Earthquakes/Tsunami attacks? Asia stands divided against dollar and euro
Indonesian Earthquake, Waves Kill 14,000 Across Asia (Update4)
Dec. 27 (Bloomberg) -- The death toll rose above 14,000 after an earthquake off the Indonesian island of Sumatra, the world's biggest in four decades, caused tsunami waves that devastated coastal towns from Thailand to India.
Yesterday's magnitude 9.0 quake generated waves as high as 10 meters (33 feet) that struck tourist resorts in Thailand, Malaysia and the Maldives. Sri Lanka reported more than 5,000 dead, while in Indonesia at least 4,448 were killed, prompting the governments of both countries to declare national disasters.
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The International Herald Tribune
Commentary: Asia stands divided against dollar and euro
By William Pesek Jr. Bloomberg News
Friday, December 3, 2004
Size matters, something that Southeast Asian economies have come to understand as they try to compete globally. It explains why they now invite Japan, China and South Korea to their regional meetings.
If Asia is going to wield real economic influence, the logic goes, it needs to get bigger. While the 10-member scope of the Association of Southeast Asian Nations, or Asean, is fine, bringing Asia's three biggest economies into the fold makes it more relevant.
It's hard to get excited about Asia's sudden rush to create free-trade zones. The trend is a good one, of course. Asean nations and China this week agreed to cut tariffs on $100 billion of goods, paving the way in five years for a free-trade arena that could raise living standards for a third of the world's population.
Trouble is, such agreements are more symbolic than substantive. Asean's pact with China, for example, excludes sensitive goods like steel, iron, automobiles and sugar. It also steers clear of the service sector and nontariff barriers to trade. And you can bet Japan will doggedly protect its farmers when it begins free-trade negotiations with Asean in April.
What the region needs is a euro-zone model of economic integration and even a single currency. Sadly, this week's Asean meeting all but ignored these important issues.
"In an increasingly globalizing world, there is likely to be a greater synchronization of business cycles," says the Asian Development Bank president, Tadao Chino. "Hence, the benefits of having fewer currencies to conduct cross-border business, especially at the regional level, are likely to increase."
A regional currency could eliminate exchange-rate gyrations that hold back growth and scare investors. It could lead to greater convergence, bringing borrowing costs, fiscal policies and inflation trends into alignment. And bond yields might move lower across Asia.
Europe has done it. Latin America is talking about it. A number of Gulf states also want a common currency of their own. Can Asia be far from a similar move? Actually, yes. Asean has agreed that a common currency is a "distinct possibility" over time, but has made little progress, if any.
The Asean summit meeting in Vientiane, Laos, this week underscored the disparity among Asia's economies and cultures. The 10 members include functioning electoral democracies and authoritarian regimes ruled by Communists or military leaders. Living standards range from wealthy Singapore to impoverished Cambodia.
Pushing economic trends together, not surprisingly, is a logistical nightmare.
Asians also are reluctant to surrender control. A common Asian currency would necessitate a stability and growth pact like that in Europe, requiring governments to live within their means. That will not go over well with the Philippines and other countries plagued by chronic budget deficits.
Next, Asia would need one central bank to conduct monetary policy for Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, the Philippines, Singapore, South Korea, Thailand and Vietnam. Anyone know a central banker who would even consider tackling such a Herculean task?
Yet some observers are optimistic. "It has been said that more economic will, political will is what will in the end bring about a convergence similar to that of Europe," says Roberto de Ocampo, a former Philippine finance secretary who heads the Asian Institute of Management. "The number of initiatives taken" by Asean "are proof of a sincere desire to move the region to convergence."
The challenge of aligning Asia's economies will make Europe's experience seem trivial. When the Maastricht Treaty - which set the euro in motion - was signed in 1992, Europe wasn't grappling with such a disparate mix of governments, economic fundamentals, underdeveloped financial markets and poverty. Some Asean economies don't even have bond markets yet.
Asian leaders also may find disincentives in past experience. In the best sense, the euro is an attempt to recreate what the United States did in the mid-1800s. It wasn't until the federal government printed "greenbacks" to finance the Civil War that the United States had a single currency. Its adoption by states that until then had issued their own currencies made the United States the world's biggest economy.
Europe has so far avoided the common-currency disasters of the past. Take the Latin Monetary Union of 1865, which joined Belgium, Bulgaria, France, Greece, Italy and Switzerland. It unraveled when economic problems spread throughout the region. The Scandinavian Monetary Union of 1873 collapsed in 1924.
Asia wants to steer clear of such misfortunes. That means that, for the foreseeable future, the region is likely to sidestep the single-currency issue. That's a shame given the potential benefits.
Europe can rest easy. Its common currency is unlikely to see competition from Asia anytime soon.
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