The Asian Development Bank’s (ADB) recent meet in Hyderabad raised the pertinent issue of agglomarisation of Asian economies finally culminating in an Asian Free Trade Area. Another important issue which came up was the formation of the Asian Monetary Union with a common currency, on the pattern of the European Union (EU). Both the proposals converge into one tall objective—an Asian Economic Union (AEU). AEU would like to achieve a uniform trade policy and substantial reduction in tariff rates, free movement of goods, services and fina-ncial resources, common exchange rate polices, alignment in monetary policies and interest rate structure and full capital account convertibility.
When the EU was formed, targets were fixed for reduction in the government fiscal deficit-GDP ratio, inflation rate and debt to GDP ratio. These had to be achieved by each member. Can Asian countries, with their diverse levels of economic development, varying per capita incomes, competitive exports, complex political and border disputes and deep cultural differences constitute a viable economic union?
The EU consists of countries with homogeneous characteristics and the same social and religious fabric. On the basis of a few bilateral trade agreements, we cannot dream of an AEU. We need economic assessment of these agreements. Asia, for long, has had Asean, Asian Clearing Union (ACU), the Bangkok Agreement and Saarc, but nothing concrete has been achieved. Of course, Asean intra-trade has increased rapidly because of their domestic policies and efforts to improve their economies. ACU was designed to promote a facility to settle, on a multilateral basis payment, international current transactions among members, help economise the use of participants’ foreign exchange reserves and, thereby, contribute to expansion of trade and economic activity among countries of the region.
ACU could not achieve even one of these objectives, owing to regional rigidities and domestic interests, forex reserve bottlenecks, non-existence of monetary alignment and weak harmonisation of social and cultural characteristics.