1. Regional and International Financial Issues Facing Asia Dr. Oh, Jong Nam Executive Director International Monetary Fund January 21, 2006 The 16th Annual Asia Business Conference, Stephen M. Ross School of Business, University of Michigan

2. 2 I. Introduction  Many financial issues facing Asia  Regional cooperation: currency SWAP, Asian Bond Initiative  FDI and portfolio investment  Foreign reserve management …  Lessons from the 1997-98 Asian Crisis  Emergency financing The 16th Annual Asia Business Conference

3. 3 II. Growing Cross-border Capital Flows  Global financial markets are becoming deeper and more liquid.  US$ 119 trillion (2004) → US$ 209 trillion (2010)  Cross-border capital flows have more than tripled, more than US$ 4 trillion annually.  Foreign purchases of US financial instruments (%) US SecuritiesUS Corporate BondsTreasury Securities 19754120 2003 122544 The 16th Annual Asia Business Conference

4. 4 III. How the IMF Helps to Resolve Financial Crises  IMF lending aims to give countries breathing room to implement adjustment policies and reforms …  For a loan, the authorities and the IMF must agree on the appropriate program of economic policies.  IMF’s financial position as of January 2006 The 16th Annual Asia Business Conference Outstanding Credit US$ 31.4 billion Liquidity (available resources) US$ 162.2 billion 42 Arrangements (10 SBA, 2 EFF, 30 PRGF)

5. 5 IV. Recent Progress in Regional Financial Cooperation & Further Consideration  Foreign reserve holdings by Asian countries as of end- 2005  Japan ($ 847 bill.) + China ($819 bill.) + Taiwan ($ 253 bill.) + Korea($ 210 bill.)+ HK ($124 bill.) + Singapore ($ 117 bill.)+… ► Over US$ 2.5 trillion  Abundant liquidity cannot be a substitute for sound economic management and institutional development.  No complacency with regard to implementing necessary structural and institutional reforms. The 16th Annual Asia Business Conference

6. 6 IV. 1. Recent Progress in Regional Financial Cooperation (1)  Chiang Mai Initiative (CMI): liquidity provision  16 agreements and US$ 39.5 billion → New agreements (May 4, 2005): increasing the size by up to 100 % (a first step toward multilateralism)  Asian Bond Markets Initiative (ABMI)  Information-sharing : East Asia Summit, ASEAN, ASEAN+3, SEACEN, … The 16th Annual Asia Business Conference

7. 7  Asian countries urge the membership to address the imbalances in IMF quotas, where the size of quota is clearly out of line with the economic weight and strength of Asian countries. The 16th Annual Asia Business Conference IV. 1. Recent Progress in Regional Financial Cooperation (2) Asia’s Actual Quota Share Calculated Quota Share* GDP Share of World GDP (2004) 16.5%23.0%35.0% China Japan Korea 2.98 6.20 0.76 5.07 7.20 2.23 4.00 11.40 1.70 9.9414.5017.10 * Based on a formula by IMF Staff (2005)

8. 8 IV. 2. Further Consideration (1)  A more systemized version of a multilateral reserve pooling arrangement:  How to proceed from the present state of case-by-case cooperative agreements (a decentralized, multilateral design) → to a system of centralized resource pooling and a possible institutional set-up The 16th Annual Asia Business Conference

9. 9  The Role of IMF :  the macroeconomic policy advice on field of expertise: macroeconomic policies, economic and financial governance, tax reform, and improved expenditure management, will remain to play an important role…  There may also be cases where balance-of-payments instabilities are structural and fundamental in nature … The 16th Annual Asia Business Conference IV. 2. Further Consideration (2)

10. 10  Quotas, voice and representation in the IMF:  Continued cooperation in the region should be in place on the issue.  In the meantime, measures to address the under- representation should be developed not only in quotas but also in voice and representation. The 16th Annual Asia Business Conference IV. 2. Further Consideration (3)

11. 11 V. Conclusion (1)  All in all, Asia is emerging as an important pillar of the world economy.  Share in World GDP(%) 1990199520002004 Japan8.78.37.36.9 Newly industrialized Asian Economies* 2.63.33.5 Developing Asia14.619.321.724.6 Asia25.930.932.535.0 * Hong Kong SAR, Korea, Singapore, Taiwan. Based on the PPP valuation The 16th Annual Asia Business Conference

12. 12  What does that mean ?  Provide more opportunities for students majoring in business administration.  How should a window of favorable environment be best utilized?  Try to familiarize yourselves with financial issues of your own country as well as international financial ones.  And …. The 16th Annual Asia Business Conference V. Conclusion (2)

13. The 16th Annual Asia Business Conference Thank You !