Toshihiko Fukui: The dynamism of Asian economies and central bank
cooperation in the region
Opening remarks by Mr Toshihiko Fukui, Governor of the Bank of Japan, at the International
Symposium "Ten Years After the Currency Crisis: Future Challenges for the Asian Economies and
Financial Markets", hosted by the Center for Monetary Cooperation in Asia (CeMCoA), Bank of Japan,
Tokyo, 22 January 2007.
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1. Introduction
Good morning, ladies and gentlemen. Welcome to the first international symposium hosted by the
Center for Monetary Cooperation in Asia, or CeMCoA for short. CeMCoA was established within the
International Department of the Bank of Japan about a year ago with a view to promoting international
cooperation among Asian central banks.
Today, I am very pleased to welcome my close friends from the Asian central banking circle and the
International Monetary Fund. Governor Zeti from Malaysia, Governor Tarisa from Thailand, Governor
Abdullah from Indonesia, Governor Tetangco from the Philippines, and Managing Director Rodrigo de
Rato of the IMF, I would like to thank all of them for joining us as guest speakers. I would also like to
extend my heartfelt gratitude to all the distinguished audience gathering here.
This morning, we would like to discuss the dynamism of Asian economies and the regional
cooperation among central banks as well as the IMF. Looking at the Asian economies, China and
India often attract attention, but at the same time no one can afford to overlook the importance of
ASEAN countries. Japanese industries and financial institutions have a long history of close
relationship with these economies, and will continue to do so for mutual benefits. Interdependence in
Asia has come a long way despite the Asian currency crisis a decade ago. As demonstrated by the
significant recovery and expansion in the last decade, the Asian economies are expected to make
great leaps forward in the next decade. Today's guest speakers are the ones who will support these
leaps. I believe this is a very good opportunity to discuss a forward-looking view of the Asian countries.
2. Economic dynamism in Asia
As you may recall, the Asian currency crisis, which started with the sharp decline of the Thai baht in
July 1997, spread to neighboring countries in a short period of time. Some ASEAN economies at that
time suffered disruptions in their foreign exchange and financial markets, the massive outflow of
capital resulted in the drying up of foreign reserves, the deterioration of banking systems and negative
economic growth. Ten years later, everything is different: the foreign exchange and financial markets
are much more stable and the currencies sometimes face upward rather than downward pressure;
foreign direct investment and other capital inflow continues to grow with the accumulation of foreign
reserves; the banking system has been strengthened through restructuring; and the economies have
grown at a steady and sustainable pace of 5% on average since 2000. While there were indescribable
difficulties to overcome the adverse effects of the crisis, the present performance clearly demonstrates
the success of policy efforts and the underlying dynamism of the economies. I hope the speeches by
the Governors will enlighten us about the changes in economies and dynamism after the crisis.
3. Regional cooperation
Turning to policy coordination, the crisis became the starting point for various initiatives in the region.
Exposed to the weakness in the international financial architecture, the ministries of finance and
central banks became aware of the importance of regional cooperation and began to address the
source of weakness. The Chiang Mai Initiative, as a complement to the IMF facilities, was agreed
upon among ASEAN + 3 to build a framework of emergency liquidity support through a network of
bilateral foreign exchange swap arrangements.
Based on the analysis of the crisis, efforts have been made to reduce over-reliance on the banking
sector for financial intermediation. The Asian Bond Markets Initiatives (ABMI) is another regional
cooperation by ASEAN + 3 to foster local capital markets. Sharing the same objective with the ABMI,
the Executives' Meetings of East Asia and Pacific Central Banks, or EMEAP, consisting of eleven
central banks and monetary authorities in the region, started the Asian Bond Fund project. By utilizing
some foreign reserves of member central banks collectively, the EMEAP launched two investment
funds; one for investing in US dollar-denominated public bonds issued by the member countries, and
the other for investing in local currency-denominated public bonds, to help not only to provide a
convenient and low-cost instrument for market participants but also to identify and remove
impediments to the respective local markets.
4. Future challenges for the Asian economies and financial markets
In line with the good performance of regional economies and the progress in policy coordination
among central banks and monetary authorities, economic integration in the region is gradually taking
root. It is reported that intra-regional trade in East Asia has recently reached around half of the total,
which is comparable to that of NAFTA and slightly less than that of the EU. Bilateral and regional free
trade agreements are spreading throughout Asia. In addition, ASEAN is accelerating the process for
building the ASEAN Economic Community (AEC) by 2015. It will be interesting to see how the present
banking and other financial services change when a single market for goods and services is
formulated in ASEAN. I hope the Governors can provide us with insights into developments of the
AEC.
With the globalization of the world's financial markets, large capital flows will continue to have a strong
impact on open economies. This holds true for most of the Asian economies including the ASEAN. It
is, and will surely be, the most difficult task for any monetary authorities to maintain the stability of
foreign exchange rates, the free flow of capital, and the independence of monetary policy
simultaneously. The answer to this proposition probably lies in the resilience of markets. In order to
increase the ability to absorb external shocks from massive capital flows, the priority seems to
strengthen the function of foreign exchange and financial markets in the region as a whole. In this
regard, frequent exchange of information, deep analysis and concerted efforts by the EMEAP central
banks will contribute to addressing risks and vulnerabilities in the markets. Such collaborative actions
may cover the roles of the IMF, which commits itself to extensive reform to meet new challenges under
the leadership of Rodrigo.
Conclusion
It is often said that Asia is highly diverse in culture, social framework and the stage of economic
development. Since the Asian economies are in many respects very different from the European, we
will probably follow our own process for economic integration. In that process, the better functioning of
markets through regional cooperation will help provide a better business environment for industries
and financial institutions, and lead to more efficient resource allocation. The more-than-ten-year
history of EMEAP itself proves that cooperation based on mutual understanding and respect is
possible in any circumstances.
I am sure the guest speakers have various opinions on today's topics, and we will be able to
appreciate their visions through our stimulating discussions. I would be delighted if this symposium
helps you build insights into the dynamism of Asian economies and central bank cooperation in the
region for the decade to come.
Thank you.