BANGKOK: Asian economies should further enhance cooperation to reduce the potential risks and long-term scars the pandemic had on economic development, a Thai central bank official said.
“We have already had firm cooperation in trade and financial sector, should only be in an increasing trend going forward,” Chayawadee Chai-Anant, a senior director at the Bank of Thailand’s Economic and Policy Department, said in a recent interview with Xinhua.The Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea (ASEAN+3) further strengthened the regional financial safety net with the amended Chiang Mai Initiative Multilateralisation (CMIM) Agreement, a regional financing arrangement, in March.
The CMIM agreement is jointly signed by the finance ministers and central bank governors of member states of ASEAN, China, Japan and South Korea (ASEAN+3) and the Monetary Authority of China’s Hong Kong Special Administrative Region.
In addition to the US dollar, the amended CMIM, which came into effect on March 31, allows the use of members’ local currencies for CMIM financing within the CMIM’s total financing capacity of 240 billion US dollars, according to a statement released by the Bank of Thailand.
In addition to each country’s international reserves as the first line of defense against financial risks, Chayawadee called the CMIM the region’s needed “second line of defense,” and the amendment was completed at the “perfect timing” to reassure the safety needed during the difficult times.
The discrepancy of economic recovery path from the pandemic and pace of vaccination may create uneven financial conditions, and trigger volatility and capital outflow from emerging markets if advanced economies recover first and withdraw liquidity, Chayawadee said.
“Capital outflow could be a common risk in emerging markets, especially in Asia. We are monitoring the situation closely, but expect that it would not be as severe as the Asian financial crisis in 1997,” she said.The unwinding of monetary positions in advanced economies may lead to financial turbulences in the region, but not a crisis, with the banking system remaining relatively healthy and the amended CMIM would also play a part to support investor sentiment, she said. The official’s remarks came as world economies gear up for a vaccine-induced rebound while Asian economies face challenges of new outbreaks, with India suffering a severe wave of the coronavirus and cases still high in countries such as Indonesia, the Philippines and Thailand.
Despite various economic structures, ASEAN+3 economies are facing a common challenge of higher debt levels, which could weigh on consumption, a main driver of growth, Chayawadee said.
She also warned about employment losses that may cause a shortage of skilled workers in post-pandemic recovery. “In the recovery phase, if we cannot produce skilled workers soon enough, we may lose economic opportunities.”
To avoid these economic scars, economies should focus on upskilling and reskilling to help workers impacted by Covid-19, as well as enhancing cooperation in developing infrastructures to boost investments going forward, she said.