The East Asian financial crisis was the impetus for many financial cooperation initiatives within the region. This paper reviews progress in a number of areas, particularly the Chiang Mai Initiative, which aims to enhance a country's access to foreign reserves in times of stress via a series of swap arrangements in the region, and the development of the Asian Bond Market in order to increase long-term financing for deficit countries so they will not have to rely mainly on short-term foreign borrowing, as was the case prior to the crisis. A number of recommendations are made, including the setting up of a regional organization to coordinate a multilateral version of the Chiang Mai Initiative and further development of the regional currency and bond markets to increase the private sector's access to long-term financing. Given the region's huge holding of foreign reserves, the paper also recommends a much more proactive approach in managing these reserves in order to influence global financial developments.
The authors would like to thank the Economic and Social Research Institute, Cabinet Office, Japan, and the Nomura Research Institute for supporting the study. Thanks are also due to many people who provided useful comments on earlier versions of the paper, including Eiji Ogawa, Richard Baldwin, Naoyuki Yoshino, Yang Doo Yong, Ross Garnaut, and other participants in the Asian Economic Panel meeting in Seoul, South Korea, 20–21 March 2006. However, the authors are solely responsible for any errors and shortcomings in the paper.