Besides the WTO, ASEAN and its members need to take full advantage of APEC, supporting its concept of “open regionalism”, and its goal of free trade and investment in the Asia Pacific region. ASEAN also needs to explore links with other regional groups, for example with North East Asia through a possible free trade area with China, Japan and South Korea. At the Informal Summit, the ASEAN plus three countries clearly recognised that it is not in their own interest for the divide between Northeast and Southeast Asia to continue widening. The “plus three countries” want to work with ASEAN, to develop closer and deeper linkages between the two sub-regions. The way to strengthen ASEAN economic cooperation is by participating actively in these external fora, and not by opting out of them. This will send a strong signal to the world that ASEAN remains an open and outward looking organisation, with its members welcoming competition and strengthening themselves as a group. It will help restore ASEAN’s credibility as a vigorous and effective organisation that plays a responsible, relevant role on the international stage. Corporate sector restructuring The third area on which the crisis countries have to focus attention is their corporate sectors. Insolvent and non-viable companies have to be restructured, to set growth on a firm basis and restore confidence. The problems differ from country to country, but some fundamental issues are common.
Finally, the ultra-accommodative monetary policy stances of advanced economies have contributed towards greater global asset price co-movements and increased cross-border financial spillovers. In the context of a highly globalized financial system, extreme monetary easing has ‘pushed’ capital to other parts of the world, particularly emerging market economies where yields are higher, and boosted asset prices globally. The exceptionally long period of zero interest rates has also led to a buildup of financial positions that are attractive or justified only if yields remain low. As a result, global bond yields and exchange rates have become acutely sensitive to shifting expectations about monetary policy 5  changes in advanced economies. Such excessive sensitivity has put global markets on a knife edge with frequent bouts of volatility. These developments have critical implications for the transmission mechanism of monetary policy and its conduct. On the one hand, the greater influence of global factors and structural growth headwinds may have made inflation and output less responsive to monetary policy. On the other hand, financial markets and asset prices globally have become more sensitive to monetary policy actions and communication. This raises a dilemma. With inflation and output below targets, monetary policy is eased. Against the tide of global factors and growth headwinds, inflation and output fail to respond, and the temptation is to do more and more. In the meantime, financial markets respond vigorously to low interest rates and the search for yield accumulates in the form of greater financial fragility over time. Something will eventually have to give.