Asia should not be dissuaded by the European challenges. Yet, Asia should not rush to integrate either.
I have a straight answer and a caveat. The answer is: Definitely Not. The caveat is: integration is a long-term process. Over time, Asia definitely needs to become more integrated in order to sustain its growth as well as its contribution to global growth. In the medium-term, Asia should exert concerted efforts to continuously boost regional cooperation.
Why do I say that Asia should not be dissuaded? The answer lies in certain fundamental characteristics and features of this region, as well as the current global environment. One principal reason is that the process or approach to integration in Asia has never been and will never be the same as in Europe. There are many second order reasons or subtexts that we need to delve into and understand better.
First, there is far too much heterogeneity in Asia, with an array of important differences across the various sub-regions. As such a pan-Asian approach to integration will not work, and hence Asia has to evolve its own model, that is different from Europe.
Second, partly as a result, the Asian model of integration has been more bottom-up, market-led and institution-light in relation to Europe.
Third, the challenges notwithstanding, Asia – just like Europe – has more economic imperatives that support greater cooperation and integration than those that detract. For instance, the region’s growth has been driven largely by trade. Regional production networks have been the mainstay of trade in the region for more than two decades now. Since the onset of the global crisis in 2008, the shifting trade patterns have led to an increase in intra-regional trade, in final goods. In addition, while South Asian growth pattern has been different, all major economies in that sub-region are now looking to boost trade.
Fourth, growth imperatives and the need for capital in the different subregions point to greater integration in the future.
Finally, in the aftermath of the Global Financial Crisis, Asia’s contribution in sustaining global economic growth has become far more critical. For Asia to sustain its own growth, regional cooperation and coordination amongst countries in the region is critical.
Small countries in particular have legitimate concerns with respect to integration that need to be addressed.
Before I look at lessons from Europe, let me dwell a bit on the Asia-wide approach. Achieving a comprehensive, region-wide, monetary (and fiscal) union is far more complicated in this region, given the vast differences across sub-regions. Yet, there is considerable scope for forging far greater sub-regional cooperation and integration within sub-regions.
In parallel, Asia can pick up all the whistles, warning bells and lessons from Europe. Here, we have several important issues for this region to consider.
The region (its subregions) needs to considerably enhance cooperation. Serious efforts have been underway in Southeast Asia, East Asia, Central Asia and in South Asia. They need to move into second or third generation of efforts. Specifically, countries could aim at achieving greater policy coordination. Gradually, they could begin to forge consensus on a few key issues of global importance. A pan-Asian voice may not be easy to achieve on all issues, but steps to improve coordination between countries and subregions can be taken.
Countries can focus on harmonizing policy, institutional and regulatory approaches in sectors where there is greater scope for cooperation and integration. Even in infrastructure – where sub-regions have done well in promoting physical connectivity, there is much work to do on the softer aspects of connectivity. In the financial sector, for instance, there are vast differences between countries and sub-regions. There is a lot of work to do on regional public goods.
The region (its subregions) also has a lot of work in setting up and strengthening its financial safety nets. The ASEAN+3 are a leader, through the Chiang Mai Initiative Multilateralized (CMIM). While more needs to be done to make CMIM implementable, other subregions can learn. India has taken an initial step in the form of a swap facility.
All sub-regions need to ensure that the benefits and costs of integration are distributed in an equitable manner across the members. Small countries in particular have legitimate concerns with respect to integration that need to be addressed.
In summary, Asia should not be dissuaded by the European challenges. Yet, Asia should not rush to integrate either. Its approach of private sector led integration is ideal for the region. It can continue to pursue its “institution-light” approach, although subregional institutions that support regional cooperation and integration must be considerably strengthened.