Unequal Development of
Regional Financial Cooperation in East Asia:
Demands, Capacity, and Sovereignty Costs
Heon Joo Jung
Department of Political Science
University of Pennsylvania
[email protected]
DRAFT
PLEASE DO NOT CITE NOR CIRCULATE WITHOUT AUTHOR’S PERMISSION
Paper prepared for the 46th Annual Convention of International Studies Association, Honolulu,
Hawaii, March 1-5, 2005. I would like to thank Jennifer Amyx and A. Maria Toyoda for their
helpful comments on the earlier version of this paper. Comments and suggestions are welcome.
Heon Joo Jung, ISA 2005
I.
Introduction
The focal point of my interest in this research paper is to build a theoretical framework in
order to analyze the logic of unequal development of regional financial cooperation
arrangements in East Asia1 or ASEAN plus Three (APT) countries and the determinants of the
level of this cooperation. The puzzles that interest me can be summarized as follows. First, why
are some financial cooperation arrangements initiated easily and swiftly while others are not?
Second, why are some arrangements more successful than others?
To answer these questions, first, the general explanations for recent resurgence of
regionalism and financial cooperation will be discussed briefly. Second, I will build a theoretical
framework and specify explanatory variables for regional financial cooperation in East Asia.
Third, in order to trace the changes of the level of regional financial cooperation, preliminary
measurements for primary variables will be developed and presented. Fourth, three different
types of cooperation will be examined and compared briefly by utilizing the theoretical
framework. Finally, I will summarize the findings and my arguments.
Basically, my argument is that, by considering three primary factors—demands for
regional financial cooperation, domestic implementation as well as regional capacity, and
sovereignty costs attached to cooperation—seriously, we can analyze not only the possibility of
initiation of regional financial cooperation but also the level of its development in a coherent
framework. In a nutshell, APT countries have shown highly unequal distribution of
implementation capacities to fulfill agreed policy goals in financial issues and high level of
reluctance to sacrifice their monetary and financial policy sovereignty for the expense of regional
cooperation. Moreover, although it has been argued that there have been increasing demands for
regional financial cooperation, empirical data analysis concerning capital flows in ATP countries
shows decreasing regionalization in East Asia. Finally, especially since Asian financial crisis
(AFC) in 1997 that encourage regional financial cooperation to start and develop, the lack of
1
How to define “East Asia” as a region is a very controversial issue, especially from constructivist
perspectives (Katzenstein 1997; Wigen 1999; Nabers 2002; Terada 2003; Yu 2003). Rather than
reiterating the debates, I would like to regard East Asia as comprised by 13 countries: 10 ASEAN
countries—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand,
and Vietnam—, China, Japan, and South Korea in most cases. If other countries are taken into account, it
will be addressed.
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credibility for cooperation—both political will and capacity—makes diverse cooperation
arrangements develop to a lesser extent than required and expected.
II.
Literature Review: Why States Cooperate Financially on a Regional Basis?
Why do states cooperate with each other financially on a regional basis? This question
consists of three distinct questions. First, why do states cooperate with each other? Second, under
what conditions do states cooperate more on a regional basis than on a global basis? And finally,
is there any difference in terms of policy preferences and outcomes of states’ cooperation in
different policy areas: either financial or trade cooperation? These questions are of great
significance in understanding current development and new wave of regionalism (Mansfield and
Milner 1997; Mattli 1999; Ravenhill 2001). In a comparative perspective, not only regional
financial cooperation but the cooperation itself among APT countries is a relatively new
phenomenon. However, both concepts of East Asia and financial cooperation have become
increasingly popular especially after AFC in 1997. In this section, existing literature on the above
questions will be briefly overviewed.
Before further thinking of the possible answers to these questions, however, there is a
great need to define key terms such as regionalism and financial cooperation to an extent that we
can use these terms for analytical purposes. First, two key terms—regionalization and
regionalism2—will be conceptually differentiated following Fishlow and Haggard (1992).
According to them, while regionalization means increasing regional concentration of economic
flows, regionalism refers to a political process characterized by economic policy cooperation and
coordination among countries (also see Haggard 1997, 48 fn. 1).3 This distinction is of great
importance because, for example, if we do not distinguish regionalization and regionalism
analytically, we cannot differentiate outwardly similar and cooperative behaviors in a relatively
identical time period—such as similar policy choices of different countries under the pressure of
globalization or “herding” in financial crises and—and/or increasing regional concentration as
2
Some scholars prefer to use the term “regional integration.” In this paper, this term will not be used as
much as regionalism and regionalization. When used, it will mean “the voluntary linking in the economic
domain of two or more formerly independent states to the extent that authority over key areas of domestic
regulation and policy is shifted to the supranational level” (Mattli 1999, 41).
3
Similarly, Yarbrough and Yarbrough take regionalism to be “an active process in which policy makers
differentiate between trading partners,” while regionalization is used to denote “a more passive process”
(1997, 160 fn. 1).
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consequences of uncoordinated individual decision-making from coordinated behaviors for
states to adjust and commit themselves to achieve agreed goals.
Second, financial cooperation needs to be defined clearly. According to de Brouwer and
Wang, financial cooperation “relates to the mechanisms by which countries can provide financial
support to each other, regionally or globally, in the event of financial crisis” (2004, 1).
Meanwhile, monetary regionalism in Dieter’s framework is closely associated with “the
willingness to give up a part of what has been understood as a central element of a nation’s
sovereignty and independence” (2000, 9). Both definitions are too restrictive to analyze the
emerging arrangements in East Asia. Therefore, for the purpose of analysis, financial
cooperation will be defined in this paper as policy networks that are purported to make crossborder financial transactions that significantly extend beyond the legal jurisdiction of a country
less risky.4 In this sense, I will take monetary cooperation or monetary integration to be included
in the concept of financial cooperation.5
a. Why Do States Cooperate?
Concerning the first question, until now, three schools of thought have prevailed in
explaining inter-state cooperation: (neo-)realism, neoliberal institutionalism, and constructivism
(Ravenhill 2001, 7-26; Henning 2004). First approach, realism and neo-realism, focuses on the
impacts of the distribution of power and its shifts over time on inter-state cooperation because
states always take relative gains more seriously than absolute gains under the anarchic self-help
international system (Grieco 1988; 1997; Mearsheimer 1994/1995). Second, neoliberal
institutionalism or liberalism emphasizes the role of international institutions in lowering the
transaction costs and changing the incentive structures of each state by lengthening the shadow
of future (Keohane and Martin 1995). In contrast, constructivists argue that ideas, ideologies, and
identities are essential in understanding state behaviors because these ideational variables help,
or sometimes compel, policy-makers to define the intents of other states, understand the basic
causes of events, and rank their policy preferences (Wendt 1995).
Although these schools of thought provide us useful overarching theoretical approaches
4
This definition focuses more on the intention of policy cooperation than on its consequences.
According to Ryou and Wang (2003, 5), monetary cooperation can be defined as “determining monetary
policies together to maximize the combined payoffs to participating nations.”
5
4
Heon Joo Jung, ISA 2005
to international cooperation, it has been also argued that using one approach alone is not only
unsatisfactory but also can be misleading in the sense that it usually makes other variables—that
are supposed to do only marginal roles and, therefore, are not taken into account seriously—
constant under most circumstances. Therefore, increasing number of scholars tries to specify the
conditions under which different approaches can have different explanatory power and uses
different approaches depending on the specific puzzles they are to solve (Kim 2004, 51).
b. Why Do States Cooperate Regionally?6
Second question about regionalism versus globalism also has produced many contending
approaches. According to Ravenhill, studies on regionalism have emphasized diverse factors:
regionalization due to lower transportation and communication costs between regional
economies; less collective action problem due to the small number of actors that in turn may
reduce the monitoring costs; shared institutional characteristics either by common historical
backgrounds or by similar level of politico-economic developments mainly due to geographic
proximities; and lower adjustment costs for regionalism relative to higher costs attached to
globalism because states should compete with the most efficient counterpart on a global basis
(2001, 26-37).
Among others, three approaches have attracted greater interests than others so far:
regional version of hegemonic stability theory (HST); transactionalism based on
(neo)functionalism; and intergovernmentalism. According to ‘regional hegemony’ arguments,
regionalism is not possible without the existence of a regional hegemonic country or a small
group of committed members (the privileged k-group) among the potential participants.
Empirically, it is argued that successful regional arrangements have a hegemonic core such as
Germany or Germany-France alliance in the case of the EU and the US in the case of North
America. This is so since a regional hegemon or an equivalent group can provide the regional
public goods even in the face of free-riding members (Kindleberger 1981, 252; Snidal 1985).
However, as Henning points out, “regional hegemony, as measured by relative economic size,
6
To this question, there have been lots of theories based on European integration from functionalism and
neofunctionalism to realism, intergovernmentalism (Moravcsik), and constructivism. However,
constructivist arguments about regionalism will not be dealt with because the basic framework is same as
explained in the previous section.
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has thus been a poor predictor of monetary cooperation in East Asia” (2004, 94).
Second argument focusing on the cost-reducing functions of regionalism contends that
increases in cross-border transactions create pressures for further integration from economic to
political. Based on this functionalist argument, those who advocate this approach rely “heavily
on preferences in domestic and transnational society to generate the demand for regional
integration, including the policies and political institutions needed to overcome the transaction
costs associated with different regimes in different countries” (Choi and Caporaso 2002, 486
[italic added]). The story goes further, arguing that, once initiated, regional economic integration
would result in political integration because of this spillover effects. However, two points need to
be stressed. First is that the approach is basically apolitical, not being able to take into account
the ways in which political actors as well as political institutions can change the preferences of
societal actors themselves as well as final outcomes. Second, empirically, as Henning points out,
“this approach could not explain monetary and financial cooperation that occurs prior to trade or
political cooperation” (2004, 91 [italic added]).
Third approach is most recently developed by Moravcsik (1991). This approach put states,
especially executives, at the core. Its basic argument is that European integration cannot be
understood without taking seriously a series of bargains between the heads of governments of the
leading states. The basic idea is that, although societal interests and policy preferences are the
raw materials of politics, they should be recognized, aggregated, and mobilized by political
actors and institutions (Choi and Caporaso 2002, 488). Although this approach is more political
and theoretically developed than others, three points should be taken into account. First,
intergovernmentalism implies that the implementation of inter-state agreement is easy and
automatic once signed among countries, underestimating the fact that “majority of integration
schemes have failed at the implementation stage” (Mattli 1999, 29). Second, it overemphasizes
the “grand bargains” between major interstate decisions, ignoring day-to-day politics by
supranational actors in regional arrangements and the role of smaller states. Finally, partly
because this approach has been based on European integration as a primary case, it
underestimates other key factors that need to be taken into account seriously: different regime
types of regional countries; historical as well as institutional legacies on a regional basis that can
either promote or inhibit regional cooperation, etc.
Each approach to regionalism has strength and weakness. Therefore, we can utilize each
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of them flexibly depending on specific aspects, diverse issues, and different stages of regionalism.
In general, however, current approaches are too Euro-centric, too trade-focused, and too
deterministic rather than interactive.
c. Why Do States Cooperate Financially on a Regional Basis?
Until recently, the majority of regionalism literature has focused on trade-related issues
(Mansfield and Milner 1997; 1999). In contrast, financial cooperation on a regional basis has
been under-developed mainly because of highly unequal development across different regions:
uniquely high level of monetary integration in European Union (EU) and the lack of sufficient
empirical cases outside of Europe. Especially, drawing upon the experiences of European
integration, financial and monetary cooperation on a regional basis has been conceived as being
dependent on the preceding development in trade integration as a critical necessary condition
(Dieter 2000, 7-8). However, this is not always true given the different path East Asian countries
have walked along. With regard to regional financial cooperation, existing literature can be
categorized as follows: domestic societal level, governmental level, regional level, and
international level.
First, in the case of increasing intra-regional trade, regional financial cooperation might
be necessary for further regional integration as functionalism contends. Especially, “producers
and consumers of tradable goods, for example, as well as internationally active investors, are all
apt to be favored by regional financial and monetary cooperation that maximize the stability and
predictability of exchange rates. Currency volatility, for such groups, is an anathema” (Cohen
1997, 66; also see Frieden 1991). Therefore, for those who trade more on a regional basis than on
a global basis, regional financial integration can be a favorable policy option that deserves their
efforts to force their governments to adopt it. Second, regional financial cooperation can be used
as a strategic choice by ambitious politicians to build a coalition with potential beneficiaries from
regionalism or to break down vested interest for desirable reforms or other political purposes.
More interestingly, although, as for each government, different types of regional financial and
monetary cooperation have different costs—such as sovereignty costs—attached to it, stronger
governments can choose it in order to enhance and consolidate their influence over weaker
countries. By contrast, weaker countries can use it as to lock the stronger ones in the institutional
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settings.7 Third, regional financial cooperation could increase the region’s influence in
multilateral organizations such as International Monetary Fund (IMF) and in negotiations over
the design of new international financial architecture (Henning 2002; 1-2). As explained above,
by reducing the number of actors and therefore monitoring costs, transaction costs and possibly
adjustment costs, regional financial cooperation can help regional states to make a common front
against external actors in coping with changing international financial environments. Finally,
countries of a same region or countries that are regarded as parts of a region by international
actors are vulnerable to contagion effects from one another within the region. Therefore, to
reduce the negative impacts of contagion effects, regional financial and monetary cooperation is
required as a reaction. Thus, as long as international—extra-regional—investors regard the
region as one category of economic flows, the potential for crisis will be easily spread within the
region.
d. Limits of East Asian Financial Cooperation Literature
As shown above, there have been different ways to understand and conceptualize recent
development of regional financial cooperation. In addition to the critics to each theoretical
approach, the limits in the existing literature that focuses on East Asian financial cooperation
need to be clarified for further research.
First set of problems in the literature relates to the path dependency of regional financial
cooperation. Most authors agree that the 1997 AFC as a common shock in East Asian countries
was one of the most powerful driving forces for regional financial cooperation for diverse
reasons (Dieter 2000, 20; Henning 2004, 83). They, however, have no idea with regard to the
question of what could be the effects of the pre-crisis regional financial cooperation
arrangements on the subsequence cooperation efforts. For example, although Hamilton-Hart
mentioned the inability of the Executives’ Meeting of East Asia Pacific Central Banks
(EMEAP)8 in dealing with AFC (2003, 232), she does not specify whether the problem in terms
of regional cooperation was either due to the lack of policy cooperation and implementation
7
To specify the conditions under which these two different causal mechanisms can be applied can be
another interesting issue concerning regionalism.
8
More about EMEAP will be discussed later. For the member countries, see [Table 4]. Also, for more
information, visit their official website (http://www.emeap.org).
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Heon Joo Jung, ISA 2005
capacity or due to the magnitude of the crisis itself. Moreover, by underestimating those preexisting arrangements and their roles in lowering the transaction costs, it becomes hard to
understand the establishment as well as speed of Asian Bond Market (ABM)—with the demandside role of ready-made EMEAP (Amyx 2004b).
In this respect, most authors focus more on the discontinuities rather than the continuities
in regional financial cooperation. My point is not that they fail to consider the significance of
historical development in regional financial cooperation but that without looking into the preexisting regional financial cooperation arrangements and their relationship with newly
established ones it would be misleading to assert recent cooperation efforts became possible only
by exogenous shocks external to East Asian region. The problem lies in the fact that the
overemphasis on a common shock and increasing East Asian identity against external forces is
likely to fail to see the continuing, sometimes increasing, roles of pre-existing arrangements.
Second, most authors focus either on the demand-side or on the supply-side of financial
cooperation, not the interaction and combined effects of demand and supply-side factors. For
example, unlike functionalist accounts with exclusive focus on demand-side pressure for
regionalism as explained above, Hamilton-Hart’s primary concern is the exact opposite, supplyside conditions, emphasizing how different capacities of each government for implementation—
or administrative feasibility (2003, 225)—can influence policy choices as well as cooperation
outcomes. However, without taking into account the demand-side of financial cooperation—e.g.,
needs for stable exchange rate among regional economies, prospective gains from increasing
regional financial cooperation, private sectors’ demand for governmental engagement, etc—and
its changes, it is extremely hard to examine whether cooperation can survive changes in the
leadership as well as administrative capacities. In sum, rather than taking one of supply and
demand-side as constant and focusing only the other, the combined effects of these two sides
should be analyzed to understand the prospects of East Asian financial cooperation.
Finally, although most analyses underscore the potential benefits of regional financial
cooperation, we should recognize that, when policy-makers choose to join international and
regional cooperation, it accompanies costs. Sometimes the costs attached to inter-state
cooperation can be unbearably huge. Or, in other cases, they cannot even be calculated before
joining it. The costs may be perceived differently by policy-makers depending on several factors:
regime types, either democratic or non-democratic; political leadership; and different types of
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cooperation. Partly because current works on financial cooperation are based on European cases,
the variations in the costs attached to European monetary cooperation have not been conspicuous
because of its gradual development. In this sense, in the analyses of regional financial
cooperation in East Asia, we need to take seriously the factors that are assumed to be constant
and negligible in Euro-centric analyses. How and to what extent policy-makers do care about the
balance between benefits and costs from the cooperation is not a simple question. However, we
should not ignore this variable, especially when APT countries are the cases as will be explained
later.
All of these problematic issues cannot be resolved in this short paper. However, by
figuring out the answers to the key questions—why regional financial cooperation arrangements
show differences in terms of their initiation and successful development—, I will try to build a
coherent framework in order to overcome the limits that I have criticized.
III.
Theoretical Framework
Based on the critical overview, how the combination of demand and supply-side
conditions can influence the initiation and success of regional financial cooperation will be
specified in this theoretical section.
As mentioned above, when we regard foreign economic policy as a kind of good, the
combination and dynamic interaction between demand and supply for the good, rather than just
considering one of the two, is necessary for us to better understand why certain policies are
adopted and others are not. Regional financial cooperation also needs demand and supply not
only to be initiated but also to be sustained. However, with the exception of the study by Mattli
(1999), most authors focus either on the demand-side or on the supply-side of financial
cooperation, not the combined effects of demand and supply-side interaction. In order to go
beyond the partial explanations, we need to consider the distinct logic of demand and supply-side
incentives and their interaction in a coherent framework.
a. Who demands RFC, why, and under what conditions?
To analyze demand-side incentives for regional financial cooperation, we need to
consider critical differences between trade-related cooperation or preferential trading
arrangements (PTAs) and financial cooperation. The critical difference lies on the fact that while
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the demands for most PTAs are relatively stable as well as predictable, the strength of demands
for regional financial cooperation can be significantly different depending on the types of
cooperation. At a glance, the more the expected gains from the cooperation, the stronger the
demand would be. This can be true and the prospective economic gains from regional financial
cooperation need to be considerable in order for relevant actors to support it. This is because, if
there exists little potential for economic gains, the process and forces of regional integration will
quickly “peter out” (Mattli 1999, 42).
Nevertheless, the difference between PTAs and financial cooperation can be clarified by
figuring out the answer to the question of who would demand regional financial cooperation. In
domestic politics, most policy choices by government produce winners those who gain from the
decisions and losers who lose because of them. Therefore, it is quite natural that prospective
winners try to make their government adopt policies favorable to them while losers oppose them.
Regional financial cooperation as a policy choice is not an exception. Those who will or are
supposed to gain from the cooperation will choose to spend their resources for lobbying their
government to initiate and participate in it. In this case, it is highly probable that we could find a
supporting coalition between government and those winner groups. Similarly, on a regional game,
countries that are supposed to gain from regional financial cooperation on the balance will
support it more than those are predicated to lose.
However, who can demand regional financial cooperation if it produces neither obvious
winners nor losers? Who can demand it if its benefits and costs is quite ambiguous at a certain
point? What might happen if the benefits of regional financial cooperation would be distributed
across members relatively evenly? Domestically, when regional financial cooperation produces
neither clear winners nor losers, only political actors9—political leaders as well as bureaucrats—
have certain incentives to demand it. When political leaders conclude that regional financial
cooperation would enhance the overall level of social welfare and this in turn might increase the
opportunities for them to retain their office and/or when they have personal ambition, they would
choose to demand it.10 Economic bureaucrats can demand regional financial cooperation because
9
Think tanks or academics can be included as well. However, in this paper, these actors will not be taken
into account mainly due to the lack of data.
10
In these cases, one may predict that the initiation of this type of regional financial cooperation can be
much more easily achieved relative to other types of regional cooperation because political actors demand
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this not only provide good opportunities for increased budget and personnel but also enhance
their prestige. Regionally, actors who have worked for pre-existing regional financial
cooperation arrangements can demand their expansion or new ones because of not only benefits
for the regional as a whole but also personal opportunities and gains. For example, in the case of
cooperation for surveillance over regional financial markets, the impacts of this cooperation can
be less salient than a currency union because the benefits and costs would be quite evenly
distributed both domestically and regionally. Therefore, we can argue that, when the costs and
benefits from regional financial cooperation are not clear enough for societal actors to make
coalition for or against it, it is very likely that the demand would be generated by political actors.
The existing arguments that have emphasized the distributional aspects of state policies
depend on the assumption that the expected benefits and costs can be calculated quite accurately
prior to the initiation of regional financial cooperation, which might be plausible only in some
cases and but not in other cases. This means that we need to consider the predictability of
benefits and costs as a variable rather than as a constant. While expecting the consequences of
PTAs is not so difficult for both societal and state actors, calculating the economic gains from
regional financial cooperation is not a simple matter for both actors. The effects of certain kinds
of regional financial cooperation can be quite accurately measured while consequences of other
types would not be that accurate due to the complexity and interconnectedness of the issues.
In sum, the demand-side of regional financial cooperation can be regarded as a function
of two conceptually distinct factors: whether the expected gains from the cooperation are
significant or not; and whether the distributional effect of regional financial cooperation is clearcut or ambiguous. The points that I try to emphasize here is three-folded. First, by looking into
the demand-side aspects of regional financial cooperation, we can gauge the overall pressure for
regional financial cooperation. Second, we need to examine that, especially in the case of
regional financial cooperation, state actors can be more active in demanding it than private actors
when the benefits of regional financial cooperation are supposed to be ambiguous and/or evenly
distributed. This point is of great significance in explaining the speed of regional financial
cooperation process. Especially when the demand-side and supply-side actors are identical in
such cases presented above, they can be more autonomous and more swift. Third, the point of
it and simultaneously supply it for themselves, significantly reducing the time and energy that should be
used to aggregate the societal policy preferences.
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tremendous significance is that although the concept of regional financial cooperation seems to
be a specific one, the distributional consequences of the cooperation and their predictability can
be significantly different depending on the types of financial cooperation. The last point will be
examined more in depth later.
b. Sovereignty Costs, Domestic and Regional Capacity, and Credibility
As examined in the previous section, demand-side factors provide a material basis for
regional financial cooperation. However, demand-side conditions cannot determine the policy
output unilaterally because political actors have the final authority to determine not only whether
or not cooperate but also its timing and the extent to which they cooperate. This is so since, in an
extreme case, theoretically, political leaders as suppliers of regional financial cooperation policy
can initiate regional financial cooperation without significant societal demands for the
cooperation. If we consider the issue-linkage arguments, it is conceivable that political leaders of
small countries without foreseeable gains participate in regional financial cooperation mainly
because they are afraid of being excluded from other regional economic integration processes
such as trading blocs if they choose not to do.
To analyze the supply-side conditions more systematically, the conditions under which
political actors are willing and able to accommodate demand for regional financial cooperation
should be specified. Regarding the willingness, we should take into account at least two factors.
First, domestic politics can be of great significance in explaining the rationale for political
leaders to initiate the cooperation. Under non-democratic settings, political actors are willing to
cooperate with other countries not because of the demands but because of the benefits accruing
to them from it.11 However, in democratic regimes, if the domestic electoral support or potential
support groups of political actors are supposed to gain from regional cooperation, they may be
more willing to spend their limited political resources in materializing this cooperation. In
addition, even if the potential gains are distributed evenly across the society, politicians can also
be willing to do it as long as it is likely to improve domestic economic conditions.
11
Because, even under authoritarian—if not totalitarian—regimes, political leaders should take into
account the effects of their policy choices to a certain extent, the impacts of regime factors on the regional
financial cooperation will not be taken seriously in this paper. Especially, this regime variable can be
insignificant when the effects of regional financial cooperation arrangements are supposed to be
ambiguous and distributed relatively evenly across the society.
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Second factor with regard to the willingness relates to the sovereignty costs12 attached to
the cooperation. Because most regional financial cooperation arrangements require each states
involved to give up its uncontested control over domestic financial and monetary policies to a
certain, but not the same, extent, policy-makers must consider the impacts of regional financial
cooperation on the future policy-making autonomy. Not only monetary integration but also such
financial cooperation as regional surveillance mechanism and bilateral swap arrangements entails
sovereignty costs, but to significantly different degrees. For example, for the United Kingdom,
the choice either to join the EMU and the Euro currency area or to keep the existing floating
exchange rate regime was of great significance because of the sovereignty costs attached to the
EMU. As Mundell argued four decades ago (Mundell-Fleming approach), “three key policy
options of governments—exchange rate stability, private capital mobility, and domestic
monetary independence—could not be achieved simultaneously except on an episodic basis”
(Andrews 1994, 194-195). Therefore, those countries that try to stabilize exchange rate through
regional monetary cooperation, they should tolerate the reduced level of monetary policy
autonomy. In contrast, other types of financial cooperation may require different sovereignty
costs because different cooperative measures need different level of prior committed resources
and policy autonomy as well as different level of interdependence. One additional point is that
we need to consider not the sovereignty costs per se but the changes of sovereignty costs because
some countries that lack the capacity to control their own economies already may care less about
the sovereignty costs.13
In order to analyze the capacity of regional financial cooperation, two factors must be
examined carefully.14 First, as Hamilton-Hart points out, we need to examine how different
12
Sovereignty costs can be defined as costs that result from inter-state cooperation such as reduced
monetary and financial policy-making autonomy.
13
Given the overall high level of strategic state intervention in financial markets in most APT countries
(MacIntyre 1994), we can regard sovereignty costs attached to financial cooperative measures that require
loss of domestic policy autonomy to be significant.
14
The prospects for regional financial cooperation also depend on how to solve the collective action
problems inherent in almost any international cooperation. Therefore, the capacity of a hegemonic
country or k-group within a region to provide public goods—such as reduction of tension resulting from
unequal distribution of gains by providing side-payments to losers, and/or stable and strong currency—
can be a critical variable to explain the regional financial cooperation. Even though the rise of China can
be a significant variable for these considerations, I will take these variables as constant in APT countries
in this paper given the asymmetric influence of Japan in financial areas (Amyx 2004b).
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domestic implementation capacities of each government—or administrative feasibility (2003,
225)—can influence regional financial cooperation policy choices as well as cooperation
outcomes. This is so since the “effects of government capacity vary according to policy type”
(Hamilton-Hart 2003, 225). Simply speaking, while some policies are largely about deregulation
or “stop-doing-something,” other policies require government to implement and enforce
regulation on a regular basis or “keep-doing-something.” In this sense, Hamilton-Hart’s
distinction between policies that require governments to stop or reduce activity and regulatory
policies that require them to do something continuously should be complemented with
consideration of distinction between regional financial cooperation that is coupled with high
sovereignty costs and what is not.
Second, unlike her exclusive emphasis on domestic capacity, I argue that regional
capacity is needed to be taken seriously as well. The rationale is quite simple. If prior
establishment such as other regional arrangements, accumulated information, and/or personal
networks exists, subsequent regional financial cooperation can be built upon the establishment
more easily, not from scratch. Among others, the personnel—both bureaucratic and academic—
networks15 seems to be of great significance especially when we try to explain the detailed policy
contents. Also, pre-existing arrangements can reduce additional transaction costs by providing
the reference point of discussion and locus of cooperation.
To sum up, the decision of each prospective members of regional financial cooperation
might be based on careful examination of domestic political considerations and sovereignty costs,
other countries’ willingness and implementation capacity, and pre-existing regional capacity.
The prospect for successful regional financial cooperation would be brightest when political
makers can find strong domestic support base for the cooperation, feel lower sovereignty costs
attached to it, find that the possibility of its success is high due to other countries’
implementation capacity as well as accumulated regional capacity. Otherwise, the regional
15
Personnel issues need to be more specifically examined. How frequently do bureaucrats engage in
regional financial cooperation? To what extent can one expect that the participants from the counterparts
in the meetings would be the same? What is the role of non-bureaucrats in policy making process and
policy preference formation? In this sense, as de Brouwer and Wang point out, the “rotation system” in
bureaucratic agencies of many East Asian countries can have negative effects on learning effects as well
as trust-building among members (2004, 7). However, this assertion should be empirically examined
because the learning process may depend on the relationship between rotating bureaucrats and nonbureaucratic specialists who can guarantee the continuity and expertise.
15
Heon Joo Jung, ISA 2005
cooperation would be hard to be successfully developed.
c. Explaining Unequal Development of Regional Financial Cooperation
In this paper, the unequal development of regional financial cooperation as a primary
dependent variable is regarded as a function of demand and supply-side factors. In general, the
favorable and unfavorable conditions can be two extremes of a continuum of regional financial
cooperation development as [Figure 1] illustrates.
[Figure 1. about here]
However, one additional thing of great significance is that the weights of each variable in
determining the outcome may not be identical. Different types of regional financial cooperation
make policy-makers put different weights on related factors. To make it simple, following Asian
Development Bank study, we can distinguish regional financial cooperative measures according
to their purposes: surveillance cooperation, resource cooperation, and exchange rate cooperation
(2002, 3-6).16
Compared to the exchange rate cooperation, the first two measures could produce less
salient policy outcomes because the distinction between winners and losers would not be clearcut, the benefits would be distributed evenly across the society and the sovereignty costs attached
to them might not be that huge. In both cases, the role of political actors would be much
important than societal actors and therefore, the supply-side factors need to be more carefully
taken into account. However, among supply-side factors, the domestic implementation capacity
and regional capacity seems to be more crucial than sovereignty costs and domestic concerns
because these measures are largely implemented without significant loss of policy autonomy. In
addition, it can be argued that surveillance cooperation would require more domestic
implementation capacity than resource coordination would.
In sharp contrast, the measures aiming to achieve exchange rate cooperation require
much more political willingness including strong domestic coalition and loss of monetary
16 Similarly, Dieter distinguishes regional financial cooperation arrangements that are purported to
stabilize financial markets of regional countries from those measures that contribute to the stabilization of
exchange rates among these countries (2000).
16
Heon Joo Jung, ISA 2005
autonomy as explained before. Therefore, without strong domestic support, democratic policymakers would not have sufficient incentives to join monetary cooperation regime. Also,
authoritarian rulers would not choose to participate in exchange rate cooperation because the
costs attached to it would be perceived to outweigh the benefits from it. The frameworks based
on these arguments can be summarized as follows.
[Figure 2. about here]
[Figure 2] shows that different types of regional financial cooperation need different
requirements to be successful. In the next section, I will try to operationalize critical explanatory
variables: the level of interdependence in terms of capital flows to examine the demand-side
condition, domestic implementation capacity, and regional capacity.
IV.
Conditions for East Asian Financial Cooperation
Financial and monetary cooperation in East Asia is not unprecedented. Although how to
analyze the previous cooperative arrangements largely depends on what to include in this
category, there have been various types of cooperation in East Asia such as South East Asian
Central Banks (SEACEN) since 1966. What is new are the increasing interdependence, more
exclusive APT cooperation, more formal cooperation, and, above all, AFC. In this section,
conditions for regional financial cooperation before and after AFC will be examined. In a
subsequent section, how different level of development in regional financial cooperation
arrangements could be produced will be examined based on these conditions.
a. Financial Interdependence within East Asia: Increased Sufficiently?
Has interdependence among APT countries been increased recently relative to interregional interdependence? If so, to what extent has interdependence in East Asia regionalized
compared to the pre-crisis period? In a nutshell, interdependence can be measured in many
different ways. Unlike the increasing intra-regional trade, the capital flows had been more
regionalized before the crisis, but the level of regionalization decreased significantly after AFC
both as a whole region and as individual countries.
One of the prevalent arguments in East Asian financial cooperation is that regional
17
Heon Joo Jung, ISA 2005
financial cooperation would increasingly be required thanks to the increasing interaction between
East Asian countries. Most data supporting this argument is based on the increasing intraregional trade (Petri 1993; Henning 2004, 84-88; Kuroda and Kawai 2004, 144; also see [Table
1]). According to Zebregs, “the industrial countries are still the largest export market for
emerging Asia,17 but exports between the economies in the region have risen steadily from about
20 percent of total export in the late 1970s to 40 percent in 2002” (2004, 3-4). Petri’s analysis
that, since large exchange rate adjustments between U.S. and Japan at the Plaza Hotel in New
York in 1985, “trade flows within East Asia18 have grown sharply and have become more
regionally biased spurred in part by investment and aid” (1993, 46). Yamamura and Hatch focus
on different aspect of regionalization: the Japanese corporations’ keiretsu-like production
network that dominates across East Asia (1997).
[Table 1. about here]
However, there is little theoretical argument about what should be the proper level of
intra-regional trade that requires financial and monetary cooperation. In this sense, we need
better, if not best, measurements to see the material basis for regional financial cooperation.
Given the lack of comprehensive data and limited availability, one of better measurements for
the level of regionalization can be capital flows within East Asia. In terms of bank lending, Bank
for International Settlements (BIS) has produced one of the most consistent databases for
nationality distribution of international bank lending since 1996.19 According to the diachronic
analyses, the reliance of ASEAN and ASEAN+2 (China and South Korea) on Japan—which can
be regarded of intra-regional banking lending—has dropped sharply from about over 40% in the
end of 1995 to around 16% in the end of 2003 (see [Table 2-1]; [Table 2-2]; [Table 2-3]; [Figure
3]). By contrast, ASEAN and ASEAN+2 countries became more reliant on European countries
than on Japan. Although these data may capture only a part of reality, other analyses correspond
17
Zebregs defines emerging Asia as including China, Hong Kong SAR, India, Indonesia, Korea, Malaysia,
the Philippines, Singapore, Taiwan, and Thailand (2004, 2).
18
Petri defines East Asia as comprising China, Hong Kong, Indonesia, Japan, Korea, Malaysia,
Philippines, Taiwan, Thailand, and Singapore (1993, 21).
19
For the detailed data, visit “The BIS consolidated international banking statistics”
(http://www.bis.org/statistics/consstats.htm)
18
Heon Joo Jung, ISA 2005
to mine. According to Hamilton-Hart, one of the biggest changes since the crisis is “the decline
in Japanese investment in the region” (2004, 135). In many countries in East Asia, Japan was the
biggest creditor. The trend changed dramatically since AFC.
[Table 2-1. 2-2. 2-3. and Figure 3. about here]
These analyses are not to rebut the whole arguments about increasing regionalization
among East Asian countries. The point that I try to raise is, nevertheless, that we can find
different trends—becoming less regionalized—in capital flows since AFC and we should not
take the increasing regionalization in APT countries as a given fact. Although more in-depth
analyses might give us more accurate picture, the decreasing capital flows in East Asia might
have several implications. First, decreased regionalization in financial sectors could result in less
interest in financial regionalism due to less interconnectedness and therefore less externalities:
the opposite of functionalism. Second, different causal mechanisms are possible: less dominance
of Japan can decrease concern for relative gains and mistrust against Japan, but also can decrease
the hegemonic role of Japan. However, given the significance of Japan in East Asia, the latter
argument needs more scrutiny. Third, the decreased capital flows in East Asia can be taken as
only temporary because this is mainly due to AFC, which implies increasing regionalization in
the near future. However, again, the analyses show that the demand-side factors are at best
ambivalent and indeterminate.
b. Domestic Capacity and Transparency for Credible Commitment
As explained before, different policy types require qualitatively different governmental
capacities. Some policies aim to reduce governments’ involvement while others are purported to
reinforce it. In this sense, resource cooperation and exchange rate cooperation require different
governmental activities compared to surveillance cooperation on a regional basis.
First, exchange rate cooperation would require much less implementation capacities of
governments in most cases than surveillance cooperation would. Let me assume that there exists
high level of central bank independence across a region. On the one extreme, as for each
monetary authority, the adoption of flexible exchange rate regime does not require any regional
cooperation because of the absence of regular and systematic intervention in the exchange
19
Heon Joo Jung, ISA 2005
market. On the other hand, regional monetary cooperation such as currency boards also “leaves
the central banks with very little room for maneuver” except that there should be high level of
communication among central bankers within the region (Dieter 2000, 16-17). Here, the point is
not that exchange rate cooperation requires great sovereignty costs and East Asian countries lack
central bank independence, but that monetary cooperation can be achieved even though central
banks in a region do not have high level of enforcement and implementation capacities. In this
case, commitment for exchange rate cooperation can be credible depending on other factors than
the presence or absence of implementation capacities.
However, surveillance cooperation is a totally different game. Regional surveillance
cooperation mechanisms cannot be built without effective domestic supervision over financial
market. According to Ito, macroeconomic surveillance means “monitoring the status and
prospects of the economic conditions and by a multi-national forum or an international body…
Economic surveillance is not only an observation of economic indicators, but an assessment of
macroeconomic and structural and trade policies and an assessment of potential financial
risk…Surveillance requires face-to-face discussions in addition to regular correspondences”
(2002, 111 [italic added]). Although Ito underestimates the significance of the link between
regional surveillance cooperation and domestic supervisory capacity, his definition of
surveillance implies that it is highly probable for regional cooperation in surveillance to be
unsuccessful without certain implementation and enforcement capacities because assessing
potential financial risk requires more than just looking into the figures. In this regard, regional
surveillance mechanisms can be established only after domestic supervisory capacities of
regional countries reach a certain level. Therefore, as Hamilton-Hart points out, “when a
government’s administrative weakness is recognized by others, formal cooperation may not even
be attempted because the low credibility of negotiated commitments makes the process
unproductive” (2003, 227). In this case, only one-way technical support rather than mutual
cooperation for enhancing surveillance for those countries with low capacities would be
envisioned.
More important, one crucial factor that has been underestimated or neglected by most
authors who emphasize the implementation capacity is the relationship between capacity and
transparency. The transparency issue needs to be taken very seriously because there is no
guarantee that high level of implementation and supervisory capacity would not be used to
20
Heon Joo Jung, ISA 2005
conceal and distort the information and data collected. Just consider the coexistence of high
administrative capacity of officials in the Ministry of Finance and Economy (MOFE) and their
capacities to hide actual economic status until the eruption of financial crisis in South Korea in
1997. Therefore, transparent information gathering and sharing should be a critical factor
because without it other countries would not believe the information even more as the capacities
of other countries increase.
To sum up, we need to measure both administrative capacity and transparency of
monetary and supervisory authorities simultaneously to see if APT countries have sufficient
condition for regional financial cooperation. First, in order to measure the implementation
capacity, I would like to use (1) the number of professional supervisors per bank (commercial
bank), (2) the frequency of on-site inspection per commercial bank, and (3) my own qualitative
comparison based on diverse IMF Country Reports. One of the most difficult problems in
measuring a variable qualitatively is how to apply same criteria across cases. As for the final
variable, because I suppose that the perceived capacity—rather than just number—of these
supervisory agencies in APT countries can be measured and compared better by outside
observers’ evaluation, I use the IMF Country Reports as a basic source. This is so not only
because the Reports should be approved by the Asia and Pacific Department of IMF in order to
be published but also because we can assume that the IMF staffs might have a similar economic
ideology and analytical capacity. Second, the transparency will be measured as a proxy by using
the Corruption Perception Index of Transparency International. The result is shown in [Table 3].
In APT countries, there are huge differences in terms of both domestic implementation capacity
and transparency. This unequal distribution of domestic implementation capacity and
transparency bode ill especially for such cooperative measures as surveillance mechanisms.
[Table 3. about here]
c. Regional Capacity for Financial Cooperation Arrangements20
To examine how regional capacities had been built prior to recent development of
regional financial cooperation, we need to analyze who participated, what were their purposes,
20
The basic information in this section is based on Bank of Korea (1998), Fraser (1995), Lamberte and
Yap (2003), and the organizations’ websites (http://www.seacen.org/; http://www.emeap.org).
21
Heon Joo Jung, ISA 2005
and what capacities they had shown. As [Table 4] indicates, there have been lots of regional
financial cooperation arrangements and they have different member countries including not only
APT but also some Middle Eastern countries.
[Table 4. about here]
Among others, I would like to focus on three central bank cooperation arrangements: The
Central Banks of South East Asia, New Zealand, and Australia (SEANZA), The South East
Asian Central Banks (SEACEN), and The Executives’ Meeting of East Asia-Pacific Central
Banks (EMEAP). This is because, given the established years of all arrangements, we can
assume that regional capacity-building would have been achieved in these three arrangements
more than others.
First of all, SEANZA is the oldest central bank forum that began in 1956. The original
five members were Australia, India, New Zealand, Pakistan and Sri Lanka. Since then,
Bangladesh, China, Indonesia, Iran, Japan, Macao, Malaysia, Mongolia, Nepal, Papua New
Guinea, the Philippines, Singapore, South Korea, Thailand, and Hong Kong participated in
SEANZA (Fraser 1995; Reserve Bank of New Zealand 1998).21 Added to this diversity, central
bank staff from U.S., United Kingdom, Canada, Germany and some Pacific Island states also
attend frequently. The major purpose of SEANZA is to provide annual meeting of central bank
governors and to hold intensive, biennial training courses that are hosted in rotation by member
countries. During the training courses, subjects covered are wide-ranging with the main emphasis
being on monetary policy and bank supervision. However, SEANZA have not done much mainly
because of the high level of diversity in the level of developments and banking system.
In terms of membership, a central bank that wants to participate in SEANZA needs to
apply for membership to the central bank that is in charge of current annual meeting or one that
will be in charge of next meeting. There is no formal rule about the membership decision, but
usually it is decided by consensus (BOK 1998, 152). The members need to fulfill the four major
duties. First, member central banks should host central banking training courses by rotation.
Second, participating central banks need to send lecturers and directing staff to the courses by the
21
The members are as of 2002.
22
Heon Joo Jung, ISA 2005
request of the hosting central bank. Third, participating central banks need to bear the expenses
related to the courses. Fourth, participating central banks need to actively support the courses in
various ways. Although SEANZA comprises of three major parts—biennial Governors’
Symposium, Forum of Banking Supervisors, and Central Banking Course—, there is no
executive office or secretariat. Moreover, even though, among others, the Central Banking
Course has been regarded as the most important, the significance had been decreased due to the
lack of professional staff, increasing diversity in needs for different program due to the
increasing size, and increasing costs (BOK 1998, 159).
Second, more recent and regionally more biased to East Asia is SEACEN. It started in
1966 to provide a forum for Southeast Asian central bankers to exchange information and ideas
and to be familiar with each other and to gain deeper understanding of the economic conditions
of the individual SEACEN countries. The original member countries were Laos, Malaysia, the
Philippines, Singapore, Sri Lanka, Thailand, and Vietnam. Since then, Indonesia, Nepal, and
Cambodia joined SEACEN, increasing the number from seven to ten. However, during the 1970s,
central banks of Cambodia, Vietnam and Laos withdrew from SEACEN. Currently there are 13
member central banks or monetary authorities including the seven countries and Brunei, Fiji,
Mongolia, Myanmar, South Korea, and Taiwan.
Originally, SEACEN was formed for the purpose of representing the interests of member
countries in international institutions such as IMF, IBRD, and ADB. However, since the
“Agreement among the SEACEN Central Banks on the South-East Asian Central Banks
(SEACEN) Research and Training Centre” in February 1982, the focal point of activity became
to exchange information, enhance cooperation, and research and training (BOK 1998, 166). Even
though SEACEN is more institutionalized than SEANZA in the sense that it has had its own
research and training center since 1972 which became a separate legal entity in 1982, it has no
rules and regulations concerning the establishment and operation. The Center reviews and
analyzes financial, monetary, banking and economic developments in its constituent member
countries and in the region as a whole. Also, it initiates and facilitates co-operation in research
and training relating to the policy and operational aspects of central banking (SEACEN Center
website).
Nevertheless, the role of SEACEN has become to focus more on SEACEN Center
activities rather than policy-oriented cooperation. One of the most significant limitations in
23
Heon Joo Jung, ISA 2005
SEACEN is the non-participation of Japan and China. Also, increasing diversity due to the
participation of small countries added on the already-diverse membership has made it hard to go
beyond the forum-like institution.
Third, EMEAP is the most recent forum for central bankers and has the smallest, but
including all of significant regional actors, number of members comparative to the other two
forums. This forum began in 1991 by the initiative of the Bank of Japan (Fraser 1995, 23). It
consists of central bankers from 11 countries: Australia, China, Hong Kong, Indonesia, Japan,
Korea, Malaysia, New Zealand, the Philippines, Singapore, and Thailand. According to its
official website run by BOJ officials, EMEAP’s evolution to date can be best understood when
we divide its history into two periods: an initial period from 1991 until 1996 which saw the
nurturing of relationships among members and then a second period from 1996 until the present
following the establishment of Governors’ Meeting and working/study groups. One of the
critical factors that made this change was the Mexican peso crisis in 1994-1995 (BOK 1998).
Responding to the crisis and other development such as increasing intra-regional financial flows,
a “Scheme for Expansion and Development” was agreed at the 11th EMEAP in March 1996.
Seven key schemes were as follows: (1) establishment of “Governors’ Meeting” within EMEAP
to strengthen the policy dialogue function among central banks, (2) consolidation of biannual
“Deputies’ Meeting” as usual, (3) time is not mature for other central banks or international
financial institutions to participate in EMEAP as full member, associate member, and observers,
(4) specific appointment of contact person for smooth communication among member countries,
(5) time is not mature for a permanent executive office or a secretariat, therefore, for the time
being, BOJ’s function as a executive office or a “virtual secretariat,” (6) before EMEAP settle
down firmly, EMEAP and SEANZA need to be coexist within East Asia-Pacific region, and (7)
establishment of “Working Groups” for research of interested topics of member countries.22
[Figure 4] illustrates the organization of EMEAP
22
Based on this “Scheme,” “Working Group on Central Banking Services” was formed and it suggested
“Working Group on Central Banking Operations,” “Working Group on Financial Market Development,”
and “Study Group on Banking Supervision” for the purpose of practical study on the ways of
transforming EMEAP to a policy-oriented cooperation arrangement. At the 1st EMEAP Governors’
Meeting at Tokyo in July 1996, these suggestions were agreed upon. At the 3rd MEAP Governors’
Meeting at Tokyo in July 1998, reflecting the huge changes since the 2nd Meeting at Shanghai, the
governors decided to reinforce the Working Groups and build Internet networks among the members
(EMEAP website; BOK 1998).
24
Heon Joo Jung, ISA 2005
[Figure 4. about here]
Concerning the membership, although currently there is no a specific rule or regulation
about the qualification of new members, EMEAP governors agreed the procedures of admission:
application would be first discussed and agreed at the Deputies’ Meeting and then decided by
unanimity at the Governors’ Meeting. However, the 1st EMEAP Governors’ Meeting decided not
to approve any admission application for the time being for maintaining the feature of East Asian
central bank cooperation. Since the establishment of EMEAP, Federal Reserve Bank and FRB of
New York, IMF, and BIS expressed huge interests in it, requesting participation as observers or
full membership.23 Unlike the other forum, however, EMEAP was determined to keep the closed
membership in any type—full member, associate, and observer—for the time being.
Decision-making in EMEAP has been by unanimity and each member has equal right to
speak and vote. Although EMEAP does not have any specific regulation or a permanent
executive office to manage administrative affairs, the temporary secretariat function has been
provided by the Bank of Japan for the time being supported by the EMEAP Internet24 (EMEAP
website). More important, even before AFC, “repurchase agreements”—to discount U.S.
Treasury securities in the case of emergencies that would be reversed after a specific period of
time—between Japan and seven partners—Australia, Hong Kong, Indonesia, Malaysia, the
Philippines, Singapore, and Thailand—were made based on the EMEAP (BOK 1998, 280;
Henning 2002, 21).
In sum, pre-crisis financial cooperation arrangements are significantly different in two
senses: membership and goals. First, regarding membership, the level of openness to outsiders is
quite different among these three forums. Membership and the number of participants of the
arrangements are either important or insignificant. This is because, as Haggard points out aptly,
23
According to BOK (1998, 281), there have been many cases that Governors’ Meetings and Deputies’
Meetings dealt with the membership affairs: BIS’s requests to participate in EMEAP as an observer at the
7th EMEAP Deputies’ Meeting (Bangkok, February 1994) and 8th EMEAP Deputies’ Meeting (Tokyo,
July 1994); FRB’s admission request at the 13th Deputies’ Meeting (Hong Kong, March 1997); IMF’s
requests to participate as an observe at the 14th Deputies’ Meeting (Manila, November 1997), the 15the
Deputies’ Meeting (Singapore, March 1998), and the 3rd Governors’ Meeting (Tokyo, July 1998).
24
This “virtual secretariat” is comprised of EMEAP website and its links to member central banks’
websites as well as confidential closed-door network (e-forum, e-discussion room, archives, etc).
25
Heon Joo Jung, ISA 2005
transaction costs among member countries depend on the “nature of the decision-making
procedure, not on number” (1997, 24). However, the sheer number can matter and be a critical
factor in understanding the possible outcomes of these arrangements when all adopt similar
decision-making process based on “consensus.” In this sense, the closed membership as well as
the small number of participants in EMEAP can reduce the transaction costs and increase the
“we-feeling” among members. Second, the purposes of SEANZA and SEACEN are very general
while those of EMEAP have become more specified and materialized some practical policy
goals. Given the number of members as well as the homogeneity among them relative to the
other two forums, the more policy-oriented goals could have been achieved in EMEAP. As a
result, different pre-crisis cooperative arrangements can be taken as being able to influence
differently on the following cooperation depending on their institutional capacities.
V.
Explaining Unequal Development of Different Cooperation Arrangements
In this section, I will distinguish three different regional financial cooperation
arrangements into three categories and try to explain why arrangements in different categories
have developed in different speed and degree. The three categories and cases are: first, Chiang
Mai Initiative (CMI) as a case for resource cooperation; second, ASEAN and APT Surveillance
Mechanism as a case for surveillance cooperation; finally, the lack of exchange rate cooperation.
a. Resource Cooperation: Chiang Mai Initiative
According to the theoretical framework, resource cooperation can be initiated more
swiftly and more successful compared to the other cooperation arrangements: unlike surveillance
cooperation, it can be achieved even in the case that regional countries lack domestic
implementation capacities; unlike exchange rate cooperation, it can be achieved because it
requires less sovereignty costs and can be sustained without significant demands for it.
Therefore, it is not so surprising that CMI has been regarded as “the most important
accomplishment of the APT process to date” as well as a “first step toward a regional currency
bloc similar to the European Monetary System” (Kim 2004, 38; Grimes 2004, 193). If we read
economic newspapers in early 2000 just before the CMI, we can feel increasing enthusiasm that
CMI would be the prelude for the realization of Asian Monetary Fund (AMF) idea and indeed
some high-ranked officials from ASEAN central banks explicitly expressed this hope (Bangkok
26
Heon Joo Jung, ISA 2005
Post 03/27/2000; Business Times 03/30/2000, 05/11/2000). Basically, CMI has aimed at
swapping currencies25 to prevent a possible economic, especially liquidity, crisis. The idea is that
when a country falls into a trouble by liquidity crisis due to speculative attacks, it can borrow
foreign currency—usually, U.S. dollar—from another country and utilize it to purchase its own
currency to stabilize the exchange rate. More specifically, according to “The Joint Ministerial
Statement of the ASEAN+3 Finance Ministers Meeting” announced in May 2002, Chiang Mai,
the purpose of CMI is to strengthen the existing cooperative frameworks among APT monetary
authorities by expanding ASEAN Swap Arrangement (ASA)26 that would include all ASEAN
countries and by establishing a network of bilateral swap and repurchase agreement facilities
among ASEAN countries, China, Japan and the Republic of Korea (ASEAN website).27
To achieve the first goal, in November 2000, the membership of ASA was expanded to
include all the 10 ASEAN member countries, while the total amount available under the facility
was enlarged to USD 1 billion from USD 200 million. The maximum amount committed by each
participating member is USD 150 million for Indonesia, Malaysia, Philippines, Singapore,
Thailand and Brunei; USD 60 million Vietnam; USD 20 million for Myanmar; USD 15 million
for Cambodia; and USD 5 million for Laos. In order to coordinate the implementation of the
ASA, an agent central bank is appointed on a rotation basis based on alphabetical order for a
term of two years (Cheong 2002, ii). The second goal also has been almost achieved by the end
of December 2003 as [Table 5] shows.
25
For the basic mechanisms and key questions regarding currency swap, see Henning (2002, 16 [Box
3.1]). Here, Henning defines a currency swap as “an agreement to exchange one currency for another and
to reverse the transaction at a date in the future.”
26
To evaluate the CMI and its level of cooperation more in-depth, let me briefly review the history and
institutional characteristics of ASA. The ASA started in August 1977 when the original five ASEAN
central banks and monetary authorities signed the first memorandum of understanding (MOU) on it. The
purpose of the ASA is to provide unconditional and instant short-term foreign exchange liquidity for
participating countries that have in trouble with short-term liquidity problems. Each member contributed
USD 20 million, making ASA a total of USD 100 million. One year later, the amount was increased to
USD 200 million. However, according to Cheong (2002), the level of utilization of ASA was quite low. It
was used on five occasions—USD 20 million by Indonesia in 1979; USD 4 million by Malaysia in 1980;
USD 80 million by Thailand in 1980; and a total of US$ 340 million by the Philippines in 1981 and
1990—but, not activated during the Asian financial crisis (Henning 2002, 14; Cheong 2002). Among
others characteristics such as the small size of facility relative to the size of economy and capital flows,
two institutional characteristics of ASA need more attention: no conditionality attached to it and
multilateral pooling of resources.
27
See the website (http://www.aseansec.org/6312.htm).
27
Heon Joo Jung, ISA 2005
[Table 5. about here]
As Henning points out, the CMI can provide for 33 BSAs to be negotiated in theory: 30
agreements between each of the 3 Northeast Asian countries and each of the 10 ASEAN
members, plus 3 agreements among the 3 Northeast Asian countries themselves (2002, 15).
However, if we take the 5 relatively new members of ASEAN as less significant, the number can
be recalculated to be 18: 15 agreements between each of the 3 Northeast Asian countries and
each of the original 5 ASEAN countries, plus 3 agreements among the 3 Northeast Asian
countries. In this sense, 15 out of 18 agreements—over 83.3 per cent—have actually been agreed
and one is under negotiation. Moreover, given the short time period—between July 2001 to
December 2003—for these 15 agreements, the speed is quite impressive. In sum, in terms of the
achievements of the proposed goals, CMI can be regarded as successful.
However, three points need to be taken into account. First, given the size of required
foreign reserves as aided during AFC, the current maximum amount that can be provided to a
country in case of crisis under CMI is not sufficient. Second, as many scholars point out, BSAs
under CMI is different from the pre-existing ASA in two significant ways: the CMI between
ASEAN and Northeast Asian countries are bilateral as well as linked to IMF conditionality. Only
initial 10 per cent of the amounts agreed between two countries can be activated without explicit
linkage with IMF conditionality (Amyx 2004a, 212). Third, the important point here is that there
is no pre-designed regional-wide mechanism that can make commitment credible.
In sum, although several limits have existed in the CMI, CMI as a case for resource
cooperation has actually been successful by most criteria and is expected to be more successful
than others.
b. Surveillance Cooperation: MFG, ASEAN and APT Surveillance Mechanism
Surveillance cooperation is hard to be achieved without domestic implementation
capacities enough to provide credibility to other countries. In this sense, as we have seen in
[Table 3], many APT countries lack both the implementation capacity and transparency for
effective regional surveillance mechanism. Also, given the required transparency and its
potential conflict with policy autonomy, regional surveillance cooperation arrangement is
28
Heon Joo Jung, ISA 2005
expected to be less successful than resource cooperation. Moreover, given the overlapping
between regional surveillance mechanism and IMF’s Article IV consultation mission, the need
for regional surveillance can become groundless without specific purposes and adequate
capacities to pursue them.
The start of regional surveillance cooperation dates back to November 1997 during the
AFC when a conference of deputy finance ministers and central bank governors from 14
countries28 was held in Manila and “A New Framework for Enhanced Asian Regional
Cooperation to Promote Financial Stability” (the so-called Manila Framework, the participants’
group was called as Manila Framework Group or MFG) was agreed upon (Wang and Yoon 2002,
98). This framework was to complement, not to supplant, the existing global surveillance by
IMF.29 Although the biannual meetings among 14 countries and IMF, World Bank, and ADB
have been institutionalized, the MFG has shown little development since its inception. According
to Wang (2002) and Ito (2002), the MFG has not been successful. First, the MFG has neither
formal rules nor permanent secretariat for it. Second, because there have been no clearly
specified objectives for surveillance, only general discussion of and exchange of views on global
and regional issues have dominated the meeting agendas. Third, given the general goal of the
MFG to complement the global surveillance by the IMF and its membership that includes such
countries with most developed financial systems, there has been a high level of heterogeneity—
domestic capacity as well as financial system—that impedes the further development of the
MFG.
Other mechanisms are ASEAN Surveillance Process (ASP) and APT Surveillance
Process. The former began soon after the AFC. In October 1998, the ASEAN finance ministers
signed a Terms of Understanding on the Establishment of the ASP.30 ASP has been based on the
principles of peer review and mutual interest among ASEAN countries with the overall purpose
28
They are Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, China, Hong Kong, Japan,
South Korea, Australia, New Zealand, Canada, and U.S.
29
The Manila Framework includes the following initiatives: (a) a mechanism for regional surveillance to
complement global surveillance by the IMF; (b) enhanced economic and technical cooperation
particularly in strengthening domestic financial systems and regulatory capacities; (c) measures to
strengthen the IMF’s capacity to respond to financial crises; and (d) a cooperative financing arrangement
that would supplement IMF resources. For the whole documentation, visit the website
(http://www.mof.go.jp/english/if/if000a.htm)
30
For more information, visit the website (http://www.aseansec.org/6309.htm).
29
Heon Joo Jung, ISA 2005
of strengthening the capacity of surveillance within the ASEAN group. However, ASP’s ways of
surveillance have been different from the ways of IMF’s Article IV review that focus on factfinding mission. Instead, ASP has relied upon the information on the economic and financial
situation directly provided by the finance and central bank officials who are the contact points
(Wang 2002, 12). Given the lack of capacity and transparency, however, simple information
sharing, not to mention assessment of financial risks, can be hard to be successful.
The APT Surveillance Process was formalized in November 1999 and the first peer
review meeting under the APT Surveillance Process was held in May 2000 in the sidelines of
ADB’s Annual Meeting. At the meeting, most participating countries agreed upon the need for
an independent monitoring and surveillance system to support CMI. Therefore, a study group
lead by Bank Negara Malaysia and Ministry of Finance of Japan had been organized by the
decision of APT finance ministers, with the purpose of discussing the possible mechanisms for
regional surveillance system (Wang 2002, 13). However, due to the lack of consensus to create
an independent regional monitoring and surveillance mechanism and fear of subsequent potential
loss of sovereignty costs, APT countries could not reach an agreement.
In sum, as Amyx points out, “the surveillance issue stands as the largest barrier to any
regional monetary institution more independent of the IMF” (2004a, 215). Since the
establishment of MFG in 1997, no significant progress has been achieved. Given the lack of
mechanism that ensures credible information sharing as well as the lack of supervisory capacities
with low level of transparency in APT countries, the likelihood for regional surveillance
cooperation to be successful does not seem to be high in the near future.
c. Exchange Rate Cooperation
Although exchange rate cooperation can be achieved without significant level of
domestic implementation capacity, it cannot be successful, or even cannot be attempted, without
strong political willingness because of the huge sovereignty costs attached. Also, as the
theoretical framework indicates, exchange rate cooperation can produce winners as well as losers
and uneven distribution of benefits and costs, which would increase the domestic distributional
conflicts. In this case, without strong and obvious winner groups’ support for political leaders,
only few politicians would jeopardize their political lives. The high level of requirements from
both supply and demand-side conditions for exchange rate cooperation makes us predict that
30
Heon Joo Jung, ISA 2005
there would be little development in this area in a foreseeable future.
As expected, it is hard to find out the exchange rate cooperation efforts. There has been
little effort to coordinate exchange rate policies not only among APT but also among ASEAN
countries until now. One important effort has been the establishment of “ASEAN Central Bank
Forum Task Force” to study the feasibility of a single currency and exchange rate system for the
ASEAN countries in 2000 (Kuang and Singh 2003, 151). Although the Forum completed the
study on ASEAN Common Currency and Exchange Rate Mechanism in 2002, the result was
simple, indicating that “ASEAN is not yet ready for a common currency due mainly to lack of
macroeconomic convergence” (ASEAN Annual Report 2002-2003, 34).
Also, the following episode surrounding the exchange rate policies during 2001-2002
exemplifies the difficulties inherent in exchange rate cooperation.
In April 2001, for example, vice minister of finance Haruhiko Kuroda wrote in the Wall
Street Journal that a gradual depreciation would be acceptable to Japan. The Chinese
minister of finance and the Korean vice minister of finance said, by contrast, that they
were greatly concerned about the depreciation of the yen.
Undaunted, during the autumn, Japanese officials argued publicly that the
renminbi, not the yen, was undervalued. Toward the end of the year and the beginning of
2002, the yen depreciated from the low 120s to the mid-130s against the dollar, with a
number of commentators predicting much further depreciation. Other governments in the
region, led by Chinese and Koran officials, once again objected vociferously. There is
clearly a need for more specific discussions among a larger number of key Asian officials
about their expectations and perspectives with respect to exchange rate policy (Henning
2002, 26-27).
[Table 6. about here]
The current situation is best illustrated in [Table 6]. Among over ten regional economic
cooperation arrangements, there is no one that aims to make, or even to initiate dialogues and
discussion about, regional exchange rate cooperation.
VI.
Concluding Remarks
In this paper, I try to build a coherent theoretical framework to analyze the initiation as
well as level of development of regional financial cooperation. Based on the existing literature, it
has been argued that we need to consider how combined effects of supply and demand-side
31
Heon Joo Jung, ISA 2005
conditions for regional financial cooperation can produce different level of cooperation
arrangements. In addition, among others, such factors as sovereignty costs and regional capacity
that have been underestimated before have been integrated into the theoretical framework as
crucial variables to explain East Asian financial cooperation or its lack.
More importantly, unlike trade-related regionalism literature, I emphasize that different
cooperation arrangements would not only produce different distributional consequences but also
create different level of predictability. Depending on the distributional consequences and
predictability, the primary actors that demand regional financial cooperation can be either
societal actors or political actors. When political actors take the lead, it has been argued that
regional financial cooperation would be initiated more easily and swiftly. Also, depending on
supply-side variables, the level of regional financial cooperation development has been explained.
Finally, I try to operationalize diverse variables in a more systematical way.
Finally, several limitations and direction for further research can be specified. First, this
research can and should be extended to a “comparative regionalism analysis” to examine
whether the theoretical frameworks and variables that I have stressed would be still relevant in
other regions. Given the insufficient time for East Asian regional cooperation in APT countries to
evolve, cross-regional comparison can be more fruitful than one-regional diachronic analysis.
Second, more concrete and in-depth examination of regional capacity and sovereignty costs
should be carried out. Third, measurements of variables need to be further developed.
32
Heon Joo Jung, ISA 2005
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35
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[Reference for [Table 3]]
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the World: A New Database,” World Bank Working Paper, No. 2588 (February 2001)
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Website: http://www.bigpond.com.kh/Council_of_Jurists/Banque/bk002g.htm
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of a Banking Crisis Two Years of Living Dangerously 1997-1999,” IMF Working Paper,
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36
[Figure 1] Favorable and Unfavorable Conditions for Regional Financial Cooperation
•
•
•
•
Low benefits with high
level of certainty from
regional financial
cooperation
High sovereignty costs
Low domestic
implementation capacities
in regional countries
Low level of accumulated
regional capacity
Low probability for successful
regional financial cooperation
•
•
•
•
High benefits with high
level of certainty from
regional financial
cooperation
Low sovereignty costs
High domestic
implementation capacities
in regional countries
High level of accumulated
regional capacity
High probability
37
[Figure 2] Supply and Demand-side Factors in Explaining Different Types of Regional Financial Cooperation
Surveillance and resource cooperation
Supply-side: Sovereignty costs
Supply-side:
capacity
High
Low
Low
Unsuccessful cooperation
Middle
High
Middle
Successful cooperation
Exchange rate cooperation
Supply-side: sovereignty costs
High
Low
Low
Unsuccessful cooperation
Middle
High
Middle
Successful cooperation
Demand-side
38
[Table 1] Intra-regional Trade Intensity Indexa
Region
1980
1985
1990
1995
1996
1997
1998
1999
2000
b
East Asia-15, including Japan
2.6
2.3
2.3
2.1
2.2
2.2
2.3
2.4
2.2
Emerging East Asia-14c
3.0
2.9
2.8
2.3
2.4
2.4
2.6
2.5
2.4
ASEAN-10
5.1
6.1
4.6
3.8
3.8
3.8
4.3
4.1
3.7
NAFTA
2.1
2.0
2.1
2.4
2.4
2.3
2.3
2.3
2.1
European Union-15
1.5
1.6
1.5
1.7
1.7
1.7
1.6
1.7
1.7
MERCOSUR
6.6
4.9
9.7
13.3
14.4
14.0
14.2
14.7
15.0
Source: Kuroda and Kawai (2004, 144)
Note:
a
The trade intensity index is defined as (Xij/ Xi.)/( X.j/X..) where Xij represents exports from region I to region j, Xi. represents total
exports from region i, X.j represents total exports from the world to region j (or total imports of region j), and X.. represents total
world trade. In the table, the index is defined only for countries within the same region, so that i=j.
b
East Asia-15 includes Emerging East Asia-14 and Japan.
c
Emerging East Asia-14 includes ASEAN-10, China, Hong Kong, South Korea and Taiwan.
39
[Table 2-1] International Bank Lending to East Asian Countries by Nationality of Lending Banks (End-December 1995)
Grand
United
Claims vis-à-vis1
Japan3
(%)
(%)
Europe4
(%)
Total2
States
ALL COUNTRIES
874,311
166,211
19.01%
103,978
11.89%
435,497
49.81%
Japan
Brunei
220
0
0.00%
162
73.64%
49
22.27%
Cambodia
11
0
0.00%
0.00%
11
100.00%
Indonesia
44,843
21,297
47.49%
2,778
6.19%
15,032
33.52%
Laos
20
11
55.00%
0.00%
0
0.00%
Malaysia
16,759
7,289
43.49%
1,523
9.09%
6,209
37.05%
Myanmar
77
22
28.57%
0
0.00%
50
64.94%
Philippines
8,325
987
11.86%
2,946
35.39%
3,494
41.97%
Singapore
193,531
77,974
40.29%
6,149
3.18%
88,029
45.49%
Thailand
62,994
37,056
58.82%
4,097
6.50%
14,872
23.61%
Vietnam
1,090
250
22.94%
73
6.70%
692
63.49%
China
48,399
17,668
36.50%
1,703
3.52%
20,400
42.15%
South Korea
77,392
21,309
27.53%
7,590
9.81%
23,620
30.52%
Taiwan
22,531
3,233
14.35%
2,815
12.49%
12,580
55.83%
ASEAN
327,870
144,886
44.19%
17,728
5.41%
128,438
39.17%
ASEAN+2
453,661
183,863
40.53%
27,021
5.96%
172,458
38.01%
Source: Bank for International Settlements, “The Maturity, Sectoral and Nationality Distribution of International Bank Lending,”
(June 1996), pp. 21-25. (available at http://www.bis.org/publ/r_hy9607.pdf); adapted by author
Note: International claims by nationality of reporting banks on countries outside the reporting area, in millions of U.S. dollars.
1
Consolidated cross-border claims in all currencies and local claims in non-local currencies.
2
The data also cover the international claims of affiliates and branches of banks which have their head-offices outside the BIS
reporting area.
3
The data are not strictly comparable to earlier periods as a result of the revision of the Japanese balance of payments reporting system.
4
Europe comprises Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain,
Sweden, United Kingdom. In most cases except Japan, data from Denmark, Ireland, Norway, and Sweden is not available.
40
[Table 2-2] International Bank Lending to East Asian Countries by Nationality of Lending Banks (End-December 1999)
United
Claims vis-à-vis
Grand Total
Japan
(%)
(%)
Europe1
(%)
States
ALL COUNTRIES
6,856,504
792,676
11.56%
397,250
5.79%
3,665,913
53.47%
Japan
264,210
0.00%
21,696
8.21%
111,647
42.26%
Brunei
460
0.00%
5
1.09%
455
98.91%
Cambodia
54
0.00%
0.00%
44
81.48%
Indonesia
40,694
12,491
30.69%
3,454
8.49%
20,600
50.62%
Laos
181
0
0.00%
0.00%
7
3.87%
Malaysia
18,113
6,029
33.29%
1,419
7.83%
8,275
45.69%
Myanmar
637
46
7.22%
0.00%
591
92.78%
Philippines
16,727
2,921
17.46%
3,003
17.95%
8,835
52.82%
Singapore
98,315
21,029
21.39%
2,055
2.09%
55,654
56.61%
Thailand
28,405
13,075
46.03%
826
2.91%
11,929
42.00%
Vietnam
1,709
350
20.48%
64
3.74%
1,196
69.98%
China
46,610
11,789
25.29%
1,480
3.18%
25,593
54.91%
South Korea
60,657
12,592
20.76%
6,980
11.51%
24,449
40.31%
Hong Kong SAR
112,388
36,328
32.32%
4,882
4.34%
59,189
52.66%
Taiwan
20,120
2,652
13.18%
1,295
6.44%
12,432
61.79%
ASEAN
205,295
55,941
27.25%
10,826
5.27%
107,586
52.41%
ASEAN+2 (+HK)
424,950
116,650
27.45%
24,168
5.69%
216,817
51.02%
Source: Bank for International Settlements, “BIS consolidated international banking statistics for end-December 1999,” (May 2000),
Table 8, pp. 18-25. (available at http://www.bis.org/publ/r_hy0005.pdf); adapted by author
Note: Consolidated international claims of BIS reporting banks on individual countries by nationality of reporting banks, in millions
of U.S. dollars.
1
Europe comprises Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain, Sweden,
United Kingdom. In most cases except Japan, data from Denmark, Ireland, and Norway is not available.
41
[Table 2-3] International Bank Lending to East Asian Countries by Nationality of Lending Banks (End-December 2003)
Grand
United
Claims vis-à-vis
Japan
(%)
(%)
Europe2
(%)
1
Total
States
ALL COUNTRIES
10,846,739
1,092,309
10.07%
472,548
4.36%
5,862,326
54.05%
Japan
406,268
0.00%
26,289
6.47%
159,507
39.26%
Brunei
443
0.00%
9
2.03%
352
79.46%
Cambodia
46
0.00%
0.00%
23
50.00%
Indonesia
27,928
4,799
17.18%
1,436
5.14%
7,463
26.72%
Laos
21
0
0.00%
0
0.00%
8
38.10%
Malaysia
24,582
4,351
17.70%
1,355
5.51%
7,699
31.32%
Myanmar
844
17
2.01%
0.00%
9
1.07%
Philippines
19,600
2,474
12.62%
2,054
10.48%
5,040
25.71%
Singapore
86,917
12,750
14.67%
2,556
2.94%
27,657
31.82%
Thailand
17,886
4,405
24.63%
1,112
6.22%
3,999
22.36%
Vietnam
2,662
304
11.42%
114
4.28%
1,388
52.14%
China
56,576
9,925
17.54%
2,620
4.63%
18,760
33.16%
South Korea
73,621
11,142
15.13%
7,733
10.50%
19,630
26.66%
Hong Kong SAR
99,929
15,410
15.42%
5,840
5.84%
39,154
39.18%
Taiwan
30,757
2,516
8.18%
7,305
23.75%
11,701
38.04%
ASEAN
180,929
29,100
16.08%
8,636
4.77%
53,638
29.65%
ASEAN+2 (+HK)
411,055
65,577
15.95%
24,829
6.04%
131,182
31.91%
Source: Bank for International Settlements, “Consolidated banking statistics for the fourth quarter of 2003,” (April 2004), Table 10, pp.
32-39. (available at http://www.bis.org/publ/r_hy0404.pdf); adapted by author
Note: International claims of reporting banks on individual countries by nationality of reporting banks, in millions of U.S. dollars.
1
Total international claims.
2
Europe comprises Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United
Kingdom. In most cases except Japan, data from Denmark, Germany, and Ireland is not available.
42
[Figure 3] Changes in the International Bank Lending to East Asian Countries (ASEAN, ASEAN+2, and individual countries)
ASEAN
ASEAN+2
60.00
60.00
50.00
50.00
40.00
Japan
US
Europe
30.00
20.00
10.00
40.00
Japan
US
Europe
30.00
20.00
10.00
0.00
0.00
1995
1999
2003
1995
Japan
1999
Brunei
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Cambodia
120.00
120.00
US
Europe
Share
100.00
100.00
80.00
Japan
US
Europe
60.00
40.00
1995
1999
Indonesia
1999
Year
2003
0.00
1995
Laos
60.00
60.00
50.00
50.00
40.00
Japan
US
Europe
30.00
20.00
10.00
40.00
Japan
US
Europe
30.00
20.00
0.00
2003
1995
1999
1999
2003
Malaysia
10.00
0.00
1999
Japan
US
Europe
60.00
20.00
0.00
1995
80.00
40.00
20.00
1995
2003
2003
50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Japan
US
Europe
1995
1999
2003
43
Myanmar
Philippines
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Japan
US
Europe
Singapore
60.00
60.00
50.00
50.00
40.00
Japan
US
Europe
30.00
20.00
10.00
1999
2003
Thailand
1999
2003
1995
Vietnam
60.00
50.00
Japan
US
Europe
40.00
30.00
20.00
0.00
50.00
60.00
50.00
40.00
30.00
2003
Japan
US
Europe
1999
20.00
2003
1995
Hong Kong
60.00
70.00
50.00
60.00
2003
50.00
40.00
Japan
US
Europe
30.00
20.00
Japan
US
Europe
40.00
30.00
20.00
10.00
0.00
2003
1999
Taiwan
10.00
1999
Japan
US
Europe
30.00
0.00
1995
Japan
US
Europe
1995
40.00
10.00
S.Korea
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2003
60.00
20.00
10.00
0.00
10.00
1999
China
80.00
70.00
1999
20.00
0.00
1995
70.00
1995
Japan
US
Europe
30.00
10.00
0.00
1995
40.00
0.00
1999
2003
1995
1999
2003
44
Vietnam
China
Japan
South Korea
25
42
128
31
48
105
234
20
59
300
317
414
120
463
300
100
380
135
3.27
1.82
12.7
9.86
0.94
14.94
6.25
0.95
1.62
6.75
50
50
100
100
50
100
75
50
50
75
0
1
5
4-5
5
5
1
5
5
0
25
25
25
25
37.5
37.5
37.5
19
28.3
75
87.5
62.5
75
50
62.5
75
87.5
50
68.75
29
48.9
75
62.5
75
68.75
92
80.4
75
87.5
62.5
75
32
53.5
25
37.5
75
62.5
75
68.75
71
69.9
75
75
75
75
42
58.5
12.5
12.5
Myanmar
165
Malaysia
18
Laos
Thailand
12.5
12.5
Singapore
0.5
1
1
1
1
The
Philippines
0.5
Indonesia
4
Cambodia
# of commercial banks (a)
# of professional
supervisors (b)
# of supervisor per
commercial bank (b)/(a)
Variable 1a.
# of on-site inspection
performed
Variable 1b.
Variable 1ab.
Variable 1c.
Capacity variable
Transparency variable
Combined index
Brunei
Weight
[Table 3] Domestic Implementation Capacity and Transparency in APT Countries
25
25
25
25
26
25.5
37.5
35
36.3
For more detailed measurement, see [Table 3-1, 3-2, 3-3].
Source: For basic database for Variable 1a. and 1b., see Barth et. al. (2001); also see World Bank Research Homepage, Bank
Regulation and Supervision; for transparency variable, see Corruption Perception Index (CPI) of Transparency International.
(1) The databases for Cambodia, Malaysia, The Philippines, Singapore, Thailand, Japan, and South Korea were collected between
2001 and 2003. The numbers in these countries were those at the end of 2001.
(2) The databases for Indonesia, Vietnam, and China were collected between 1998 and 2000. The numbers were those at the end of
1998.
(3) The qualitative measurement of the capacity of supervisory authorities is based on my own interpretation of the evaluation from
IMF Country Reports and World Bank Reports on APT countries’ supervision. For the purpose of comparison, I take into account the
size of financial sector, the experience of supervisors, ways in which prudential regulation is exercised, the capacity to deal with nonperforming loans (NPLs) problems, etc.
45
(4) The transparency variable is based on CPI of Transparency International (http://www.transparency.org/surveys/index.html#cpi).
Originally, the database is to measure the perceived corruption of both officials and politicians. I use the CPI 2001 only as proxy for
the perceived corruption of supervisors. Also, I multiply the original index with 100.
[Table 3-1] The number of professional supervisors per commercial bank (variable 1a.)
100
Over 10 supervisors per commercial bank
75
5-10 supervisors per commercial bank
50
1-4 supervisors per commercial bank
25
Less than one supervisor per commercial
bank
0
No supervisor per commercial bank
[Table 3-2] How many on-site inspection per bank were preformed in the last five years? (variable 1b.)
100
Over 10 times (twice a year)
75
5 times (annually)
50
2-4 times
25
Once
0
No
[Table 3-3] Qualitative capacity of supervisory authorities based on IMF Country Reports (variable 1c.)
100
Excellent
87.5
High
75
High-low
62.5
Middle-high
50
Middle
37.5
Middle-low
25
Low-high
12.5
Low
0
No experience
46
[Table 4] Regional Financial Cooperation Arrangements for Finance Ministries and Central Banks
ASEAN
(10)
Year Established
China
Japan
Korea
Hong Kong
Taiwan
Singapore
Brunei
Cambodia
Indonesia
Laos
Malaysia
Myanmar
The Philippines
Thailand
Vietnam
Mongolia
Macao
Papua New Guinea
Australia, New Zealand
Nepal, Sri Lanka
Bang., India, Iran, Pak.
Bahrain, Kazakhstan,
Kuwait, Oman, Qatar
Fiji
USA, Canada
Chile, Mexico, Peru
Russia
EU-15
1967.8
0
0
0
0
0
0
0
0
0
0
Financial Ministries and/or Central Banks
APT
MFG1
APEC
ACD
(13)
(14)
(21)
(22)
1999.4
0
0
0
1997.11
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1994.3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Central Banks
SEACEN
(13)
ASEM2
(25)
SEANZA
(20)
2002
0
0
0
1997.9
0
0
0
1956
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
03
04
0
1966.2
0
EMEAP
(11)
1991.2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Source: Lamberte and Yap (2003, 33), ACD website (http://www.acddialogue.com/); corrected and updated by author (SEACEN,
Brunei joined in April 2003 and Fiji in April 2004; ACD data)
1
MFG includes the IMF, World Bank, ADB and BIS. 2 ASEM includes European Commission. 3 Nepal excluded. 4 Iran excluded.
47
[Figure 4] Organization Chart of EMEAP
Governors’ Meeting
Virtual Executive Office
Working Group on
Payment and
Settlement
Systems
Deputies’ Meeting
Working Group on
Financial
Markets
Working Group on
Banking
Supervision
48
[Table 5] Bilateral Swap Agreements under CMI (as of end-December 2003)
BSA
Currencies
Conclusion Dates
Amount
Japan-Korea
USD/Won
July 4, 2001
US$ 7 billion1
Japan-Thailand
USD/Baht
July 30, 2001
US$ 3 billion
Japan-Philippines
USD/Peso
August 27, 2001
US$ 3 billion
Japan-Malaysia
USD/Ringgit
October 5, 2001
US$ 3.5 billion1
China-Thailand
USD/Baht
December 6, 2001
US$ 2 billion
Japan-China
Yen/Renminbi
March 28, 2002
US$ 3 billion equivalent
China-Korea
Renminbi/Won
June 24, 2002
US$ 2 billion
Korea-Thailand
USD/Baht
June 25, 2002
US$ 1 billion
Korea-Malaysia
USD/Ringgit
July 26, 2002
US$ 1 billion
Korea-Philippines
USD/Peso
August 9, 2002
US$ 1 billion
China-Malaysia
USD/Ringgit
October 9, 2002
US$ 2 billion
Japan-Indonesia
USD/Rupiah
US$ 3 billion
China-Philippines
USD/Peso
February 17, 2003
August 29, 2003
Japan-Singapore
USD/Singapore $
November 10, 2003
US$ 1 billion
China-Indonesia
USD/Rupiah
December 30, 2003
US$ 1 billion
US$ 1 billion
Korea-Indonesia
Under negotiation
Source: Henning (2002, 20); updated from Kuroda and Kawai (2004, 155) and central bank websites.
1
The US dollar amounts include the amounts committed under the New Miyazawa Initiative, USD 5 billion for Korea and USD 2.5
billion for Malaysia.
49
[Table 6] Interactions among Institutions and Arrangements in East Asia
Functions
1. Strengthen
domestic
institutions
and markets
2. Develop
regional
arrangements
and markets
2.1. Policy
dialogue and
surveillance
2.2. regional
financial and
capital
markets
2.3. Regional
financial
arrangements
2.4.
Monetary
policy and
exchange
rate system
3. Capacity
building
4. Research
ASEAN
ASEAN+3
MFG
APEC
ASEM
ACD
SEANZA
SEACEN
√
√
√
√
√
PECC
√
√
√
ARCG
ACRAA
ADB
BIS
√
√
√
√
√
√
√
√
√
√
√
EMEAP
√
√
√
√
√
√
√
√
√
√
√
Source: Lamberte and Yap (2003, 33).
ARCG: Asian Roundtable on Corporate Governance
ACD: Asia Cooperation Dialogue
ACRAA: Association for Association of Credit Rating Agencies in Asia
50