Distinguished Speakers Seminar (DSS) held by the Asian
Development Bank Institute (ADBI) in Tokyo in November came to the powerful
conclusion that the European mess was getting messier.
As stated by Wyplosz (2011),
since late 2009 the European debt crisis has not shown any sign of recovery.
For several reasons,
apparently, the policy responses have been wrong. Wyplosz argues that the
mother of all mistakes may lie in the policy options to provide €110 billion to
save Greece through its tough austerity programme.
There were two major flaws in
this policy. First, it violates the no-bailout clause in the European Central
Bank (ECB) system; and second, austerity in the midst of recession cannot act
as a remedy.
These factors eventually led to
a liquidity crisis that has overwhelmed the European banking system (Collignon,
2011).
Colloquially speaking, the
liquidity shock caused a sudden deterioration in specific classes of assets
that has spilled over into banks, which are in dire need of liquidity.
The liquidity shortage then put
banks in distress as the deteriorating asset prices affected their balance
sheets and thus reduced bank capital. These difficulties then spilled over into
the real economy in the form of a recession. This recession will most likely
see Europe sinking into irrelevance.
Meanwhile, Asean is fueled by a
youthful spirit that could bring new hope during the current global imbalances.
Asean members are becoming increasingly connected. The Asean region has
experienced sustainable growth of intra-regional trade share. In 1990, the
intra-regional trade share was only 17 per cent but in 2010 the figure swelled
to 25.2 per cent.
If we expand the coverage to
include Asean’s plus three countries (China, Japan and Korea), the
intra-regional trade figure is becoming more robust.
In 1990, it already reached
47.2 per cent and developed over a decade as it leapt to 58.4 per cent.
The FTAs and EPAs that have
been emerging since mid-2000 have had made a significant contribution to
warming of relations among Asean+3 countries.
An important factor explaining
the success of the Asean+3 economies has been their participation in a dynamic,
regionally integrated economic structure beyond just Asean+3. Strong and
dynamic production networks have progressively linked East Asian and Asean+3
countries.
The fragmentation of
manufacturing production and “fragmented trade” linked to rising intra-industry
trade has enabled Asean+3 countries to maintain their competitiveness and
successfully pursue an export-led development strategy. Asean+3 countries have
also developed robust, flexible and vibrant small and medium size enterprise
(SME) sectors.
While this region has
experienced two periods of economic crisis (late 1997 and late 2008), it did
well in bouncing back afterward.
During the first crisis, the
total Asean+3 intra-regional exports fell from US$179,732.1 million in 1997 to
$146,166.3 million in 1998. Imports also declined from $186,630.5 million in
1997 to $141,979.3 million in 1998. This number contributed to an almost 3
percent decline of Asean+3’s intra-regional trade from 49.9 percent in 1997 to
47.2 percent in 1998. But in 1999 this bounced back well to 49 percent,
followed by 51.4 percent in 2000. This figure gave a big boost to East Asian
countries at that time to recover from the crisis.
The second crisis in late 2008
also caused regional trade imbalances in Asean+3 countries as the total exports
and imports fell from $547,427.5 million and $518,966.8 million in 2008 to
$450,665.6 million and $411,663.3 million in 2009.
But, again, the regional
economy bounced back in 2010 to $630,089.6 million for exports and $609,465.3
million for imports. This bounce was also seen in the intra-regional trade
share figure that experienced a hike from 55.8 per cent in 2008 to 58.4 per cent
in 2010.
Comparing these two crisis
periods, we can draw the general conclusion that East Asia has learned well in
coping with crises. This is reflected by the speed of recovery in 2010 which
was better than that of 1999. Also, the closer integration among the countries
has created a vaccine-like treatment in the region.
Looking into the future, based
on ADB projections, in 2030, per capita GDP in 2007 constant US dollars, will
reach 9,012 for Asean, 12,361 for China, 40,415 for Japan and 41,674 for Korea.
These figures surely indicate a
very optimistic path for the region in taking a powerful role globally, but in
order to play that role the region, especially the Asean countries, must pay
more attention to several crucial factors.
The first of these is
infrastructure. The simulation result confirms the importance of infrastructure
to create greater room for the region to evolve. The second is
industrialization. A one point rise in the industrial index will most likely
increase the tendency of economic growth by 0.04 per cent. The third is
population.
Population is regarded as the
most important variable that serves as a foundation for strong growth. A 1 per
cent increase in the total population will increase the likelihood of regional
growth by 0.86 per cent.
The sheer size of the East
Asian population creates not only the potential demand for the goods traded in
the region but also the supply of labor and low absolute level of wages.
This trend is very important
since homogeneity in industrialization among countries in the region will
assist the progress of economic integration, and thus economic growth.
To wrap up, Asean+3 countries
should ensure countries within this region that are lagging behind to
eventually catch up with the rest.
Sound policy measures that
incorporate the expansion of production networks should be set as a common goal
for the future of this region. Whether Asean+3 moves forward or ends the story
like the Europeans is a matter of political will.
Fithra Faisal Hastiadi
The Jakarta Post
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