The war could mean a prolonged slowdown of the American economy and hard landing of the U.S. dollar. If this happens, it would compound the problems of economic recovery of Asia.

For resuming rapid growth, Asia needs to find alternative sources of effective demand. The needs of Asia cannot be met by the present international financial system or by the regional co-operation programmes in existence. The answer lies in a bolder programme of financial co-operation drawing upon the European experience. Perhaps an Asian Economic Community (AEC) that would be broader in coverage than the current programmes for economic co-operation in regions such as East Asia, South Asia and Central Asia is the need of the hour. Such a grouping would facilitate further exploitation of the region’s considerable resources–-material as well as human–-for exploiting the process of its development.

There is now a realisation among economists that the stimulus for future growth has to come from within the region. The slowdown in the growth of U. S. and European Union is only one of the reasons. A more formidable and longer–lasting reason is the formation of regional trading blocks in the rest of the world in the 1990s. An effect of these regional integration agreements (RIAs) has been the rising proportion of the world trade that is conducted within the trading blocs. More than 60 per cent of all European Union exports in 1996 were destined to other EU member states. The proportion applicable to NAFTA is 47 per cent. Nearly 60 per cent of European FDI flows were also absorbed within the single market or in candidate countries.

On the other hand, substantial complementarities exist among Asian economies that remain to be exploited. While there are economies that are surplus in capital resources, there are those, which have inadequate domestic savings. The region is similarly characterised by complementarities in the demand and supply of other resources such as technology and skilled manpower.

The East Asian economies that were recovering from the 1997 financial crises are slowing down because of recession of the U. S. economy. Japan’s economy has been in a deflationary state for more than a decade. The Japanese recession has also affected growth in the rest of Asia. A more intensive co-operation could ensure a more intensive co-operative for matching the under-utilised capacity in some countries of the regions with the unmet demand in others.

A votary of this concept is
Dr. Nagesh Kumar, Director General of Research and Information Systems for the Non-Aligned and other Developing Countries (RIS).

"The Asian Economic Community is an idea whose time has come", says Dr. Kumar, a well–known economist who has specialised in issues pertaining to International Trade and Foreign Direct Investment (FDI).

"Formation of a broader pan–Asian economic community could enable the region to resume its rapid growth despite the uncertain global outlook and emerge as a centre of gravity in the world economy," Dr. Kumar says.

Studies conducted by his centre, a think-tank organisation under the Ministry of External Affairs, have established considerable complementarities in the region.

Dr. Kumar suggests that a beginning be made by forming a core group of Japan, ASEAN, China, India and Korea or ‘JACIK’ in short. Once the process of integration is consolidated and some gains of coming together are apparent, AEC could be thrown open to other economies of the region. He states that those JACIK economies combined between them 14 of the largest and fastest growing economies with vast complementarities.

A new regional group in Asia would roughly be the size of the European Union in terms of GDP, will have larger magnitude of trade than NAFTA and international reserves bigger than those of EU and NAFTA put together. The formation of AEC will also help this region play a more effective role in shaping the emerging world trading and financial system responsive to its needs. The major area of co-operation could include monetary and financial co-operation, formation of a regional trading block, foreign direct investment and transfer of technology and skills.

Dr. Kumar is of the view that India, by taking a lead, would reap considerable benefits.

Voices for intensifying economic co-operation among Asian countries are emanating from different places. For instance eminent scholars, experts and policy makers who assembled in New Delhi recently for a conference (held under the auspices of the Malaysian Institute of Economics Research, Centre for Strategic and International Studies, Indonesia, and RIS with the support of the Sasakawa Peace Foundation, (Japan) endorsed the concept.

It also has the support of Mr. Koichi Kato, former Secretary–General of the Liberal Democratic Party of Japan and a heavyweight in the politics of the country, not to speak of the sympathisers among policy makers and eminent persons in India itself. According to Dr. Mukul G. Asher, Professor, Public Policy Programme, National University of Singapore, India, which has been pursuing its ‘Look East’ policy since 1991, is now in a position to accelerate closer economic co-operation with the rest of Asia. "Strategic thinking underlying India’s 2003-04 budget is similar to that pursued by several East Asian economies such as Thailand, Malaysia and China. This thinking emphasises stimulation of domestic demand, particularly through infrastructure and rural development. Thus, there is budgetary policy convergence between India and East Asia.

Dr. Asher notes that India is becoming more attractive as a market and its tariff rate is progressively approaching East Asian levels. Particularly since the 1997 economic crisis, ASEAN’S reliance on India as an export destination has increased considerably. Besides, India is currently negotiating economic co-operation agreements with Thailand and Singapore, and has offered to negotiate a Free Trade Agreement (FTA) with ASEAN. This year’s budget proposes Indian Development Initiatives under which one billion dollars per annum will be available for grants and project assistance to countries in Africa and Asia. This may be of relevance to less developed newer members of ASEAN, Dr. Asher says. A study of Asian history shows that in the pre-colonial period, a virtual Asian economic community existed as is evident by vibrant intra-regional exchanges of goods, cultures and values.

In ancient times, the famed Silk Route provided the channel for economic exchanges. Marco Polo’s tales are just one such description. During the 19th century, the colonial powers provided the framework for extensive and liberal trade within Asia in goods and services as well as massive movement of labour and capital. Assisted by Japan’s rise, trade was brisk.

In the first half of the 20th century, intra-regional trade ratio was more than 50 per cent. These trade and investment flows were disrupted by political and military factors during the colonial period and in West Asia. Along with trade, there was a robust exchange of ideas. Chinese scholars visited India and vice-versa.

Ideological influences spread across nations binding them in ties of religion. Hinduism and with it the art of governance of Chanakya found its way across to Indonesia, Malaysia and Thailand.

The sweep of Buddhism is well known. Religion has been a unifying factor. Religious beliefs become a way of life and with the spread of religion, cultural ties flourish. Pagan, Borubudar and Angkor Vat are a testimony to the vast trading and cultural network that Asia was in ancient times.

Dr. Koichi is of the view that intellectual power of nations will decide their place in the global market place. "We are coming to an age when intellectual power–knowledge–is the deciding factor in the global political scene. Countries with ability to wield this power, to gather it and transfer it to other nations through their policies, will be world leaders in the coming decades. And I believe that India, China and Japan are looking at a very bright future in this regard. We have a deep pool of skilled researchers and a wide range of leading technologies. Asian nations will be able to create an intellectual power and ensure a leading role for themselves in global affairs," he argues.

In more recent times, India has been a keen participant in schemes of regional economies integration in Asia. India has been a founder member of one of the first preferential trade agreements in Asia signed way back in 1975, that is, the Bangkok Agreement that combines Korea, Sri Lanka, Bangladesh and Lao PDR. In 2001, China also got membership.

India has also been an active member of the Asian Clearing Union since its inception in the mid 1970s.

India has been participating in the South Asian Association for Regional Co-operation (SAARC) formed in 1985, SAARC Preferential Trading Arrangement (SAPTA) signed in 1995 and the Indian Ocean Rim Community–Association for Regional Co-operation (OCR-ARC) formed in 1997.

India became a Sectoral Dialogue Partner of ASEAN in 1992 and a full dialogue partner in 1996. India ASEAN partnership crossed an important milestone in 2002 with a
10 + 1 Summit meeting. India and ASEAN are now working on a regional free trade and investment agreement.

India has also recognised the pragmatic logic of pursuing specific socio-economic goals in the region through sub-regional grouping. It is, therefore, participating in Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Co-operation (BIMSTEC) formed in 1997, and the more recently formed Mekong–Ganga Co-operation, bringing together Cambodia, Laos, Myanmar, Vietnam and India.

The country has offered assistance to the initiation of ASEAN Integration in the area of transportation network involving highways, railways, river navigation and port facilities.

Moreover, India is working on bilateral free trade agreements with some ASEAN countries such as Thailand and Singapore.

India has an expanding trade and economic relationship with China and Korea. With Japan, it has agreed to launch a global partnership into the 21st century. Nearly 50 years ago, in his monumental work, Asian Drama Gunnar Myrdal reviewed the prospects of growth and development in Asia. Myrdal made a study of various economies, political and social dimensions of the Asian scene and he brought an emphatic orientation to his studies.

However, despite his goodwill, Myrdal concluded somewhat sadly that Asia was not as well equipped for development as Europe at this tune of the industrial revolution. Asia’s geography, its soft state, its social structure and its philosophical orientations were all hindrances to rapid growth. At that time, the prospects of sub-Saharan Africa and Latin America were often seen as brighter.

Fortunately, Asians have belied such negative prognosis. In fact, the economic progress achieved by Asia in the 50 years since the end of the Second World War has been the most rapid in human history.

Japan, South Korea, Singapore, Taiwan (China), Malaysia, Thailand have all registered spectacular growth.

In most Asian countries, a middle class is emerging that has a standard of living comparable to the middle class of Western nations.

Even more commendable is the fact that Asia has achieved its remarkable progress by essentially following its own development paradigm. Starting with Japan, the state has played a role of being more than just a referee but a nurturer of development. In a significant sense, the Asian miracle is the product of Buddha ‘magic of the middle path’ rather than ‘magic of the market place’ or ‘magic of central planning’.

Dr. Kumar argues that if Asia wants to revive its growth momentum then it must depend primarily on its resources and its own wisdom. In this effort, it should not expect approval, much less help from other regions.