Would we really see the ASEAN community?

       The development of regional community in South East Asia seems to be headed in the right and hopeful directions. However, the arguments on the abandonment of national interests in return for regionally joint benefits still remain controversial nowadays. It may be believed that the introduction of ASEAN Economic Community in 2015 roadmaps reflects a good sign of more anticipative achievement of regional integration in the region of variety like this. It has been widely evidenced that the presence of regional cooperation could bring about the economic prosperity and also could act as an effective tool of maintaining political stability which south East Asia nations itself had ever wished to have in the early stage of ASEAN establishment. To me, it is important to be aware of the progresses in reaching a final goal of full integration. Several forms of attempt to make the possibility of regional community real have been making. They seem to be compatible with well-operated schemes. However, there are a number of challenges and impediments that we face in actualizing the goal despite their long-living existence that member states have well realized.

       Looking back to the original objectives of ASEAN founding, incentives of regional cooperation is similar to that of the EU, that is, they were led by political reasons. European regionalization was initiated from the need to prevent the conflicts among countries from occurring. Likewise, South East Asian countries would like to ensure the security from threatening expansion of Communism, which was considered dangerous for national stability, in the region at the period of post WWII. Nevertheless, the foreign policy of each country was not consistent with each other. This might be because of the distinction of ideological influences among the countries. They pursued different policies in preference to the powerful nations (the US, Russia, and China), which they were happy to allow to rule themselves. Besides, since most of them had just been decolonized, they hardly trusted in each other and this was reflected through the patterns of each national interests. They were so focusing on political stability and in turn had only little motivation to form regional integration. The harmonization of interests is still the tough objective that the member nations are as far from achieving.

       In addition to inconsistency of interests that consequently deterred the enhancement of economic cooperation in the region, ASEAN has not succeeded to promote the mutual recognition despite the considerable attempt since early 1970s. Regional consciousness identity was a well-known wording of which possibility has been encouraged for a number of decades. However, depart from the withdrawal of powerful nations that heightened a fear of national instability and thereby deterred possible regional cooperation, the ethnics, religious, and cultural differences even create further impediment to accomplishing regional consciousness identity. In this sense, it is hard for ASEAN to find mutual characteristic. Therefore, taking these factors into consideration, an expected success of formation of regional economic community in SEA is questionable.

      Theoretically, ASEAN have not yet met the necessary factors for becoming economic community in terms of single market. Barrier has not been completely eliminated yet, while goods, services, and resources have not been freely mobile within the region as suggested in economic textbooks. One, in fact, may say none of those factors is fulfilled. Free movement of goods and services across the border is something that is not easy to be seen due to many kinds of restriction, while some ASEAN countries, such as Singapore, has rigidly protected their own labor market individually. ASEAN nations have been also reluctant to sacrifice some comparative advantage in exchange for possible sustainability of coordinated growth among member countries. They have competed with each other instead of cooperation. This is mainly because the similarity of national resources in each country. A lot of exporting items has remained highly competitive within the region. Important exportable goods like Petroleum for the island countries and timber for mainland countries are prominent examples. Furthermore, difference in level of development within the region also weakens an incentive of richer countries to pursue economic regionalization.

       With regard to external actors, the often setbacks of WTO’s negotiations in which a great deal of efforts has been made many times to achieve the goal of global economic liberalization imply that a lot of countries, in particular emerging economies, tend to rely on a basic manner of international cooperation, bilaterally joint agreements. This is the channel which many countries nowadays are extensively practicing. No exception for the ASEAN country like Singapore, which engage in the largest number of free trade agreements in the world. From this, the AFTA, institutional engine for regional collaboration in South-East Asia, may become less important if agreement with outside partners can bring them better prospects for avoiding trade diversion; specially, in current situation where hesitation in many countries to eliminate any barrier, in accordance with AFTA 2010 schemes, is growing. This reflects inefficiency of institutional enforcement. This difficulty would still exist as long as a priority of national self-help in ASEAN countries is considerable.

       Remaining challenges have something to do with Thailand. First, territorial disputes within the region seem to be endless story, from historical matters until todays. The tension in the Spreadley Island, which involved lots of countries in South China Sea, has never ended. Pra Vihear temple conflicts between Thailand and Cambodia which piled up territorial anxiety is now being transformed into even further severe problem, that is, the revival of cold war mentality. It means a look of non-communism country (Thailand) at former communism country (Cambodia) as something dangerous that can threaten the country. Nationalism adherence which is hostile to regional collaboration could be returned by this way.

       Second, socio-cultural conflict within particular country also undermine regional integration since internal instability resulting from an absence of mutual consensus within a country would make it not ready to participate in external cooperation; the willingness to make a change is only little, given an internal conflict. Most patterns of radicalism in SEA look like Muslim insurgency. Although the tension in AJE, Indonesian insurgency that aimed at separation of land, has already been facilitated by third hand, it has been looked upon as a model by those conflict-making groups in the south of Thailand. The long-standing severity in Mindanao has adversely affected development in a country and thus has ruined domestic stability. The minor concern of internal conflict is associated with issues of non-democratic regime and human right. The violation of human right can be generally found in the country that has weak democracy. Recent political turmoil in Thailand has cause greater troubles toward any coordinating ASEAN community projects. The concern of its spillovers effect would make regional integration even more difficult.

      Because the ASEAN is elite-oriented organization, not people-centered organization, political regimes in several countries are centered by military and bureaucracy that hinders the democracy improvement and human right in some way. Sometime the armies which are prone to adhere to nationalism direct surprising operations against the illegal immigrants or those political demonstrators with objective to national stabilization as often claimed. Social networks or NGOs that have been more strengthened nowadays by a force of globalization play a significant role in putting a pressure on possible violations of right done by the centralized leaders of a country. On the other hand, in the case of ASEAN, there are efforts to prevent them from participating in regular procedures of regional enhancement, as illustrated in the decreasing right of NGO in ASEAN summit meeting early 2009 at Hua Hin, Thailand. Therefore, diminishing voices of people that have been largely ruled and avoidance of interference with each other affairs can imply the absence of effective mechanism in relieving the tension that member countries may face. Each country hence may ignore the importance of having regional cooperation.

       Nevertheless, the ASEAN is the organization that has been already originated for long time. What we have to take care of it is to just maintain its existence which has been profoundly recognized at as a low expense as possible.

A theory of cat

     Today, you told me about China’s high productivity growth period during Turng Seaw Ping's age. This prompted me to think of what he did for the country.

    I think you must be familiar with what is exhibited in my headline, right...?

Yes!! the one who originated this theory is Turng Seaw Ping, former leader of China. "It would not be important that what colors a cat had, as long as it could catch a rat, it is indeed a useful animal". His speech delivered in the age of the Chinese modernization. Catching a rat is like an increasing productivity, and its colours, different colours in different one, accounts for the methods to achieve that. Indeed, a cat that was chosen to handle a rat is adoption of capitalism principle, which brought about the awakening of sleeping giant dragon.

     At that time, your country allowed its populations to have their own small farm. These increased private farms were expected to create larger numbers of agriculture products. In addition, market-based pricing gave those domestic producers a more incentive to improve their productivity in order to gain higher competitiveness.

     By surprise, what I’d like to tell you is that I found this idea first mentioned by Mr.Henry Kisinger, Secretary of State in the P.Nickson administrative. He cited the statement similar to a cat theory while he made a speech for an interview about Vietnam War. His cat must have meant the any method he could use for negotiating the peach talk with the Vietnam's politician, Le Duc Tho, without reporting the congress. He did face-to-face talking to Vietminh’s representatives many times. To end a long-run fighting, he was ready to do everything, even personal talk. It was noticed that he took a flight more often than driving his own car. This phenomenon where satisfy a theory of cat happened at 5 years earlier than that in China under 1978 reformation of Thurng.

Sustainable current account deficit in the U.S.?

       "To have a good work, Economic Research should contain a great deal of econometric concepts". This statement is clearly understandable. One can regard Economics as the subject of logic. Pure comprehension about Cause and Effect is something that those who would like to study Economics have to be aware of as necessary factor of being academic success. Econometric subject was introduced to fulfill such need. It helps us make some rational experiment or test for some explainable relations among selected variables in learning Economics.

     

      It is not easy to put this kind of instrument into practice for the purpose of performing some single study which is full of imaginative opinions and creative rationales behind academic description. The wider scope of empirical matters that we analyze, the more difficult it is in applying econometric into the analytical processes. I think we could expect to see larger contribution of the paper and therefore get a well-done job unless we put much emphasis on econometric-derived equation.

   

       Personally, what economic work require student to do is not motivating me. I felt that keeping strict on econometric tool would depart you from creating fascinating language for your own work. From this, as economics student, I might encounter the difficulty in preparing a good-looking paper required for the fulfillment of my program if I do not rely on conventional method of study. To reach compromise with what most professor require, it is necessary for me to put an econometric process into the paper as a dominantly-controlling methodology, together with making fact-based judgment as extensively descriptive interpretations. This is what quite challenged me.

       Fortunately, I got valuable advice from Prof. Paitoon, international finance lecturer, that examining the US's interest rate behaviors and focusing on its international effects might be fit my preferred methodology of study. By doing so, I will be demonstrating some prominent idea of Mr. Alan Greenspan, long-time dominating policy maker of US Federal Reserve, utilizing empirical analysis for the paper without ignorance of using econometric tool. Some one may want to point me that the US is so big that none of economic determinant chosen can influences it; therefore, I would be distorting econometric use and running in a confusing direction. You may not expect to see a great contribution from my individual research accordingly. I wish that l will not make no contribution. At least, I can anticipate to gain more profound understanding in the US monetary system than I do today.

    

       It seems a bit disappointing for me to follow conventional way of doing research of which methodology is rigidly strict on a use of econometric instrument. This was always preferable to those graders. However, anything that has been left open for further study is meaningful. Recommendation part of my paper may be able to challenge some one, at least its owner like me for sure. What we were already understood is the significant impact of capital inflows on the U.S. long rates, while what we find even more important is how sustainable such inflows are. In econometric sense, measurements of exchange rate risk in the U.S. (USD risk) would play a crucial role in explaining sustainability of indirect investment on USD-denominated assets. On the other hand, there are a lot of factors determining it and they are not measurable.

       One of my respected professor, Ajan Bangorn, said that United States is so big country that no variable is able to simply influence her domestic prices and interest rates significantly. After checking out empirical works, I, in turn, agreed for that telling. USD currency risk alone cannot make sustainability of a purchase of the U.S. assets difficult. A number of aspects can erode long-living role of the dollar in being world key currency. Emerging Asian economies’ willingness to finance U.S trade deficit still remain strong, but it does not mean those lenders would be happy to do that forever. They might find that export-led growth strategy is no longer seen to be sustainable. Keeping their currency competitive, especially Yuan devaluation, is proven not to promote long term growth. From this, reserve stockpiling, which has been major source of financing U.S. deficit, is not necessary anymore and they would turn attention to adherence of demand-led growth instead. Since banking sectors and financial markets in Asia has been increasingly enhanced, Asian economies can come up with alternative investment strategy that would discourage USD share of holding in their portfolio. In addition, they can absorb domestic savings more efficiently due to financial market development. This will result in a reduction of trade surplus and the absorption will instead go to demand for investment and consumption in a country. It is foreseeable for China particularly to be interested in this process. Those above- stated phenomenon is seen as structural change that contributes to long-run significant impact on the sustainability of U.S. current account deficit.

     

       Currently, the saying “capital movement reversal” is what many of us perceive as weird flow of capital from scarce region toward abundant country where offers a lower return. This violates what appear on international trade textbooks. However, this trend is anticipated to reverse again. Capital inflows itself help increase government budget position in the U.S... Her government spending has been larger in the face of crisis. Private sectors who seek for higher return would relieve excess demand by moving capital into abroad, going to emerging markets. They now start to export capitals. This is seen to be positive aspect of current account improvement. In East Asian side, by providing more robust infrastructures and easier access to domestic financial market, these emerging economies tend to be capital receivers. Even if capital flights from the west face some restriction imposed by those Asian policy makers who would like maintain ability to use both monetary policy and foreign exchange market intervention independently, direct form of inflow like FDI is now prospering. This prospect can happen because the successful talks in multilateral stage like WTO, which foster the higher degree of access of those return seekers to China’s resource exploitation in return for the reduction of their farm subsidy. The existing excessive labor supplies also accelerate this mechanism as well as an increasing awareness of China and Japan to rely on demand-led boom instead of export-oriented growth as mention earlier. China, which is intensely forced to revalue its currency, would have no problem in reducing its dependence on export. This alternative aspect could be possible if those Asian markets realize the decline of need to build up continuous amount of reserve. Once this structural change happens, one can imply that the U.S. current account deficit would become unsustainable.

       With regard to structural change in the U.S., one may expect to see an improvement of household saving behaviors. Further, it is time for the US as a big borrower to think about limited ability to bear interest rates payments. Amount of such payments is considered so significantly large that adversely affects national wealth and in turn erode macroeconomic variable, such as government expenditure. It should be aware of this so that it can decrease dependence on oversea financing. These two behavioral changes will be able to prevent U.S. from confronting a problem about withdrawals of capital that may cause the collapse of the USD currency and possible recession. If the U.S. continues to create trade deficit, the new downturn may occur more quickly than expected because the disruptive sentiment would lead to massive outflows without requiring any change in Asian countries.

Assassination

       Having been told about one interesting story in today's conversation class, my thought to tell you about politics-involved assassination abruptly came up.

       Many years ago, Yitzhak Rabin, former president of Israel, died of shooting which was, at that time, a generally-practiced method to assassinate some important person. Currently, the patterns of killing have changed a lot as well as its motivation. The killers have much so much strong faith on their beliefs that there is nothing they cannot do for the purpose of the destruction of oppositions who do not rely on their ideology. In particular, wide and profound ethnic and religious conflicts can cause even largely severe damages. The followers of the belief can do anything brutally and horribly, regardless of how bad the consequences are.

       An attempt to eliminate Benazi Bhutto was from the suicide-committing assassination that was operated in well-arranged processes. Every step was under the supervision of soldiers that used to be an ally of the Pakistanian government, but they now join the evil network of Alqueda.

       The death of the Jewish leader mentioned above also made me think of the car bomb in Thailand organized to kill Mr.Thaksin in about more than 4 years ago. His political rivals could do everything to get him out of their path even by such a cruel execution. This is the madness of politics in this country.

      Two above cases of contemporary assassinations: Bhutto's and Thakky's had been planned and controlled by professional soldiers. That is what intensify my feeling of hatred toward militaries.

Do East Asian Nations really need Monetary Integration?

      Having experienced a severe crisis in 1997, many of Asian countries nowadays turn their attention to the issue about financial stability. Most countries, obviously China and Japan, rely on accumulation of reserve as a means to prevent another crisis from happening, ensure short term stability. However, it is widely argued that with increasing liberalization of capital, crisis may not be avoided due to a weak domestic financial market. A lot of empirical evidences have confirmed that country with weak banking system was crisis prone. The U.S. in 1930s and Thailand in 1997 are prominent examples. In addition, pegging currencies to the key one like the USD in preference to foreign exchange market intervention could be problematic in terms of the loss of their own monetary control. The recent crisis in the western world has indicated that since financial markets have been increasingly globalized, it was necessary for monetary authorities in East Asian to perform domestic rate cuts in response to monetary stimulus launched in the States. This even accelerates inflationary pressure that had already taken place as a result of their faster growths. The real exchange rate consequently became appreciated. ฺNot so doing, the higher interest rates may result in massive capital flow and hence nominal appreciation of currencies, which was what Asian emerging market try to avoid, according to their faiths on export-led growth.

       Accordingly, one may say that monetary cooperation at the regional level is needed to bring the benefits of both short run stability and long term growth. By providing adequate liquidity for member countries, it can entrust them in prevention of crisis. Also, institutional improvement can occur under cooperated monetary union in a sense that it would encourage domestic investors to exploit their excessive savings properly through the stronger financial system. This is said to be supportive to long term growth. Therefore, why don’t we establish some kind of Asian Monetary Union, as a success of EMU is now perceived?

       Arguments of the need to have regional monetary cooperation in East Asia remain controversial, especially in form of common central bank and single regional currency. Taking a look at what has happened in Europe, we could see that currently-existing cooperation among East Asian countries differs from that in Europe, which has been presented successfully and practically for decades. In Europe, monetary integration was first motivated by a goal of political unification. Their policy commitments are quite consistent with each other. This is something that East Asian nations has not found important largely because of the diversity of characteristic among countries and heterogeneous pattern of national interests. For instance, Japan, China, and small nations in South East Asia are so different in terms of their position in international politics. For economic reasons, the distinction between domestic policy objectives makes the monetary cooperation difficult. Several regional central banks aim at domestic price stability, and thus exchange rate become more flexible. Few central banks (Hong Kong as the center of regional trade) are concerned with exchange rate stability. While the giant one like China cares about value of her currency. They even think of financial integration as impediment to capital control mandates which they rely on in order to intervene foreign exchange market without affecting internal balance and domestic monetary practices. In fact, capital is nowadays highly mobile. As a result, the use of monetary measures together with exchange rate instruments has been limited. Pursuit of price stability requires those monetary authorities to sacrifice stable exchange rates. They, therefore, may not be willing to coordinate economic policy through the channels that Asian Monetary Union provides.

       In East Asia, apart from reasons mentioned above, there are more evident reasons why the countries in the region are far from achievement of having common currency. First of all is asymmetry of shock. Countries face different macroeconomic condition among each other. As we know that the U.S. is now facing huge current account deficit. Her USD currency stays depreciate against those in East Asia in which the degree of appreciation varies among nations; Yuan appreciation rate, for instance, is slower than the other’s. This would create the difficulty in reaching optimum currency area. Furthermore, most importantly, even if the countries’ openness is favorably high and movement of products and resources is quite free, the involved authorities in the region do not support appropriate institutions.

       In case of EMU, it spent 5 decades evolving common central bank and single currency. Various forms of institution was established to keep exchange rate fluctuating within narrowly defined limit for ERM, to require each member to tightly stabilize its currency bit by bit for EMS, and to provide sufficient short term liquidity to support all necessary exchange rate intervention for EMCF, as an illustration. This is very significant for the long run scheme of monetary integration. What Asian countries only have is awareness of a need for economic and monetary cooperation to achieve financial stability in short term (crisis avoidance) represented by two institutional actors: 1) CMI, which conduct surveillance to prevent crisis and 2) sources of Asian Bond Fund. Accordingly, regional economic institutions necessary for monetary integration to work well still remain in infancy.

      In addition to those tough concerns, common problems that European Union used to experience are anticipated to happen to East Asia monetary cooperation roadmaps: sovereignty issues and differences in culture and languages. The problem could be even intensified in the region of diversity like this. Considering rigid conditions for a new entry that is hard to be met, the country may hesitate to sacrifice its own monetary authorization in return for the benefits of adoption of common regional currency and joint central bank. In my opinion, the optimal solution should not be the creation of fully integrated monetary authority. Rather, monetary stability could occur if domestic monetary and fiscal discipline would be sufficiently strong and the banking sectors would be strengthened.