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Journalism of Courage
South Asian countries need to be very cautious in their effort to economic integration in the region. Going by the experience in Europe, it would be pertinent for the South Asian countries not to rush headlong to eliminate capital controls. This was stated by Dr Richard Portes of London Business School.
Delivering a lecture at the National Council of Applied Economic Research, Portes said that it would be better for the South Asian countries to establish a permanent secretariat while they gradually move towards economic integration. Stating that monetary integration requires real integration, Portes said that monetary union is impossible without single market programme. There is also a need for economic union as real integration, single market for goods and services and deep institutional cooperation.
Referring to the recent rounds of talks on monetary union in South and East Asia, Portes said that this would remain a talk until and unless political will underpins substantial progress towards economic union. Pointing out that a sensible sequencing is required for South Asia in its roadmap to economic integration, Portes said that monetary union do pose limits on national sovereignty. According to Portes, monetary unions require financial integration and common operational methods for monetary policy which in turn require harmonised bank supervision and regulation. Hence, there is bound to be subordination of national central banks to common central bank and there is also a need to understand the management of common exchange rate.
Laying down other problem areas in economic integration, Portes said that the loss of monetary policy which countries undergo in integration often proves to be costly. This in turn entails loss of control over national inflation and central banks can no longer support national fiscal policy by monetising government deficit.
