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Statement
by H.E. Dr. Manaspas Xuto
Executive Director of the International Institute
for Trade and Development
at the High Level Conference on Asian Economic Integration
Tokyo,
18-19 November 2004
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
May
I take this opportunity to firstly express my sincere appreciation
to the organizers of this High Level Conference on Asian Economic
Integration, especially the Research and Information System for
the Non-Aligned and other Developing Countries (RIS), for inviting
me to attend this Conference once again.
In
March last year, I was invited by RIS and other associates to the
International Conference on “Building a New Asia: Towards an Asian
Economic Community” in New Delhi. I remember enjoying the presentations
made by the distinguished panelists as well as the discussions that
followed. After almost two years, it is an opportune time for us
to recap what has progressed since our last gathering, which may
or may not change our thinking and perspective towards Asian Economic
Integration.
Last
year, I presented to you the initiative of Thailand on the establishment
of the Asia Cooperation Dialogue or ACD and the promotion of the
Asian bond market development. What I will be speaking about now
may not be entirely new, but a good message such as this needs to
be repeated here and everywhere.
The
ACD is an Asia-wide forum which focuses on the consolidation of
Asia’s inner strength and the utilization of its combined abundant
resources to enhance Asia’s competitiveness and prosperity. The
ACD could be considered a roadmap towards the Asian Economic Integration.
Our final goal is to achieve a step-by-step shift towards a fully
integrated Asian Community. We are strongly committed to this aim,
and our actions follow up on our commitments.
Geographically
speaking, ACD presently encompasses 26 member countries from all
sub-continents of Asia, accounting for half of the Asian countries.
The forum includes the leading economies of Asia, namely Japan and
South Korea, as well as the emerging economies like China, India
and the ASEAN countries which have been recovering since the 1997
financial crisis - all of these can serve as driving engines towards
a new era of Asian prosperity.
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
During
the past year, ACD has made swift progress in terms of both the
dialogue and the project dimensions. On dialogue, the Second and
Third ACD Foreign Ministers’ Meetings were held in June 2003 and
June 2004 in Thailand and China, respectively. In addition, the
ACD Ministers had opportunities to meet and exchange views on the
sidelines of the annual United Nations General Assembly session
in New York. Frequent dialogues help enhance comfort level among
the policy makers of Asian countries and provide them with a platform
to candidly exchange views on Asia-related matters and beyond. The
comfort level, mutual understanding and friendship will be a strong
basis for enhanced cooperation, particularly for a continent as
diverse as Asia.
On
the project dimension, 18 activities within 12 ACD areas of cooperation
have been organized by their prime movers. Let me provide some examples.
Japan
hosted the ACD Workshop for Strengthening Legal Infrastructure.
The Workshop agreed on the continuation of the project by putting
together legal experts from the ACD member countries to deepen and
broaden substantial discussions on the legal infrastructure. In
addition, the Workshop on Environmental Education was also organized
by Japan, providing an opportunity for ACD member countries to discuss
a wide range of issues pertaining to environmental education - namely
the basic principles and ideas on environmental education, activities
to enhance understanding and awareness, institutional framework,
and international and regional cooperation.
India
hosted the Consultative Meeting of ACD on Biotechnology in
New
Delhi. The meeting agreed to the establishment of the ACD Biotechnology
Consortium, with a secretariat in India, and of the Apex Governing
Body (AGB) whose membership will constitute all member countries
at the key decision-making level.
The
meeting of the Working Group on Energy Security was held twice in
Bahrain and in the Philippines, respectively, amidst the backdrop
of the tight world oil supply/demand and high oil prices, which
has affected most countries in Asia. ACD possesses the advantage
of having both oil consumers and producers within the forum, thereby
making it an appropriate venue to address the issue and to find
ways of alleviating its impact. Issues such as joint oil stockpiling,
renewable energy sources, energy efficiency and conservation, as
well as improvement of regional infrastructure networks, including
oil storage systems, regional energy transport and power transmission
systems have all been discussed and promoted.
Bangladesh
organized a Seminar on “Rehabilitation of Working Children of Asia”
in Dhaka, which is an integral part of the area of cooperation dealing
with poverty alleviation. It is worth noting that this activity
demonstrates that ACD activities not only address economic development,
but also pay close attention to the human face of development, with
an aim to raising the standard of living of people at the grass-roots
level.
These
efforts have formed a web of functional cooperation that, taken
together, could be viewed as an Asian community in the making, in
the “embryo” stages.
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
The
challenge ahead is how to sustain the development pace of the ACD
process, to concretize the actions and outcomes of ACD areas of
cooperation, and how to further instill the idea that the ACD belongs
to Asia. It is the collective responsibility of each member country
to drive the process forward. Moreover, in order to ensure that
ACD will pave the way towards the end-goal of an Asian community,
awareness and participation of public and private sectors, civil
society and, above all, the people’s participation in the process
are imperative. In this connection, Thailand, as the ACD Coordinator,
will host the ACD Think Tank Symposium from 15-17 December in Bangkok
in order to raise awareness among academic institutions in Asia
of the ACD process and to provide a forum for those institutions
to share their thoughts on the future direction of ACD and of Asia
as a whole.
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
The
call for an Asian community is not at all premature, given the sweeping
changes that have occurred on the international strategic landscape
and the emergence of continent-wide cooperation in other regions.
Likewise, the call for a more stable financial infrastructure in
Asia is not at all illogical. Lessons learnt from the 1997 Asian
financial crisis demonstrate that a major factor behind its advent
was related to the capital account crisis. The influx of short-term
capital into Asian countries was highly dependent on the level of
confidence of the lending countries with regard to a stable environment
in Asia; hence, the drastic withdrawal of capital from the Asian
market in the immediate wake of the crisis. We also learnt that
individual countries’ foreign reserves alone could not deal with
the sudden impacts of large and volatile short-term international
capital reversals.
Given
its tremendous amount of foreign reserves, accounting for 65% of
the world’s total of US$ 3 trillion reserves, Asia has great potential
for furthering its growth and stability if those resources are properly
managed and utilized. In order to avoid a recurrence of the 1997
financial crisis, a new financial architecture needs to be developed
to avoid the root causes of such a crisis and to provide a wider
opportunity for Asia to channel its abundant foreign reserves for
investment within the region. An Asian bond market is one answer
in this regard since it will eliminate the double-mismatches --
maturity and currency -- as well as stabilize capital movements
within the region. The initiative will also rectify imbalances between
bank loans and other types of borrowings so as to be less dependent
upon commercial banks and to allow for an efficient development
of the financial system.
The
need for Asian bond market stems also from the current account deficit
of the United States, which has led to the anticipation that the
US may not be able to sustain its role in driving world growth.
The world, particularly developing countries in Asia and other regions,
would suffer badly should the US dollar crash, especially if there
is no appropriate financial instrument like the Asian bond to cushion
the fall and absorb the consequences. Moreover, the developed Asian
bond market will provide a viable alternative for Asian countries
to diversify their reserve holdings by swapping part of their assets
among each other according to the proportion of their existing international
reserves.
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
A
few years ago, the Asian bond market development initiative may
have sounded in-credible, but today, it has become widely accepted
across Asia and vigorously developed in various fora. The demand
side of the bond market has been promoted under the framework of
East Asia and Pacific Central Banks and Monetary Authorities, or
EMEAP. The First Asian Bond Fund or ABF-1 was announced on 2 June
2003 at US$ 1 billion. It was a lead investor, which helped stimulate
the Asian bond market. The forum is now working on the Second Fund,
or ABF-2, which will invest in local currency denominated bonds.
Within the structure of this fund, there will be components that
could possibly be open to investment by non-EMEAP public and private
sector investors.
On
the other hand, the supply side of the regional bond market has
been developed under the ASEAN+3 and APEC framework. ASEAN+3 focuses
its work on the need for a joint and comprehensive set of actions
by its member countries in two broad areas that (1) facilitate access
to the market by a wide variety of issuers and (2) create an environment
conducive to developing bond markets. At present, the 7th
ASEAN+3 Finance Ministers’ Meeting has given Thailand the task of
conducting the ASEAN+3 Withholding
Tax Project to develop the supply side, especially for local currency
bonds. This project is intended to propose to ASEAN+3 countries
exempt withholding tax for non-resident investors. Exemption will
apply to revenues from interest, capital gains, and capital losses.
Withholding tax is one of the most crucial impediments for trading
of bonds across countries in Asia.
Under
the ACD framework, the Asian bond market initiative, for the first
time, received full political support from the policy level of Asian
countries. The Chiang Mai Declaration on Asian Bond Market Development
was adopted at the Second ACD Foreign Ministers’ Meeting in Thailand
in 2003, providing a guideline for developing the Asian bond market.
Apart from raising public awareness and political support for the
Asian bond market development initiative, a series of expert groups’
meetings have been organized by Thailand, as the prime mover on
this matter, in order to seek ways in which ACD could add value
or complement the ongoing work. As ACD has wide coverage throughout
Asia, it is in a better position to promote the initiative, particularly
to engage other countries in South, West and Central Asia in the
process. India, for instance, has been very active in supporting
the initiative and expressing her intention to contribute to its
development in various ways.
Even
though the Asian bond market development is aimed to better utilize
Asian resources for intra-Asia investment, thereby boosting Asian
prosperity, this initiative should not be interpreted as an inward-looking
process. On the contrary, it is outward looking and complies with
market-based rules. The initiative is not merely aimed at
reducing Asia’s dependence on the US dollar but, more importantly,
this new financial architecture represents a means to enhance regional
financial self-help, as well as to lend support beyond the short-term
liquidity provided by the Chiang Mai Initiative, thereby strengthening
the financial stability of the region. In so doing, sound governance
and institutional transparency need to be firmly instilled. In the
near future, we envisage a stronger Asia which will be a better
partner for other regions.
Moreover,
the effort to develop an efficient bond market is a contribution
to the stability of the world financial system as a whole. Perhaps
this is why the Asian bond market initiative has received support
from non-Asian countries as well. For instance, at the fourth Asia-Europe
Meeting in Copenhagen in 2002, leaders of both sides agreed to set
up a task force to study ways and means to promote a closer ASEM
economic partnership, including a potential linkage between the
Asian bond and Euro-bond markets. And at the ASEM5 last October
in Hanoi, the leaders agreed to strengthen and enhance cooperation
among regional bond markets.
Mr.
Chairman,
Distinguished Participants,
Ladies and Gentlemen,
As
the promoter of the Asian bond market initiative, Thailand has exerted
her utmost effort to move the project forward. We have played a
key role in this matter in the aforementioned fora, particularly
the ACD which Thailand views as the core player in the promotion
of the Asian bond market. In fact, I like to think of the Asian
bond market initiative as the flagship of ACD.
On
her part, Thailand has established the National Asian Bond Market
Development Secretariat to disseminate information and coordinate
the work being done on the project in different fora. In addition,
the Thai cabinet already approved the draft law for the exemption
of withholding tax for non-resident investors and entities. It is
expected that by the end of this year, Thailand will issue the first
batch of Baht denominated bonds with the exemption of withholding
tax, which will be traded actively in Asia and the rest of the world.
The creation of sufficient supply of Asian bonds with high quality
and the removal of impediments for cross-country trade, particularly
the withholding tax, is needed to match the increasing demand of
the market, including the launch of the Second Asian Bond Fund in
the near future.
In
sum, the effort to promote the Asian bond market development is
timely. It will bring about several benefits to Asian countries.
It will help resolve liquidity problems, particularly the problem
of over-reliance on short-term funds of Asian corporations. It will
help increase the inflow of foreign capital and attract foreign
investments. It will enhance market discipline and corporate transparency.
It will assist in debt restructuring. And finally, it will increase
financial stability in Asia and, together with other bond markets,
that of the world financial system.
Mr.
Chairman,
Distinguished participants,
Ladies and Gentlemen,
The
new era of Asia has arrived. History will not repeat itself if we
learn from the past and are well-prepared. We will be able to avoid
not only the scourge of economic and financial crises, but we will
also successfully take advantage of globalization in creating a
prosperous and stable Asia. This will never happen unless Asian
countries unite to collectively shoulder each responsibility, and
to drive forward towards the common goal of having a favorable Asian
community for our generation and beyond.
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