Asia's own IMF

The decision by Japan, China and South Korea to partially pool their foreign exchange resources, with a view to preventing a repetition of the Asian financial crisis of 1997, marks the first major regional economic initiative in decades. The move is significant precisely because there is no immediate prospect of such a crisis being repeated; indeed, most of the major Asian economies have learnt the lessons of 1997 and have accumulated foreign exchange as an act of insurance. But individual countries acting in this manner is not the most effective way of buying insurance; coordination and cooperation among nations is a better idea and that is what has now been proposed""though it must be recognised that the viability of the idea flows from the accumulation of foreign exchange by individual countries. In a sense, this is a vote of lack of confidence in the western-dominated International Monetary Fund, specifically the manner in which it responded to the 1997 crisis by imposing what many saw then, and have seen since, as unreasonable and unnecessary conditions for a bail-out that only deepened the crisis. What seems on the cards is therefore an Asian Monetary Fund. It will be interesting to see what framework and rules will be worked out for drawing on the new fund, and indeed how the IMF itself will respond to this regional challenge. Equally important is the issue of ensuring that the availability of regional insurance does not encourage policies borne out of complacency because that is what will precipitate a crisis.

The backdrop to this latest move is provided by the various ideas for regional economic cooperation and coordination that have been discussed over the years, including a Customs union, a clearing union and even a currency union (far-fetched in the given framework). Regional free trade agreements have begun to get signed in recent years, the Association of South East Asian nations has expanded its membership from six to 10 countries, and the proliferating fora for discussion and exchange of ideas (Asean + 3, for instance) mark the nascent spread of a regional economic consciousness that has been missing till now.

India has been at the periphery of most of these developments. It more or less escaped getting hit by the Asian flu of 1997, testifying to its lack of integration with the region, and it is at best a marginal player or only an observer in key regional fora. Indeed, most discussions of "Asia" that take place in the eastern part of the continent do not even include India (or for that matter West Asia and Central Asia) within the ambit of debate. It is only fairly recently, in the wake of India's improved economic performance and its 'Look East' diplomacy that India has begun to count at all. That having been recognised, there is much to be gained by all concerned if India becomes a more active participant in regional initiatives. Both New Delhi and the Reserve Bank in Mumbai should get busy finding out how the new three-country initiative can be expected to play out, and whether India should chip in with its own (now substantial) foreign exchange reserves.