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Perfect time for Asia to boost economic influence

Finance ministers and central bank governors from the Group of 20 advanced and emerging economies have been meeting regularly for nearly a decade. But the decision to convene a summit of the G20 heads of state in Washington last weekend marks a watershed in the way global economic problems are handled.

The summit agreed on a plan for tackling the financial crisis and the deepening slump. This is an opportunity for Asia to increase its influence in managing the world economy, provided leading players - China, India, Japan and South Korea - can put aside long-standing rivalries and intensify co-ordination.

As a forum for consultation and co-operation, the G20 seems set to become a prominent feature of the global economic landscape. Its leaders will meet again by the end of April to review their ambitious action plan, which ranges from reform of banking, accounting and credit-rating standards to stimulating economic recovery, sustaining world trade and investment flows, and ensuring that the International Monetary Fund and World Bank have enough resources to meet future challenges.

The scope of the problems confronting many economies, both developed and developing, have propelled the G20 to the front line. These problems can no longer be tackled by North American and European powers, alone or in a dominant position.

But the G20 members, although still a relatively small and cohesive group, stand a better chance of success. Collectively, they account for two-thirds of the world's population, 80 per cent of its trade and 90 per cent of global economic activity. Japan's prime minister, Taro Aso, noted that governments taking part in the summit had to work together to limit the depth of the downturn.

The interests of advanced and emerging economies are reasonably balanced in the G20. Members from the former include the US, European Union, Britain, Canada, France, Germany, Italy, Japan, Russia, South Korea and Australia, while the latter comprise China, India, Indonesia, Brazil, South Africa, Mexico, Argentina, Saudi Arabia and Turkey.

The role of Asia in the G20 is unique for two reasons. First, it cuts across the north-south divide, linking Japan, South Korea and Australia, on the one hand, with China, India and Indonesia on the other.

Second, Asia's potential clout is huge. Asia accounts for more than 35 per cent of world gross domestic product, compared with the US and the EU, each with about 20 per cent. Moreover, Asia has been contributing to around half of world growth in recent years. Although hurt by the current crisis, major Asian economies have not slowed as much as their western counterparts.

The fact that the region holds about one-third of the world's central bank reserves could play a key role in cushioning the recession and aiding recovery. Whether it does so will depend on the extent to which major Asian players are prepared to put aside their rivalry and align and co-ordinate their economic and financial interests. A start has been made through the proposed expansion of the network of currency swaps in Asia and plans for a regional bond market and an Asian currency unit.

This kind of co-operation needs to be intensified if Asia's punch is to reflect its true weight. It would help, too, if China were to follow Japan, which announced it would lend up to US$100 billion to the IMF to help provide financial lifelines to crisis-hit emerging countries.

The current structure of the G20 leaves plenty of room for Asian influence. The chairmanship of the group rotates each year, while continuity and direction are given by a revolving three-member management body of past, present and future country chairs, referred to as the Troika.

Brazil, Britain and South Korea form the current Troika. If Asia wants to reshape the global economy and financial system, there is no better opportunity to do so than now.

Michael Richardson is a security specialist at the Institute of Southeast Asian Studies in Singapore

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