ASIA's BIG QUESTIONS: Asia's response to economic crisis
Updated
Is Asia is ready to step up to take leadership of the world economy?
The global recession will call for a rebuilding of the international economy, and perhaps a re-ordering of the powers at the top. Will the crisis mark a further point in the rise of Asia?
Presenter: Graeme Dobell
Speakers: Dr Narognchai Akrasanee, Thailand's former Commerce Minister, now chairman of the Export-Import Bank; Mahendra Siregar, Indonesia's deputy Co-ordinating Minister for Economic Affairs; Kishore Mahbubani, former head of Sinagpore's Foreign Ministry, now Dean of the Lee Kuan Yew School of Public Policy; Azman Mokhtar, head of the Malaysian Government's sovereign investment fund
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DOBELL: Asia is suffering deep economic pain in the global recession along with the rest of the world. But politically, Asia has been having a good global crisis. A decade ago, - in 1997-98 - Asia was flattened by financial contagion. Then Asia was berated for its economic mistakes. Today Asia is being implored by the West to help, even to take a greater share of leadership.
What a difference a decade makes…a point gently made by Dr Narognchai Akrasanee, Thailand's former Commerce Minister, now chairman of the Export-Import Bank.
AKRASANEE: Given the feeling of de ja vu I used to talk about financial crisis a lot in 1998 and 2000 when we had the Asian financial crisis. At that time Thailand was blamed for causing the crisis and I went around apologising for Thailand together with many of my colleagues from Indonesia, Malaysia and so on. You know we're all apologising for having caused the crisis. And we were lectured to by the western governments, western credit rating agencies like Moodys telling us that we were not behaving well. We had the moral hazard, we had no transparency, we had no accountability, we had everything. And now today they're giving us a lecture again that we are not supporting our financial institutions enough. I do not know when Moodys will stop being moody about us
DOBELL: It's not Asia's fault this time. But Asia must share the pain. Japan's exports have shrunk 43 per cent in six months. China's exports have fallen by one third in the same time. In Southeast Asia, the total GDP of the ten ASEAN countries has contracted by 13 per cent so far this year. The Asian Development Bank says the global recession could this year mean an extra 62 million people live in poverty in Asia.
Despite the problems, Asia is better placed than Europe or North America to lead the immediate economic recovery. Indonesia's deputy Co-ordinating Minister for Economic Affairs, Mahendra Siregar.
SIREGAR: Globalisation might be partly to blame for the current mess but it can also rapidly pull us out of it, and the Asia Pacific region is the only region in the world today that still expects positive economic growth this year and next year, and certainly will be the major driver of global growth.
DOBELL: More than leading the world out of the current recession, is Asia ready to take a full leadership role in managing and restructuring the world economy? That question is being posed because - in the words of a former head of Singapore's Foreign Minister, Kishore Mahbubani - Asia can no longer rely on Western economic leadership as it has for the past 60 years.
MAHBUBANI: There is clearly a need for the Asian countries to begin thinking about the new global responsibilities that they have to undertake because the simple, the reason why they have to do so is that up till now both the United States and Europe have been benevolent custodians of the international economic order creating an open and liberal international trading order. But the reason why the United States and Europe did that consistently for several decades after World War Two is because they and their populations assume that they'll be the biggest beneficiaries of an open, liberal, international trading order.
What's happening now is that frankly more and more people in the United States and Europe are beginning to believe that hey, we're keeping this liberal open international trading order and guess who's benefitting? China and India, all the jobs are going to China and India so why are we suckers maintaining this liberal order? We should be changing it. So clearly it's difficult for the United States and EU to become good custodians of the liberal order because their populations are losing faith in it. And the clearest sign of this of course is the difficulties that we're seeing in the Doha round. So if China and India and the other Asian countries want to continue to benefit from this liberal international order they have to start taking on responsibility for managing it, and say that we too have got to make a contribution towards running the international system. Unfortunately as of now none of the Asian powers are ready to do so and that's going to be a serious problem for the world because while the US and EU are distancing themselves from custodianship the Asians are not ready, and that poses a great danger to the liberal international order.
DOBELL: The most comfortable view for Asia is that the global crisis is all due to mismanagement and mistakes by others - the West showing a blind faith in markets and deregulation and the now much-derided neo-Liberal Washington consensus.
If Asia is to step up to leadership, though, perhaps it needs to examine its own past behaviour. What if Asia - for a range of both virtuous and self-interested reasons - helped create the conditions for the crisis? Asia built itself up through industrialising and exporting, helped by keeping its currencies weak or soft. But the huge currency reserves thus created were then handed back or invested in the West, fuelling the binge. Thailand's Dr Narongchai Akrasanee:
AKRASANEE: I think we have got to this point because most of us in Asia in particular have adopted the so-called export oriented strategy, 1970s ASEAN, 1980s China, 1990s India, Indo-China, etc., etc. All of us adopted this policy. It was good policy to adopt and it was very good for our world, economic growth, it was good for our creation wealth. But the problem was that two-thirds of our financial exports ended up in the West and we also adopted the soft currency policy, and this soft currency policy prevented trade adjustment by market forces. That's why the surplus kept increasing inside, particularly when China came along. China was able to produce as much as the West wanted and even more, everything was made in China at that time. And all of us we must admit that we adopted the soft currency policy, our business sectors always complained about the so called hard currency. Whenever we had strong exchange rate they complained and the governments and the central banks always have to keep exchange rate very soft. That's why this situation created huge foreign exchange reserves for Asia and we didn't know what to do with it. Again we have to blame ourselves on not knowing what to do with our money, most of us anyway. So we invested this money in the West.
DOBELL: The imbalance between the West and Asia is more than just a matter of financial flows. Asia's population and consumption profiles are vastly different. The imbalances may even feed into the different perspectives long described as the North-South divide. That view is offered by the Malaysian investment banker Azman Mokhtar, now head of the Malaysian Government's sovereign investment fund.
MOKHTAR: Global obile imbalance is basically a by-word for Asia producing too much, not consuming enough and the reverse in the United States. I think again that's a symptom of and symptomatic perhaps a characteristic of this situation because as many have analysed to say that there's many things, for example demographics of Asia and naturally a younger population and the reverse of that in the West and the ageing population will mean that naturally different patterns of consumption and savings. Secondly the need for insurance in the broader sense of the word for both governments as well as households in that sense of other safety nets and indeed I think part of the response to some of the things we were told or were not told that we saw during the '98 crisis, i.e. one needs to take care of oneself and build one's own reserves. But I would also say I think that's a global imbalance, it shouldn't just be looked at from a balance of payments situation. I think later as we look at the remedies there are perhaps many more other global imbalances real and financial is one, north and south is another.
DOBELL: If the crisis is the opportunity for Asia to assert a new authority and leadership how will that change the global system? Singapore's Kishore Mahbubani doesn't see Asia wanting to change the rules too much. Instead he says it's more a matter of changing the people who run the system.
MAHBUBANI: The good news is any world order led or managed by Asians will be very similar to the 1945 liberal international order because frankly the Asians are benefitting so much from the rules of open trade that there's no reason whatsoever to the change the rules. The change that is really going to happen is over the control and management of many of the international financial institutions. For example even today you should have a kind of implicit rule that to become the head of the IMF you must be a European, to become the head of the World Bank you must be an American and three-point-five-billion Asians don't qualify even though they're the world's fastest growing economies, the world's largest pool of foreign reserves. And now the world's largest pool of economics PhDs you know. So these are the kind of old rules or domination of international institutions by the West. that will have to change, and frankly they've got to give Asians a greater chance to run these international financial institutions.
