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Tuesday, May 08, 2007

Still Not An Asian Country

Forty five years after Nehru's dismissal of East Asian countries as "Coca Cola Countries" apparently we are still not an Asian country.

Asean + 3 (China, Korea, and Japan) have agreed to pool their considerable foreign exchange reserves, totaling about $3trillion, towards creating an Asian Monetary Fund (AMF). And India is nowhere to be seen in the group.

The Asia Monetary Fund (AMF), often called the Asian version of the International Monetary Fund, will soon materialize. Thirteen countries, including Korea, China, Japan and member countries of the Association of Southeast Asian Nations (Asean), have agreed to establish a shared monetary fund to support countries in case of financial crises in the region.

The initial amount of the fund is expected to be $80 billion, collected from the foreign exchange reserves of each country. It is welcome news, since the existence of such a fund will likely contribute to stabilizing currencies. The increase of short-term investment funds in the international financial market is speculative by nature and fluctuates constantly, often causing a detrimental effect on currency. A shared effort by each country is required to cope with the venture capital. [JoongAng Daily, a South Korean daily]

In the past few years, Indian military has been trying to change Nehru's precedence with constant interaction with most large Asian countries, getting involved in training and joint exercises. And, of course, there is the Look East Policy. But it's another thing when it comes to cooperation in trade and commerce. Free trade agreement with Asean countries has been going on with fits and starts with letters from misinformed people floating around, the latest one from Jairam Ramesh, who apparently has background in economics, and is the minister of state for commerce (but apparently not for commerce promotion). Jairam is the protege of Pranab Mukherjee and was probably doing Sonia's second bidding to slow FTA with Asean countries.

The current economic crisis manager, IMF, is almost defunct with no foreseeable role for it in a national or global economic crisis - most countries have learned the hard way in mid-90s and have hoarded foreign exchange reserves far in excess of any contingency need and are repaying IMF debt earlier then due to get IMF, its economists, and their boiler plate policy prescriptions off of their backs. IMF was too much of an imperialistic tool of the west - another white man's burden "we know what's best for you" - than a real problem solver, in most cases.

India itself got help from IMF in 1991 when it almost ran out of reserves to pay for imports due to its own of self inflicted economic stupidity for 40 years. Things are different now. India may never need another bale out with its significant (and surely excessive) current FX reserves and increasingly normalized economy. But, as member of AMF, India can be major player in AMF with one of the largest FX reserves in Asia (and globally) helping out other Asian countries in distress. Even if strategic benefits are ignored, India membership would boost economic and trade relationship with Asean. At the very least India's interest in AMF would be viewed positively by Asean countries.