance function had worked properly and independently, the crises in Asia and Europe could perhaps have been averted or resolved in the early stages. Independent surveillance, assessments and reporting procedures are therefore critical means in the early detection of risks, allowing preventive measures to be taken accordingly
Second, recent crises also underline the need for deeper monitoring of the interlinkages in the global economy and, in particular, the potential for financial sector movements to rapidly ignite and propagate risks leading to potential crises.
As seen in 1997, the financial crisis in Asia spread rapidly from Thailand and Indonesia to Korea and even to Russia and Latin America through finance and trade channels. Similarly, since the onset of the Eurozone sovereign debt crisis, we have seen the crisis spread quickly from relatively small economies to other Eurozone economies while also adversely affecting the global economy through finance and trade channels. The CMIM today is aimed to cope with short-term balance of payments difficulties. The European experiences of strong relationship between the banking and sovereign debt issues give us important insights for future preparations.
Third, in some cases regional efforts may not be enough for effective crisis prevention and resolution and thus there is a need for close cooperation between regional and global financial safety nets.
I am aware that policy makers and economists particularly in this region may have differing views on this. Some still question the need for a regional financial safety net when there is already a global financial safety net. Some dismiss the global financial safety net because of its stigma. Others question the possibility for regional and international financial safety nets to complement one another.
As you are well aware, the Eurozone sovereign debt crisis which started from some of the peripheral economies in Europe has now resulted in the establishment of ESM, the Eurozone’s regional financial safety net, in close cooperation with the IMF, the global financial safety net. Why did Eurozone governments still have to resort to the global financial safety net after receiving help from the regional financial safety net?
In my view, Eurozone authorities resorted to borrowing from the IMF to receive not only financial support but also to gain credibility. Why is that? To understand this, we need to distinguish between a crisis from outside and a crisis from within. If a crisis stems from external shocks, a country or region may only require liquidity support. However, if a crisis stems from internal weaknesses and problems, the country or region will not only require liquidity support but will also need to restore credibility to its economy, and this can only be provided via an external help. The Eurozone sovereign debt crisis was a crisis brought on by structural weaknesses within the Eurozone, such as the lack of competitiveness, weak external position and non-sustainable public finance. Accordingly, Eurozone economies in crisis needed to obtain credibility on its bailout programs and therefore sought help from the IMF in addition to receiving regional financial support.
In the same vein, should external shocks lead to a crisis in this region, the members of the CMIM may try to resolve it without support from the IMF. However, if the crisis stems from within the region, even large amounts of liquidity support may not be sufficient to solve the situation.
Last but not least, I would like to emphasize the importance of accurate, timely and transparent data.
Prior to the Asian financial crisis, some critical data for the monitoring of external positions was not available. More recently in the Eurozone, accurate data which would have properly captured the fiscal position of some economies was also lacking. If those data had been credible or available, risks both in Asia and in the Eurozone could have been detected earlier and the extent of the crisis could possibly have been less severe.
In a nutshell, accurate, consistent, timely and transparent data are a pre-requisite for proper macroeconomic and financial surveillance. However, in some countries, data of this quality does not exist. In some other countries, data may exist but they are not made public. All these restrictions on data make it challenging and difficult for surveillance work to be carried out effectively.
The ASEM Finance Ministers’ Meeting has been a good forum for Asia and 5 Europe to exchange views with one another and share experiences. As I said, without the European initiative to create a dialogue between Europe and Asia, there may not have been regional financial cooperation within the “ASEAN plus” framework.
Asia has learned many important lessons from the history of economic and financial integration in Europe. The recent European initiative of the EFSF/ESM is one such example of a European model which was a useful reference in establishing AMRO and in transforming our office, a non-profit organization, into an international organization.
I hope that today’s meeting will contribute well towards increased co-operation and prosperity of Asia and Europe. I would like to thank the authorities of Asia and Europe again for inviting me to this important meeting. Thank you very much for your attention.