April 22, 2002
Asia should pool forces to stand up to US, says noted economist
Reuters Tokyo , 22-04-2002
Asian economies should pool their huge foreign exchange reserves as a step toward a reshaped international monetary system that would be less of a tool of US interests, Nobel Prize-winning economist Joseph Stiglitz said on Monday.
In a speech to a conference on Asian economic integration, Stiglitz said current global monetary arrangements had bred damaging currency volatility that required countries to hold substantial assets in reserve in case of shocks.
Because a substantial proportion of reserve assets is held in US Treasury securities, the United States enjoys access to capital on cheaper terms that allows it to live beyond its means, he said.
At the same time, this arrangement exports deflation because it ties up money that would otherwise be spent or invested more profitably at home, said Stiglitz, a professor at Columbia University in New York and a former World Bank chief economist.
Arguing that developing countries shoulder a disproportionate burden of an inequitable system, Stiglitz said Asia would be a good place to start building an alternative model because its central banks are already sitting on huge stockpiles of reserves.
Thirteen governments have already taken tentative steps, under the so-called Chiang Mai Initiative, to head off a repeat of Asia's 1997 financial meltdown by agreeing to make some of their reserves available to each other in the event of future currency crises.
"An Asian monetary arrangement, an expansion of what is already going on, could serve as the beginning of this new global regime," Stiglitz said.
Stiglitz, who said it was too bad the US Treasury quashed proposals after the 1997 crisis for an Asian Monetary Fund, said a new arrangement need not imply fixed-exchange rates.
But, by pooling wealth and engaging in mutual surveillance of their differing economic regimes, countries would be in a better position to pursue regional integration and to stand up to US dominance of the International Monetary Fund and other agencies.
"This stance of going forward in economic integration will allow Asia to take a unified stance in bargaining with the US," Stiglitz said.
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Closer regional ties would also facilitate what Stiglitz saw as an inevitable decline in manufacturing in Japan and East Asia, with an accompanying shift to non-tradeable services, as a result of China's emergence as the low-cost, high-productivity workshop of the world.
"We have to recognise today that the era of manufacturing may be ending just as the era of agriculture ended a century ago," he said.
The fact that Asia covers the economic and political spectrum, from free-market beacon Singapore to communist Vietnam, has combined with historical antagonism toward Japan, which accounts for more than 60 per cent of Asian output, to put a brake on regional cooperation along European lines.
But Stiglitz said he believed the chances of successful integration were greater in Asia than at the global level.
Because of a hardening attitude in the United States towards freer trade, exemplified by last month's decision to slap tariffs of as much as 30 per cent on steel imports, Stiglitz said he was pessimistic about a successful conclusion of a new round of global market-liberalisation talks launched in Doha in November.
"I think that there is an enormous potential for further steps in Asian economic integration, both on trade and finance.
"That agenda would be of enormous benefit to the economies of the region but also for political and economic stability not only in the region but also for the whole world," he said.
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