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Regional Financial Integration: Opportunities and Challenges Dr. Aslim Tajuddin

East Asian Financial Markets Seminar 22 -23 Ju ne , 200 6. Regional Financial Integration: Opportunities and Challenges Dr. Aslim Tajuddin Deputy Governor Bank Indonesia. Introduction.

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Regional Financial Integration: Opportunities and Challenges Dr. Aslim Tajuddin

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  1. East Asian Financial Markets Seminar 22 -23 June, 2006 Regional Financial Integration: Opportunities and Challenges Dr. Aslim Tajuddin Deputy Governor Bank Indonesia

  2. Introduction • Economic and financial regional integration are vehicles to achieve the ultimate goal of economic cooperation which is the stable and prosperous region • Geographical proximity and strong economic relations among countries have been the main driving force behind the establishment of regional economic and monetary integration

  3. Driving factors for integration • Politic • Market Asian financial integration should mainly be driven by market force

  4. Approaches for financial integration Due to the large differences in the structure and economic performance of Asian countries remain, the launching of the RFA is more appropriate for the first stage that latter on could be followed by other measures, including the adoption of a common currency • Through establishment of Regional Financial Arrangement, or • By establishment of currency union as in Europe

  5. Three types of RFA • RFA with single currency basket • RFA without a uniformed of fixed exchange rate system • RFA that focuses only on strengthen the financial system Adopting the RFA with the support of a single currency basket will providing a reference for each local currency that in turn could promote intra-regional exchange rate stability.

  6. Challenges ahead • The process of financial integration in the Asian region should be prepared well. • Strengthening the CMI by; • Augmentation, multilateralism and de-linking of the BSA from the IMF program • Formalized the CMI into an institution that can provide open-ended short-term financing to Asian economies (Establishing Asian Monetary Cooperation Fund) • Strengthening the regional surveillance

  7. Challenges ahead • Steps to liberalize the capital account should be implemented step by step as needed, and giving opportunities domestic financial markets to strengthen their position. • Strengthening monetary policy coordination can be done through; • Establishment of a formal forum for exchange rate policy dialogue and information exchange among officials of Asian economies • Conducting coordinated and concerted policy action, especially in the foreign exchange market.

  8. Conclusion • The lesson learn from the 1997 crisis has fostered our belief that we need to band together to protect ourselves from the contagious effects of financial crisis and the destabilizing impulses emanating from outside • The regional monetary policy cooperation and coordination become more relevant than before as we are facing new external risks like global imbalances, an increased trend of interest rates in developed economies, the raising volatility in capital markets, as well as the surge oil prices • The agenda of economic and financial integration, especially regional monetary cooperation are our homework that we need to do together by establishing a set of intra-regional financial integration arrangement and domestic economic reform plans.

  9. Toward the East Asian Economic and Financial Integration... Thank you

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