JAKARTA: Governments and monetary authorities in emerging East Asia need to cooperate more on exchange rates and other policies to turn the swift post-crisis recovery into more balanced, long-term growth, Asian Development bank (ADB) sayd in its latest report.Emerging East Asia's large, long-standing trade surpluses against developed economies' increasing debt have raised tensions culminating in calls for emerging East Asia to allow its currencies to appreciate to match its growing economic strength. Asia's swift recovery from the recent global crisis is also drawing foreign investment to the region. Managing capital inflows to prevent asset price bubbles has also become a concern."Regional exchange rate cooperation - if handled wisely - can ensure intra-regional exchange rate stability while allowing inter-regional flexibility; thus helping promote intra-regional trade and investment, and rebalance the region's sources of growth," said the special section of the latest edition of ADB's Asia Economic Monitor released yesterday.The Asia Economic Monitor suggests the best way forward would be for East Asian economies to adopt informal monitoring zones for their exchange rates against an external reference currency or a basket of currencies. Any big shift outside those non-binding zones would prompt confidential discussions to reduce deviations. Over time these arrangements could become more formal."Rapidly growing interdependence in trade and finance and the increasing importance of spillovers and contagion effects within the region make regional exchange rate cooperation essential," said Iwan Azis, Head of ADB's Office of Regional Economic Integration that prepared the report. At the same time, he added, regional currency flexibility against major currencies outside the region would help emerging East Asia better manage capital flows and respond to external shocks.The report assesses the outlook for emerging East Asia, which comprises the 10 economies of the Association of Southeast Asian Nations, plus the People's Republic of China (PRC); Hong Kong, China; Republic of Korea; and Taipei, China. (NOM)
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