Japan Has Some Bold Ideas for Talks with ASEAN

FAR-REACHING proposals that could bring about changes in the economic and financial landscape of East Asia in coming decades are expected to be aired at the Asean-Japan Commemorative Summit meeting in Tokyo next month, and during a meeting of Asean+3 finance ministers early next year.

These range from discussions on a possible 'currency zone' for East Asia through to formation of a European-style 'Asian Community' in the region.

The Tokyo summit on Dec 11-12 is also expected to provide further impetus to the rapidly accelerating drive towards forging an Asian bond market.

Some have suggested that the formation of a regional bond market could provide a stepping stone on the road towards eventual Asian currency union.

But according to Asean sources, this process could be accelerated by a decision at the Asean+3 finance ministers meeting next spring to launch a formal study of currency zones.

Japan meanwhile hopes to use the Tokyo summit, which it will co-chair with Indonesia as part of Asean's 30th anniversary celebrations, to announce talks with Malaysia, the Philippines and Thailand aimed at forming free trade agreements, according to a foreign ministry spokesman.

Some sources say, however, that Prime Minister Junichiro Koizumi may go further during the two-day event and propose that Japan, Asean and others begin studying a full fledged economic community.

This would be a far bolder initiative than any of the regional agreements so far proposed, such as the economic partnership agreement with Asean and other states or the proposed China-Asean free trade area.

Some analysts say Tokyo is anxious to regain the diplomatic initiative after being 'upstaged' by China's overtures to Asean.

Japan's move for an economic community would probably be welcomed within Asean, say analysts, because it would strengthen the renewed drive toward economic and social cooperation in Asia which was launched at the October Asean summit in Bali.

At that meeting, Asean leaders signed wide-ranging cooperation accords with Japan, China and South Korea as well as with India. These steps were seen as providing foundation stones for the eventual formation of some kind of regional community.

The leaders specifically mentioned cooperation in forming an Asian bond market as one of their objectives and there is speculation that Japan could announce a joint government bond issue with Thailand and perhaps South Korea in order to launch the idea of multi-currency Asian bonds.

If such an announcement does not materialise during the Tokyo summit, it could be made later at a meeting of Asean+3 ministers since this group of 13 nations is already deeply involved in the regional bond market initiative.

This timetable would dovetail with the expected launch of a second Asian Bond Fund by a dozen Asia-Pacific central banks.

Meanwhile, an Asean+3 proposal to study currency zones in other parts of the world such as Europe and Latin America is being kept under wraps for the time being, Asean sources say.

The proposal is a sensitive one because, like the Asian bond market initiative, it points toward eventual reduced dependence on the US dollar by East Asian nations as a reserve currency. This has economic and financial implications for the US and for East Asia.

If such a wide-ranging study is launched, it could provide the basis for East Asia to move towards some form of formal monetary cooperation going well beyond the Chiang Mai Agreement on currency swaps.

The European Community has provided East Asian nations with help on studying currency issues (including a Japan-France joint project) and Europe could be expected to fully cooperate in a formal East Asian study, sources say.