Asia's Financial Integration Presents Challenges and Opportunities

• Author: David Goldsbrough
• Position: IMF Asia and Pacific Department
• Pages: 95-96

Page 95

The following is a summary of a March 7-8 conference, sponsored by the IMF and the Hong Kong Monetary Authority, on "Financial Integration in Asia and the Role of Hong Kong." The conference aimed to assess the implications of increasing integration of trade and financial markets for Asian policymakers, examine Hong Kong's role in the region, and identify policy issues for Hong Kong as it approaches the transfer of sovereignty to China. The conference was opened by Christopher Patten, Governor of Hong Kong, and brought together finance ministers, central bank governors, and senior officials from across Asia, as well as from Europe and North America, along with private sector representatives, academics, and representatives of international institutions.

Addressing the first session, IMF Managing Director Michel Camdessus stressed that the increasing regional integration within Asia was part of a broader process of globalization-through trade, financial flows, technology spillovers, and more rapid availability of information (see IMF Survey, March 10, page 68). While globalization has already had a major positive impact on Asia's role in the world economy, Camdessus said, its continuing benefits will not come automatically but will require good policies-especially stable macroeconomic policies, open trade regimes, and flexible product and factor markets supported by effective "exit" policies for non-competitive industries. The quickening pace of financial innovation and integration also raises other challenges for Asia, said Camdessus; these include the development of a stronger financial infrastructure to handle the region's increasingly complex intermediation requirements and a regional policy dialogue to supplement strengthened surveillance and cooperation in a multilateral framework.

Hong Kong is a prime example of an economy that has already successfully managed a rapid structural transformation in an increasingly globalized economy, said Camdessus. This success owed to a strong policy framework-prudent budgetary principles, the free flow of trade and capital, and a well-justified and soundly supported exchange rate link to the U.S. dollar as the anchor and principal objective of monetary policy. This framework will continue, he added, after the transition of sovereignty. While transitions always present some degree of uncertainty, the Chinese, Hong Kong, and British authorities have shown great foresight and pragmatism in...