The 1997/98 Asian financial crisis provided an opportunity for financial sector restructuring and the reforms needed to reinforce the foundations for building regional financial stability. In the 10 years since the crisis, we have seen an extremely important by-product of the reform process evolve into a region-wide strategy. Of course, I am referring here to the trend across East Asia toward enhanced economic cooperation and integration. This afternoon I would like to discuss (i) how recovery over the past decade has made regional economic cooperation and integration a priority as ASEAN and East Asia move forward, (ii) how ADB continues to evolve in response to the challenges presented by the trend toward regional economic integration; and (iii) the importance of establishing East Asia Economic Research Institute for ASEAN and East Asia (ERIA) in a way that augments policymaking capacity and supports economic cooperation and integration.
II. An Enabling Environment for Economic Cooperation and Integration
Ten years after the 1997/98 Asian financial crisis, ASEAN and emerging East Asia in general have regained economic buoyancy and dynamism one step at a time. The region took the crisis as an opportunity to collectively bite the bullet on needed restructuring and reforms-at a pace appropriate to specific economic conditions:
* By and large, the region's financial systems have been successfully restructured, with banking systems consolidated, new lines of business opened, and greater prudential oversight enforced;
* Regulatory reforms have led to the gradual liberalization of restrictions on exchange rate movements and capital flows, setting the stage for increased cross-border investment, and the significant current account surpluses that led to large foreign exchange reserve accumulation;
* Driven by the private sector, market-led regional economic integration deepened as production networks grew; while East Asia's governments embraced economic cooperation through the various informal dialogues and more formal ministerial processes.
Thus, it has become clearer that the complementarities and synergies drawn between market-led integration and policy-induced cooperation have helped return East Asia to the forefront of global economic growth and vibrancy. Naturally, more needs to be done, as reform in an increasingly integrated and dynamic global economy is an ongoing process rather than a one-off effort.
III. ADB's Response to the Challenges of Regional Cooperation and Integration
At ADB, our aim is to be at the cutting edge of this trend, and to be a valuable partner as a regional development bank. While promoting regional cooperation is part of our Charter, we took the initiative to adopt a formal Regional Cooperation and Integration (RCI) Strategy in July 2006 to unify efforts across our departments and offices, improving the quality of lending and non-lending services, and strengthening support for trade, investment, monetary, and financial integration. The RCI Strategy is a coherent and strategically-focused approach covering four essential "pillars":
# Physical connectivity is the bedrock of regional and subregional initiatives-programs that enhance cross-border infrastructure and the related services that ease the movement of goods and human capital;
# Cross-border trade and investment link fragmented national markets for goods, services, and capital;
# Monetary and financial cooperation enhances support for regional systemic reform, opens new avenues for finance via bond market development, and promotes East Asian exchange rate stability; and
# Regional public goods improve environmental, health, and social conditions-whether through the prevention of environmental degradation and communicable diseases, or through the promotion of energy security, for example.
In June last year, I convened an Eminent Persons Group to help define the future role of ADB against the backdrop of emerging economic trends and the evolving development challenges facing Asia and the Pacific. One of the three complementary themes of the report-Toward a New Asian Development Bank in a New Asia-is to shift from a primarily national focus to a regional focus. The report also identified regional cooperation and integration as one of the six core operational areas for ADB.
In February this year, ADB established a new facility for mobilizing resources-the Regional Cooperation and Integration Financing Partnership Facility-which will use ADB resources and administer contributions from bilateral, other multilateral, and individual sources specifically for RCI activities. The facility comprises a Regional Cooperation and Integration Fund (RCIF), which is a special fund financed out of ADB net income to support technical assistance activities; and Regional Cooperation and Integration Trust Funds-agreed upon between financing partners and ADB-that will support technical assistance, grant components of investment projects, and other RCI activities.
As part of the move toward a regional and ultimately global focus, I would like to mention here ADB's partnership with the World Trade Organization's new Aid-for-Trade (AfT) initiative. AfT coordinates and monitors development assistance to developing economies-primarily least developed countries and small states-to increase international trade and take advantage of globalization. It involves building capacity to negotiate trade agreements, developing trade in terms of export promotion and finance, building the required infrastructure, creating supply-side capacity by increasing tradable products, and financing any required adjustment programs such as safety nets or retraining.
ADB will co-host a conference with the WTO and Philippine government in mid-September to bring together trade and finance ministers from Asia and the Pacific to discuss trade capacity, infrastructure, and supply-side challenges. The conference will set priorities for the future. Resource mobilization for the region's trade development is the important next step, as the results of similar regional conferences in Latin America and Africa will be presented at WTO headquarters in Geneva in late November. As the region's primary development partner, ADB can effectively help mobilize and channel new AfT funds to our developing member countries.
IV. The Economic Research Institute for ASEAN and East Asia (ERIA)
As we all know, timelines for the ASEAN Economic Community have been set-and accelerated-while discussions of an East Asian Community have moved forward. ASEAN indeed has a long history. Forty years ago this month-8 August 1967 to be exact-Indonesia, Malaysia, Philippines, Singapore, and Thailand agreed to form the Association of Southeast Asian Nations. Many initiatives have been tried in the four decades since. Some were successful, others not. ASEAN now comprises all 10 nations of Southeast Asia. But the most important aspect of this long association between nations is the gradual building of confidence between members and within ASEAN as a whole. That is why, when one talks of regional economic cooperation and integration, it is natural to look to ASEAN as the hub around which increased integration can take place.
ASEAN has become a manufacturing network for a wide range of products-from pharmaceuticals, automobiles, and electronics to information technology goods-and also produces high-end intermediate goods for final assembly elsewhere. ASEAN members have been major participants in the rapid expansion of free trade agreements (FTAs) across Asia and the Pacific. Given its experience as a collegial body addressing common issues and concerns, ASEAN can become an important vehicle for working toward a consolidation of FTAs into region-wide agreements. As synergies develop, ASEAN stands to gain as a community-as a center for expanding regionalism. There is an evolving common agenda to guide it forward-an agenda based on a shared commitment to adaptation, reform, and preparedness.
ASEAN-as well as ADB-has come to accept a pragmatic, step-by-step, bottom-up approach to regionalism-rather than a comprehensive pan-Asian "vision" as in Europe. A "multi-speed," "multi-track" approach to integration has largely been adopted. The original five ASEAN members began working together on selected common issues. And as new members joined, they were offered the option to join common initiatives at their own pace. Our experience tells us that the only logical way to move forward is to use this subregional cooperation as the building block of an eventual wider and more broad-based regional integration-expanding outside of ASEAN. We have seen this in the various permutations of ASEAN's relationships around the region-whether ASEAN+1 arrangements with China, Japan, and Korea individually; the more inclusive and formalized ASEAN+3; or the possibility of an ASEAN+6 including Australia, India, and New Zealand. This process seems appropriate given the extreme diversity and sheer size of Asia and the Pacific.
At this stage of ASEAN's evolution-and with the goal of an ASEAN Economic Community by 2015-the challenges of the future make it natural to emphasize the development of policy research capacity. Since late last year, ADB has been supporting these efforts as part of a group of experts from 16 of the region's research institutions and the ASEAN Secretariat, working with JETRO-IDE as partners in helping plan the Economic Research Institute for ASEAN and East Asia-or ERIA. The ERIA initiative was welcomed by the ASEAN Leaders at the Summit in Cebu this past January. We would be pleased to continue to support the establishment of ERIA.
Like the process of economic integration itself, ERIA is designed to operate initially as a relatively loose network of think tanks, eventually to grow into a more permanent and well-structured institution. ERIA is envisioned as an organization that can work both as a think tank and as an institution that builds capacity for policy formulation. The array of possible research topics is wide. Initial discussions have centered around assessing the challenges of East Asian economic integration, energy security, or building capacity in the newer ASEAN member economies.
Given ADB's experience in research and training, there may be merit in making several suggestions to ensure ERIA's success:
* work with the best experts-both from the region and internationally-to obtain the widest experience and produce cutting-edge knowledge products;
* forge links with the ASEAN and East Asian policy processes to produce research that is the most relevant and timely for policymakers; and
* through capacity building and training, contribute to the process of producing future leaders and policymakers.
These are some ways by which ERIA itself can become an integral part of the process of economic cooperation and integration within ASEAN and East Asia. And we at ADB see useful synergies with ERIA, whether it be in joint research, training programs, short-term exchanges of personnel, or any other initiatives that aim to further regional integration within East Asia.
V. Conclusion
Within ASEAN and East Asia-and as ADB has found-what is essential is that we maximize the complementarities and synergies that drive regional economic cooperation and integration. From market-led integration to policy-based cooperation, ASEAN, as it enters its fifth decade, is primed to be the hub of growing economic regionalism. There are many challenges that lie ahead as ASEAN strives to achieve an Economic Community by 2015. They can be better met by the types of initiatives that ERIA represents. Research and capacity building go hand in hand. And ADB will be there to help.
Keynote Lecture by Haruhiko Kuroda, president of the Asian Development Bank, at the Symposium at the East Asia Economic Research Institute for ASEAN and East Asia (ERIA)