High Level Conference on Asian Economic Integration

Statement by H.E. Dr. Manaspas Xuto,
Executive Director of the International Institute for Trade and Development
at the High Level Conference on Asian Economic Integration
Tokyo, 18-19 November 2004

Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,�


May I take this opportunity to firstly express my sincere appreciation to the organizers of this High Level Conference on Asian Economic Integration, especially the Research and Information System for the Non-Aligned and other Developing Countries (RIS), for inviting me to attend this Conference once again.

In March last year, I was invited by RIS and other associates to the International Conference on �Building a New Asia: Towards an Asian Economic Community� in New Delhi. I remember enjoying the presentations made by the distinguished panelists as well as the discussions that followed. After almost two years, it is an opportune time for us to recap what has progressed since our last gathering, which may or may not change our thinking and perspective towards Asian Economic Integration.

Last year, I presented to you the initiative of Thailand on the establishment of the Asia Cooperation Dialogue or ACD and the promotion of the Asian bond market development. What I will be speaking about now may not be entirely new, but a good message such as this needs to be repeated here and everywhere.

The ACD is an Asia-wide forum which focuses on the consolidation of Asia�s inner strength and the utilization of its combined abundant resources to enhance Asia�s competitiveness and prosperity. The ACD could be considered a roadmap towards the Asian Economic Integration. Our final goal is to achieve a step-by-step shift towards a fully integrated Asian Community. We are strongly committed to this aim, and our actions follow up on our commitments.

Geographically speaking, ACD presently encompasses 26 member countries from all sub-continents of Asia, accounting for half of the Asian countries. The forum includes the leading economies of Asia, namely Japan and South Korea, as well as the emerging economies like China, India and the ASEAN countries which have been recovering since the 1997 financial crisis - all of these can serve as driving engines towards a new era of Asian prosperity.��

Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,

�During the past year, ACD has made swift progress in terms of both the dialogue and the project dimensions. On dialogue, the Second and Third ACD Foreign Ministers� Meetings were held in June 2003 and June 2004 in Thailand and China, respectively. In addition, the ACD Ministers had opportunities to meet and exchange views on the sidelines of the annual United Nations General Assembly session in New York. Frequent dialogues help enhance comfort level among the policy makers of Asian countries and provide them with a platform to candidly exchange views on Asia-related matters and beyond. The comfort level, mutual understanding and friendship will be a strong basis for enhanced cooperation, particularly for a continent as diverse as Asia.������� �

On the project dimension, 18 activities within 12 ACD areas of cooperation have been organized by their prime movers. Let me provide some examples.

Japan hosted the ACD Workshop for Strengthening Legal Infrastructure. The Workshop agreed on the continuation of the project by putting together legal experts from the ACD member countries to deepen and broaden substantial discussions on the legal infrastructure. In addition, the Workshop on Environmental Education was also organized by Japan, providing an opportunity for ACD member countries to discuss a wide range of issues pertaining to environmental education - namely the basic principles and ideas on environmental education, activities to enhance understanding and awareness, institutional framework, and international and regional cooperation.


India hosted the Consultative Meeting of ACD on Biotechnology in
New Delhi. The meeting agreed to the establishment of the ACD Biotechnology Consortium, with a secretariat in India, and of the Apex Governing Body (AGB) whose membership will constitute all member countries at the key decision-making level.

The meeting of the Working Group on Energy Security was held twice in Bahrain and in the Philippines, respectively, amidst the backdrop of the tight world oil supply/demand and high oil prices, which has affected most countries in Asia. ACD possesses the advantage of having both oil consumers and producers within the forum, thereby making it an appropriate venue to
address the issue and to find ways of alleviating its impact. Issues such as joint oil stockpiling, renewable energy sources, energy efficiency and conservation, as well as improvement of regional infrastructure networks, including oil storage systems, regional energy transport and power transmission systems have all been discussed and promoted.

Bangladesh organized a Seminar on �Rehabilitation of Working Children of Asia� in Dhaka, which is an integral part of the area of cooperation dealing with poverty alleviation. It is worth noting that this activity demonstrates that ACD activities not only address economic development, but also pay close attention to the human face of development, with an aim to raising the standard of living of people at the grass-roots level.�����

These efforts have formed a web of functional cooperation that, taken together, could be viewed as an Asian community in the making, in the �embryo� stages.��

Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,

�The challenge ahead is how to sustain the development pace of the ACD process, to concretize the actions and outcomes of ACD areas of cooperation, and how to further instill the idea that the ACD belongs to Asia. It is the collective responsibility of each member country to drive the process forward. Moreover, in order to ensure that ACD will pave the way towards the end-goal of an Asian community, awareness and participation of public and private sectors, civil society and, above all, the people�s participation in the process are imperative. In this connection, Thailand, as the ACD Coordinator, will host the ACD Think Tank Symposium from 15-17 December in Bangkok in order to raise awareness among academic institutions in Asia of the ACD process and to provide a forum for those institutions to share their thoughts on the future direction of ACD and of Asia as a whole.���

Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,

The call for an Asian community is not at all premature, given the sweeping changes that have occurred on the international strategic landscape and the emergence of continent-wide cooperation in other regions. Likewise, the call for a more stable financial infrastructure in Asia is not at all illogical. Lessons learnt from the 1997 Asian financial crisis demonstrate that a major factor behind its advent was related to the capital account crisis. The influx of short-term capital into Asian countries was highly dependent on the level of confidence of the lending countries with regard to a stable environment in Asia; hence, the drastic withdrawal of capital from the Asian market in the immediate wake of the crisis. We also learnt that individual countries� foreign reserves alone could not deal with the sudden impacts of large and volatile short-term international capital reversals.������� ��� �

Given its tremendous amount of foreign reserves, accounting for 65% of the world�s total of US$ 3 trillion reserves, Asia has great potential for furthering its growth and stability if those resources are properly managed and utilized. In order to avoid a recurrence of the 1997 financial crisis, a new financial architecture needs to be developed to avoid the root causes of such a crisis and to provide a wider opportunity for Asia to channel its abundant foreign reserves for investment within the region. An Asian bond market is one answer in this regard since it will eliminate the double-mismatches -- maturity and currency -- as well as stabilize capital movements within the region. The initiative will also rectify imbalances between bank loans and other types of borrowings so as to be less dependent upon commercial banks and to allow for an efficient development of the financial system.

The need for Asian bond market stems also from the current account deficit of the United States, which has led to the anticipation that the US may not be able to sustain its role in driving world growth. The world, particularly developing countries in Asia and other regions, would suffer badly should the US dollar crash, especially if there is no appropriate financial instrument like the Asian bond to cushion the fall and absorb the consequences. Moreover, the developed Asian bond market will provide a viable alternative for Asian countries to diversify their reserve holdings by swapping part of their assets among each other according to the proportion of their existing international reserves. ��


Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,

A few years ago, the Asian bond market development initiative may have sounded in-credible, but today, it has become widely accepted across Asia and vigorously developed in various fora. The demand side of the bond market has been promoted under the framework of East Asia and Pacific Central Banks and Monetary Authorities, or EMEAP. The First Asian Bond Fund or ABF-1 was announced on 2 June 2003 at US$ 1 billion. It was a lead investor, which helped stimulate the Asian bond market. The forum is now working on the Second Fund, or ABF-2, which will invest in local currency denominated bonds. Within the structure of this fund, there will be components that could possibly be open to investment by non-EMEAP public and private sector investors.

On the other hand, the supply side of the regional bond market has been developed under the ASEAN+3 and APEC framework. ASEAN+3 focuses its work on the need for a joint and comprehensive set of actions by its member countries in two broad areas that (1) facilitate access to the market by a wide variety of issuers and (2) create an environment conducive to developing bond markets. At present, the 7th ASEAN+3 Finance Ministers� Meeting has given Thailand the task of conducting the ASEAN+3 Withholding Tax Project to develop the supply side, especially for local currency bonds. This project is intended to propose to ASEAN+3 countries exempt withholding tax for non-resident investors. Exemption will apply to revenues from interest, capital gains, and capital losses. Withholding tax is one of the most crucial impediments for trading of bonds across countries in Asia.

Under the ACD framework, the Asian bond market initiative, for the first time, received full political support from the policy level of Asian countries. The Chiang Mai Declaration on Asian Bond Market Development was adopted at the Second ACD Foreign Ministers� Meeting in Thailand in 2003, providing a guideline for developing the Asian bond market. Apart from raising public awareness and political support for the Asian bond market development initiative, a series of expert groups� meetings have been organized by Thailand, as the prime mover on this matter, in order to seek ways in which ACD could add value or complement the ongoing work. As ACD has wide coverage throughout Asia, it is in a better position to promote the initiative, particularly to engage other countries in South, West and Central Asia in the process. India, for instance, has been very active in supporting the initiative and expressing her intention to contribute to its development in various ways.�����

Even though the Asian bond market development is aimed to better utilize Asian resources for intra-Asia investment, thereby boosting Asian prosperity, this initiative should not be interpreted as an inward-looking process. On the contrary, it is outward looking and complies with market-based rules. The initiative is not merely aimed at reducing Asia�s dependence on the US dollar but, more importantly, this new financial architecture represents a means to enhance regional financial self-help, as well as to lend support beyond the short-term liquidity provided by the Chiang Mai Initiative, thereby strengthening the financial stability of the region. In so doing, sound governance and institutional transparency need to be firmly instilled. In the near future, we envisage a stronger Asia which will be a better partner for other regions.

Moreover, the effort to develop an efficient bond market is a contribution to the stability of the world financial system as a whole. Perhaps this is why the Asian bond market initiative has received support from non-Asian countries as well. For instance, at the fourth Asia-Europe Meeting in Copenhagen in 2002, leaders of both sides agreed to set up a task force to study ways and means to promote a closer ASEM economic partnership, including a potential linkage between the Asian bond and Euro-bond markets. And at the ASEM5 last October in Hanoi, the leaders agreed to strengthen and enhance cooperation among regional bond markets.


Mr. Chairman,
Distinguished Participants,
Ladies and Gentlemen,

As the promoter of the Asian bond market initiative, Thailand has exerted her utmost effort to move the project forward. We have played
a key role in this matter in the aforementioned fora, particularly the ACD which Thailand views as the core player in the promotion of the Asian bond market. In fact, I like to think of the Asian bond market initiative as the flagship of ACD.

On her part, Thailand has established the National Asian Bond Market Development Secretariat to disseminate information and coordinate the work being done on the project in different fora. In addition, the Thai cabinet already approved the draft law for the exemption of withholding tax for non-resident investors and entities. It is expected that by the end of this year, Thailand will issue the first batch of Baht denominated bonds with the exemption of withholding tax, which will be traded actively in Asia and the rest of the world. The creation of sufficient supply of Asian bonds with high quality and the removal of impediments for cross-country trade, particularly the withholding tax, is needed to match the increasing demand of the market, including the launch of the Second Asian Bond Fund in the near future.�������

In sum, the effort to promote the Asian bond market development is timely. It will bring about several benefits to Asian countries. It will help resolve liquidity problems, particularly the problem of over-reliance on short-term funds of Asian corporations. It will help increase the inflow of foreign capital and attract foreign investments. It will enhance market discipline and corporate transparency. It will assist in debt restructuring. And finally, it will increase financial stability in Asia and, together with other bond markets, that of the world financial system.�

Mr. Chairman,
Distinguished participants,
Ladies and Gentlemen,

The new era of Asia has arrived. History will not repeat itself if we learn from the past and are well-prepared. We will be able to avoid not only the scourge of economic and financial crises, but we will
also successfully take advantage of globalization in creating a prosperous and stable Asia. This will never happen unless Asian countries unite to collectively shoulder each responsibility, and to drive forward towards the common goal of having a favorable Asian community for our generation and beyond.��� ����� �

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