Regional Cooperation and Innovation Development Dr. Aslim Tadjuddin Deputy Governor Bank Indonesia

1. Asia-Pacific Finance and Development CenterBiennial Forum Shanghai, 22 September, 2006 Regional Cooperation and Innovation Development Dr. Aslim Tadjuddin Deputy Governor Bank Indonesia

2. Outline • Introduction • Financial Cooperation • Initiatives and Suggestions to Foster the Asian Financial Integration • Sustainable Development and Innovation • Conclusion

3. Introduction

4. Economic Integration • 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 integration.

5. Financial Cooperation

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

7. Economic Integration is no panacea • Economic and financial integration will increase the flow of capital within the region. • The increasing financial integration also contains risks that relate to the possibility of sudden and huge capital reversal.

8. Financial integration among Asian economies is still limited Financial market integration in Asia has lagged substantially behind the trade integration. Therefore, surpluses of saving are largely intermediated through financial markets outside Asia. • Major foreign lenders in Asian banking industry are mainly American, European, and Japanese Institutions. • Major foreign investors in Asian capital market are still from non-Asian economies.

9. 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

10. 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 (Asian Basket Currency/ABC) as a reference for each local currency would promote intra-regional exchange rate stability and that in turn would promote intra-regional economic growth.

11. Initiatives and Suggestions to Foster the Asian Financial Integration

12. Initiatives to establish resource pooling • The Asian Money Fund (AMF) • Chiang Mai Initiative (CMI) • Bilateral Swap Agreement (BSA)

13. Capital market development EMEAP countries launched the Asian Bond Fund program • ABF1 • ABF2

14. Suggestions to improve monetary policy coordination in the region • Creating a forum to formally the exchange rate policy dialogue and information exchange among East Asia economies. • Strengthening cooperation and coordination among central banks in maintaining exchange rate and financial market stability by looking possibility of conducting coordinated and concerted intervention in the foreign exchange market.

15. Sustainable Development and Innovation

16. Innovation and the role of government • With innovation, an effective and efficient technique or method would be continually created. • Government and private sector must create a good climate for growing innovation. • In Indonesia, the central bank obligate banks to spend certain amount of fund to enhance human development. • Sharing knowledge among countries in the region plays a key role as well in propping up innovation.

17. The Importance of Intellectual Property Right System • A good system will provide confidence to innovators that their rights will be respected. • A balance must be pursued between intellectual property protection and sharing innovation benefit. • Adoption of Anti-Counterfeiting and Piracy Initiatives by APEC economies will reduce trade of counterfeit goods, protect against unauthorized copies, and prevent the sale of counterfeit goods.

18. Indonesia’s measures in establishing and improving the intellectual property right system • Member of the World Intellectual Property Organization (WIPO) and in 1997 became full party to the Paris Convention for the Protection of Intellectual Property. • Signing: • The Trade Related Aspect of Intellectual Property Right (TRIPS Agreement). • The Nice Agreement for the International Classification of Unclassified Goods and Services, the Strasbourg Agreement Concerning the International Patent Classification. • The Budapest Treaty on the International Recognition of the Deposit of Microorganisms.

19. Conclusions • The regional economic cooperation and coordination becomes more relevant than before, because Asian economies are facing new external risks like global imbalances, US dollar depreciation, and raising volatility in capital markets. • Securing of world wide intellectual property protection is an important element to foster innovation development that in turn will bring considerable economic benefits to the region. • The APEC member economies to work hand in hand to promote public awareness through education and sharing of knowledge.

20. Thank you