Monetary Politics in Southeast Asia: External Imbalances in Regional Context

Rather than conforming to a single model of export-driven growth, countries across the Asia-Pacific vary in terms of their external imbalances and the domestic politics of monetary policy that underlie them. This article argues that while there is evidence of what can be called monetary mercantilism – a deliberate policy of currency management to retain export competitiveness – in some countries, others exhibit a very different pattern of monetary politics. Domestic political change may be bringing Southeast Asia's more democratic countries closer to the consumption-driven model of developed economies such as Australia and New Zealand. Conversely, despite much higher per capita national incomes, less rebalancing has occurred in traditionally export-driven countries. Rather than being symptomatic of strategic success, the accumulation of external assets by surplus countries is costly and risky. Their mercantilist strategies have perverse domestic and international implications, including the continuation of privileges enjoyed by the USA as the issuer of the world's international currency. Although they face long-term incentives to change strategies, surplus countries face domestic distributional pressures that perpetuate the status quo.