1. Asian Financial Industry: Background and Important Issues 

1.1  Regional economic integration accelerating the process of financial cooperation

With the large increase in trade and investment between Asian nations, economic ties in the region are being greatly strengthened.  This situation not only establishes a solid foundation for regional financial cooperation, but also provides for higher levels of financial cooperation within the region. 

1.2  Asia's financial crisis strengthening the consensus on regional financial cooperation among Asian countries

After the Asian financial crisis, many East Asian countries began to realize that effective methods to stabilize the financial market and protect the region from another crisis was to create a mechanism strengthening financial cooperation within the region.

1.3  The common economic and financial structure in Asia is calling for a unified Asian Bond Market

Firstly, indirect finance through banks plays a dominant role in the Asian financial market.  This type of structure is better suited to supporting developing countries in catching up with more developed countries. But obviously, it will be difficult to bear the strategic responsibility of economic structural reform. Furthermore, it will render the existing financial systems in these countries with a lack of mobility, transparency and elasticity when faced with great changes. Developing the bond market is one way to make changes taking place in such a financial system.

Secondly, it takes a long period of time to establish financial cooperation in the Asian region. Therefore there the need exists to establish long-term dialogues amongst nations and set up a coordinating mechanism.

Thirdly, Asian economic entities generally hold a large amount of US dollar assets, which are in turn prone to be dominated by the US dollar. Developing the Asian bond markets will help to gradually mitigate these effects.

2.  Solution Proposals

2.1  Framework for the Solution Proposals

As proposed by officials and specialists from the Asian Development Bank and other international organizations, Asia must set up an independent organization in the near future.  This organization will guarantee dialogue on the formulation of regional policy, to be supported and evaluated in the same manner among policy makers.  It is the responsibility of Asian nations to monitor financial development within the region, to expand the network of bilateral currency exchange as prescribed by the Chiangmai Agreement, and to provide short-term liquidity support to its member nations with the foreign reserves set aside by its contract members. 

The second step is to substitute the bilateral currency exchange system with one (Asian) central reserve and work out the corresponding rule of payment for the reserve.  The standardization of documents and coordination among banks should also be promoted.  Furthermore, the Asian Monetary Cooperation Fund should be set up to manage dialogues on regional policy, the administration of central reserves and to monitor development in the finance industry.

Thirdly, judging from a long-term perspective, Asia should implement a regional exchange rate mechanism to defend the stability of exchange rates within the region. And it also has to standardize and coordinate rules of safety within each country's banking sector. 

2.2  East Asian Monetary Fund

On October 18, 1999 Malaysian Prime Minister Mahadir proposed the establishment of an "East Asian Currency Fund" at the "East Asia Summit Meeting".

At the 2nd annual Boao Forum in 2003, the Vice-Minister of the Korean Finance and Economy Department called for the construction of a mechanism to allow all Asian nations to share in the region's 1 billion US dollar capital funds. "Mr.Yen" Eisuke Sakakibara believes that it is time to carry out the proposal of establishing an "Asian monetary fund", which was first raised in 1997 by the Japanese government.  And what should be done now is to coordinate political wills among its members.

2.3  The ASEAN 10+ 3 monitoring process

The ASEAN 10+3 group was established in November 1999.  In May 2000, the first conference of the ASEAN 10+3 was held after the annual meeting of the Asian Development Bank. All members agreed unanimously to strengthen dialogues on regional policy and cooperation between nations, including the implementation of capital control, self-saving and self-regulating mechanism, as well as international finance reform.  

2.4  AAB (AAB ¨C Asian Arrangements to Borrow)

Korean scholars (Tae-jun Kim, Jai-Won Ryon and Yunjong Wang 2000) put forth the proposal called the AAB (Asian Arrangements to Borrow), which is similar to the IMF's GAB (General Agreements to Borrow) loan program. In order to reduce the risk of moral hazard, AAB connects the upper limit of loans with the contract signed by both sides of the credit loans.   

2.5  The ASEAN 10+3 Early Warning System

The ASEAN 10+3 Early Warning System was first raised in the announcement by the Ministers of Finance conference at the Asian Alliance 10+3 meeting held on May 2001 in Hawaii. The Asian Development Bank is providing technical aid to prevent any future financial crisis.  This type of aid supports:

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