PREVIEW-ASEAN summit to weigh winding down stimulus measures

By Bill Tarrant

HANOI, April 6 (Reuters) - Southeast Asian leaders will consider winding down emergency stimulus policies they adopted during the global financial crisis, without jeopardising recovery in the fast-growing region, at this week's summit in Hanoi.

Myanmar, due to hold its first elections in two decades, will again test ASEAN's consensus when the group that includes monarchies, a military dictatorship, communist states and democracies turns its attention to politics at the April 8-9 summit.

Many of the region's export-oriented economies fell into a sharp but short recession last year when their main markets in the United States and Europe went into a tailspin.

At last year's summit, leaders of the Association of South East Asian Nations agreed to coordinate on a series of macroeconomic expansionary measures, including interest rate cuts and government spending projects.

Since most are back on a growth path, it's time to consider unwinding those measures, a draft statement for the summit says.

'We affirm the need to start working on mechanisms to reverse the fiscal and monetary stimulus and then phase out these policy accommodations,' it says.

Leaving stimulus measures such as ultra-low interest rates in place for too long could fuel inflationary pressures or potentially destabilising asset bubbles, but policymakers fear pulling the plug too quickly or too abruptly could threaten economic recoveries.

Malaysia's central bank raised rates by a quarter of a point to 2.25 percent last month, making it the first in Asia outside Australia to hike as part of efforts to unwind crisis measures.

India hiked rates in mid-March while China, which has led the global recovery, is seen raising rates in the second quarter. Others in the region are expected to follow but the timing depends heavily on how fast prices rise.

Southeast Asian finance ministers and central bank chiefs are holding a separate meeting this week in Vietnam's southern resort town of Nha Trang with lower level officials from Japan, China and South Korea.

Known as ASEAN + 3, this group is looking at strategies to unwind the stimulus policies. It is also working on a 'regional surveillance' unit to provide an early warning of macroeconomic risks. Few details of that mechanism have emerged.

They set the stage for such an initiative with the official launch on March 24 of a $120 billion multilateral currency pool that will provide emergency funding for member countries experiencing capital flight or symptoms of financial crisis.

The ASEAN meetings are also trying to advance an Asia bond market initiative, which aims to develop efficient and liquid bond markets in countries that generally have high savings rates but undeveloped capital markets.



COMMUNITY VISION

ASEAN has ambitious plans to establish a political and economic community by 2015 and the theme of this year's summit is to translate that 'vision into action'.

The economic community aims to be a single market and production base with free flow of goods, services, capital investment and skilled labour. The political community envisions joint foreign policy and security initiatives.

That is much easier said than done in a region with a huge disparity in income and development levels, different political systems, long-standing rivalries and territorial disputes.

The ASEAN secretariat in Jakarta is filled with blueprints dreamed up over the past four decades and never realised, giving the group a reputation as a world-renowned 'talk shop'.

Yet, incrementally, the resource-rich region of 584 million people, with a combined gross domestic product of $2.7 trillion, is stitching together the economic community, even if the political and security one is more of a pipe dream at the moment.

In 2007, the group became a rules-based legal entity by adopting a constitution. It has launched its own internal free trade area, and ones between it and China, Australia, Japan, India and South Korea.

But the FTA with China, which began on Jan. 1, immediately stumbled when ASEAN's biggest member Indonesia, under pressure from domestic industries, said it wanted to renegotiate some of the terms. The leaders are expected to touch on the free trade issues at the summit.

Myanmar as usual will test ASEAN's political cohesiveness.

The military-ruled nation faces criticism from some members over election laws announced last month because they prevented political detainees, notably democracy icon Aung San Suu Kyi, from running in the election, a date for which has yet to be announced.

(Additional reporting by John Ruwitch, Martin Petty, and Manny Mogato; Editing by Kim Coghill) Keywords: ASEAN/SUMMIT (Reuters Messaging: [e-mail]; e-mail [e-mail]; [phone]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.