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January 10, 2008

SE Asian markets need changes

The rapid increases of intra-regional trade and final demand in Asia have improved the resiliency of Southeast Asian economies. To strengthen the momentum of these two desirable growth drivers, certain changes in the region's financial markets are needed, a Thai financier said here Tuesday.

Speaking at a regional outlook forum organized by a local think tank, Pridiyathorn Devakula, Thai former central bank governor and finance minister, proposed some reform in the region's financial markets to strengthen the region and to pave way for the economic integration.

Study shows that intra-regional trade has grown rapidly in the past 20 years. Trade within Southeast Asia has increased from 27 percent of total exports in 1984 to 43 percent in 2006.

However, the intra-regional trade has been driven predominantly by the final demand from major economies, Devakula said, the final demand from within Asia accounts for only 21 percent of total export.

To strengthen the intra-regional trade and final demand in Asia, Devakula suggested that trade financing facilities should be readily accessible within the region.

"The key prerequisite for enhancing fund flows within the region is for Asia to have its own infrastructure for the payments and settlements of regional financial flows or some form of an Asian dollar clearing system," said the financier.

He added that this Asian dollar clearing system would go a long way in promoting the development of capital markets for the region, which has been progressing well under various regional initiatives.

On the movements of currencies in the region, Devakula said adopting a similar basket of currencies among some key economies in the region would be a useful first step towards sustainable currency alignment.

He did not think that a common currency that exists in the European Union or a snake system that was implemented in the European Community in the past would be appropriate for economies in the region which are at different stages of economic and financial developments.

He noted that the system of similar basket of currencies with an allowance for each country to adjust its own basket periodically seems to be the easiest one to start in the region.

Courtesy Xinhua

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