C

urrency swap arrangements between East Asian countries could provide foundations to help build stronger and deeper regional integration on the road to a unified market similar to that of the EU, experts say.

Economist Hadi Soesastro, a senior fellow at Jakarta-based Centre for Strategic and International Studies, said Saturday that East Asia had several overlapping regional structures, but none strong enough to build deeper integration upon them.

Therefore, the agreement signed by East Asian finance ministers in Bali earlier this month could offer a breakthrough and become a stepping stone towards East Asian regional cooperation, eventually moving towards market integration.

"We in East Asia, are sleeping on one bed, but we don't have the same dream," Hadi told a group of Asian and European journalists gathering here. "With this Bali outcome, a new regionalism has emerged."

Finance ministers from the 10 ASEAN states, plus China, Japan and South Korea (ASEAN + 3) agreed in Bali earlier this month to pool up to US$120 billion in currency swap funds.

The agreement, a follow up to the ASEAN+3 Chiang Mai Initiative Multilateralization (CMIM) scheme set up in 2000, includes offering emergency balance of payment swap support to any country hit with extreme devaluation and capital flight, as witnessed in the Asian financial crisis in the 1990s.

These swap arrangements give real substance to the ASEAN+3 process which for many years has had no clear institutional framework in sight, Hadi said.

The Bali agreement on CMIM gives Japan and China the same amount of shares, 32 percent each. Together with Korea, they control 80 percent of the pooled fund, while the remaining 20 percent is taken up by ASEAN countries. Indonesia takes 3.98 percent.

Hadi said the next logical step of this swap arrangement would be the institutionalization of a "CMIM-centered institutional arrangement."

Such an institutional arrangement, Hadi said, could move toward better coordination of monetary policy, and with institutional strengthening it could lead to a more permanent format, similar to the European Monetary Union (EMU).

Speaking at the same forum, Klaus Regling, EU fellow at the Lee Kuan Yew School of Public Policy in Singapore, said despite the differences with Europe, East Asia could learn a lot from EU processes, including the introduction of its single currency, the euro.

"Europe provides the only successful model for regional integration in the world. Asia can draw some lessons from European experiences without trying to copy one-to one-what has happened there during the last 60 years, and without the pain of creating an Asian monetary union," Regling said.

He argued that the European experiment with the single currency had turned out to be a huge success, in terms of reducing inflation and budget deficits, while maintaining positive economic growth in the euro area since the introduction of single currency a decade ago.

The euro's share of global foreign exchange reserves rose from 19 percent in 1999 to 26 percent in 2007, reducing the role of the US dollar.

Regling said he hoped East Asia would eventually forge a deeper cooperation and adopt a single currency. If that happened, it would create a more balanced world, no longer dominated by the US dollar.