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9. ASEAN During the Crisis
- ISEAS–Yusof Ishak Institute
- Chapter
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40 Hadi Soesastro By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 9. ASEAN DURING THE CRISIS HADI SOESASTRO There appears to be a serious gap in perceptions between ASEAN officials and the public in and outside ASEAN on the efforts made by that institution to overcome the economic crisis that has affected all its members, albeit in varying degrees. Indonesia, Thailand and Malaysia have been hit hardest; Singapore and the Philippines to a much lesser extent. Yet, a prolonged and deep crisis in the severely affected regional economies will also pull down the growth rates in Singapore and the Philippines as has been evident since the beginning of 1998. Even countries such as Vietnam and Laos that are relatively more insulated are also affected by the economic slowdown in the region. Since the regional impact of the crisis is so pronounced, it would be logical to expect ASEAN to be in the forefront of regional and international responses to the crisis. In the public’s view this is one of the most important reasons for having ASEAN and for promoting ASEAN economic co-operation. INITIATIVES IN THE FINANCIAL REALM As if guided by some kind of premonition, the ASEAN finance ministers held their first ever meeting on 1 March 1997 in Phuket, Thailand to promote ASEAN co-operation in the area of finance. The ministers were quite up-beat about the continuing favourable outlook for the region for the rest of the year. They expected their countries’ exports to improve, the levels of FDI flows to be healthy and domestic demand to be strong. They also believed that the international environment would remain supportive. At the same time they recognized the value of developing a mechanism for consultations amongst them. Little did they know that in the coming months some of them would have to deal extensively with the International Monetary Fund. In fact, the ministers had placed on their agenda an exchange of views with its Managing Director, Michel Camdessus, to discuss global and regional economic Reprinted in abridged form from Hadi Soesastro, “ASEAN during the Crisis”, in Southeast Asia’s Economic Crisis: Origins, Lessons, and the Way Forward, edited by H. W. Arndt and Hal Hill (Singapore: Institute of Southeast Asian Studies, 1999), pp. 158–69, by permission of the author and the publisher. 009 AR Ch 9 22/9/03, 12:38 PM 40 ASEAN during the Crisis 41 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville developments and avenues for enhancing financial co-operation. Michel Camdessus shared the optimism of the ASEAN finance ministers that “the economic fundamentals for ASEAN’s continued sustainable growth remain strong.” This first meeting in March 1997 produced a Ministerial Understanding on ASEAN Co-operation in Finance. It provided a framework to enhance cooperation and facilitation in several areas of finance within the existing institutional arrangement. ASEAN Finance Ministers’ Meetings (AFMM) were to be conducted regularly and assisted by the ASEAN Senior Finance Officials’ meeting (ASFOM). The activities were to include exchanging views on macroeconomic policies, improving transparency of policies, regulations and rules affecting the financial sector, promoting ASEAN as an efficient and attractive financial and investment region, promoting public-private sector linkages in the area of finance, and developing ASEAN human resource in the area of finance. The Joint Press Communiqué of this first meeting emphasized three particular issues: the importance of strengthening the supervisory and regulatory framework of the banking sector; the need to liberalize the financial services sector further in a gradual fashion, including through the WTO; and the utility of the ASEAN Swap Arrangement in view of the dramatic changes in the global financial environment. When the crisis hit, it was clear that the affected countries had to resort to the IMF, unless they wanted to resolve the problem on their own as has been Malaysia’s policy. ASEAN was not in a position to do anything. The ASEAN Swap Arrangement was far from adequate. An informal proposal from Japan for the establishment of an Asian Fund was shot down by Washington because of concerns that such a regional fund would not apply conditionalities as stringently as the IMF. In fact the finance ministers, in their Joint Statement of December 1997, urged the affected countries to undertake strong adjustment measures, including those that will be undertaken in conjunction with the IMF financing arrangement. Perhaps in anticipation of the upcoming APEC meeting in Vancouver...