The Asian financial crisis and its policy implications can be understood on the national, regional, and global dimensions. At the national level, both directly and indirectly affected countries have to strengthen their self-defensive countermeasures to prevent a future financial crisis. For this purpose, countries under the IMF program, including Thailand, Indonesia, and Korea, have undertaken macroeconomic stabilization policies and bold structural reforms in financial and corporate sectors. As a result, usable foreign reserves have accumulated dramatically and the structure of external debts has much improved. In addition, policy-makers are very serious about structural reforms, although a sense of complacency can be observed among consumers, businesses, and trade unions.

At the regional level, there were also many calls for financial cooperation just after the Asian financial crisis broke out. However, the discussion on regional financial cooperation has largely remained within the realm of academia and has not been able to produce any tangible result. This is primarily due to the lack of a consensus initiating a regional framework to respond to the crisis, both in terms of crisis management and prevention. The three Northeast Asian countries - China, Japan, and Korea - officially participate in such regional fora as ASEAN+3 and APEC to discuss major issues concerning regional financial cooperation. However, in order to obtain more concrete results that can reflect the interests of the three countries, there needs to be a dialogue channel beforehand for a much closer regional financial cooperation. Such a dialogue is not necessarily exclusive to the neighboring countries around the region. Rather, it should evolve into an institution that strengthens and stabilizes the East Asian financial system. However, considering the fact that the U.S. is constrained to act globally and will not cooperate with the region as a region, the three countries have to form a consensus in East Asia on a mutually beneficial basis. The political feasibility of a regional framework will not be a burden, if we start to lead a discussion over economic and financial issues in the relevant regional context.

As exemplified by the launching of the Euro, the discussion on regional financial cooperation may focus on such sophisticated topics as monetary cooperation. However, more realistic and working-level agendas are likely to produce more tangible results. In other words, the task of regional financial cooperation is to be approached from a long-term and gradual perspective. As was the case with the Euro, the different levels of economic achievement among the East Asian countries must be considerably narrowed to meet the economic requirements for monetary cooperation. This is not to say the discussion of monetary cooperation itself is futile. A consensus on monetary cooperation will emerge when the achievement of more specific agendas shows the possibility of regional financial cooperation.

At the global community level, various issues for building a new international financial architecture are being discussed at numerous arenas. However, the major leading group is the G7, which is composed of highly industrialized countries. Furthermore, the scope for Asian participation is limited. In such regional fora as ASEAN+3 and APEC, and such extended global fora as G22 and G33, several Asian countries, including crisis-affected countries and China could have the opportunity to express their own views. However, there is a serious division between the U.S. and the rest of the G7 membership on various architectural issues. In most cases, outside inputs from developing economies are not satisfactorily recognized and incorporated.

This paper examines the need for regional financial cooperation and points out the importance of the regional dialogue channel for further close cooperation. In order to create a more formal institutional framework for regional financial cooperation, we should simply start a discussion on various possibilities in a more informal and freer way. Through successive rounds of discussion, we will discover what barriers against an institutional framework for regional financial cooperation exist.

The paper is organized as follows. Section II will review the regional actions to deal with the Asian crisis. Section III will also review the global actions to deal with the Asian crisis and its aftermath. Section IV will discuss the long-term and short-term agendas for regional financial cooperation.

Executive Summary

I. Introduction

II. The Regional Actions to Deal with the Asian Financial Crisis

III. Global Actions to Deal with the Asian Financial Crisis and Its Aftermath
1. Strengthening the Role of International Financial Institutions (IFIs)
2. Concerted Efforts for Aggressive Monetary Easing
3. Building a New International Financial Architecture

IV. Agenda for Regional Financial Cooperation
1. Short-term Agenda
2. Mid-term Agenda
3. Long-term Agenda

References

Korean Abstract