The Henry L. Stimson Center and the Singapore Institute of International Affairs co-hosted two days of discussion on October 8th & October 9th on the topic “Global Economic Crisis: Consequences and Responses in Asia and the Middle East”. Among the 29 discussion participants were experts from Egypt, India, Kenya, Kuwait, Malaysia, Pakistan, the Philippines, Singapore, South Africa, Thailand, Vietnam, and the USA.
The conference was part of the Henry L. Stimson Center’s global initiative “Regional Voices: Transnational Challenges”. The project aims to develop knowledge and analysis of the perspectives of technical and subject experts as well as political and strategic analysts. The geographical range of the project’s work is the Middle East, South Asia, Southeast Asia and East Africa.
The conference leveraged the participants’ expertise and their geographical diversity to help increase understanding of the global economic crisis’ effects while evaluating the strongest policy recommendations. The main issues discussed included economic “rebalancing”, global governance, the role of multilateral development banks, and trade facilitation.
The conference convened 8 closed-door, roundtable discussions, each with a different theme, and one public session, which was attended by more than 50 members of the Singapore public.
Opening remarks and the effect of the crisis in Southeast Asia
The conference began with Associate Prof. Simon Tay, Chairman of the co-hosting Singapore Institute of International Affairs, welcoming the participants. Prof. Tay underscored the conference’s timeliness and acknowledged that the world is at an inflection point in how it perceives the crisis. Following Prof. Tay’s remarks, Dr. Richard Cronin, the Director of the Henry L. Stimson Center’s Southeast Asia Program, made the conference’s opening remarks. Dr. Cronin contextualized the discussion by explaining that the conference is being held in the 3rd year of Stimson’s 5-year program on globalization and non-traditional security issues. He thanked the participants for coming and pointed out that their diverse backgrounds made grounds fertile for discussing comparative views.
Session one addressed the theme of “Responses in Southeast Asia: A Case Study”. Dr. Hank Lim chaired the session and extrapolated from the background paper he prepared along with SIIA for the meeting. Dr. Lim discussed the nature of fiscal stimulus packages in Singapore, Indonesia, and Malaysia. Participants then discussed the importance of coordinating policy actions, and whether an alternative paradigm for regional development could be created. The current crisis in Southeast Asia was also compared to the crisis of 1997-98.
The global context
Session II addressed “Global Economic Developments in 2008-09”. Participants began by discussing the sustainability of the current global economic system. The participants also discussed issues such as global governance, risk, and trade. The discussants quickly agreed that China was a key player, and much of this session was spent discussing global economic issues involving China. They included China’s surplus, its investment in US Treasury Bills, and the future of its currency. The session also touched on what the IMF and the World Bank must do to increase their relevance.
The next session focused on “Comparative Regional Dimensions”. Participants discussed the crisis’ impact in India, Pakistan, the Arab countries, and East Africa. Most participants expressed dissatisfaction with the lack of regional coordination and cooperation they had observed in these regions. Sluggish “wait-and-see” responses were also noted as prevalent. Issues such as the importance of learning lessons from other countries were also discussed, as well as the effectiveness of a bottom-up approach to financial reform. There was also a short debate over the potential need for more regulation, with participants agreeing that although regulation could provide benefits, it remains questionable whether it could be effectively implemented.
The human element
In the fourth session, participants debated “Domestic Socioeconomic and Political Consequences”. It was noted that political consequences in Southeast Asia were almost nonexistent, which is a sharp contrast from the 1997-98 crisis which saw entire governments toppled. Socially, participants acknowledged that the crisis may increase poverty and widen the income gap. A specific cause for concern was that the crisis’ economic impact would increase the number of potential recruits for terrorist organizations. Participants also noted that the financial crisis had had the effect of lowering social and environmental standards, as governments and businesses increased their focus on restoring economic growth.
Examining national policy responses
The first session of day two and the fifth session overall focused on “National Policy Responses to a Changing Economic Paradigm”. In this session, participants discussed various efforts that governments had adopted to stimulate their economies. But they also highlighted the challenges still lurking around the corner, such as inflation and interest rate issues. They also discussed the socioeconomic aspects including rising poverty and rising commodity prices.
In the sixth session, participants discussed “Global Initiatives: Their Bearing on National Policymaking”. Participants mulled over questions such as the significance of the up and coming G20 initiative, as well as the significance of free trade agreements. There was also question of how to rebuild once the “fire” of the global economic crisis has been put out, and what impact global governance can have. There was a sense that it is not the global institutions which are to blame for ineffective policy, but rather the countries which are behind the institutions.
Regional and Multilateral Initiatives
Though conversation had touched on them the entire day, in the 7th session participants narrowed their focus on what to do about “Regional and Multilateral Initiatives”. Most participants called for increased organization and increased standardization of laws and trade rules across borders. The similarities and differences between ASEAN and the European Union were also discussed.
In the conference’s last session, participants discussed broadly the “Future Prospects for Transboundary Challenges and Anticipated Trends”. There was a sense that rhetoric may need to be changed- that there is a need to talk less of “benefit sharing” and more of “burden sharing”, especially as the world moves to confront an increasing number of challenges such as climate change and terrorism. There was a sense that the crisis has provided a strategic window for individuals and groups to create positive influence.
The public session
At the end of Day 1, the participants gathered for a public session. The session was chaired by Prof. Tay and Dr. Cronin. The panel was made of up six panellists: three from Southeast Asia, and one each from South Asia, the Middle East, and Africa. The Southeast Asian panellists were Dr. Somchai Jitsuchon of the Thailand Development Research Institute, Dr. Vu Thanh Tu Anh of Vietnam’s Fulbright Economics Teaching Program, and Dr. Reza Siregar of Malaysia’s South East Asian Central Banks (SEACEN) Research and Training Centre. The South Asian representative was Dr. Akmal Hussain of Pakistan’s Beaconhouse National University, the Middle Eastern representative was Dr. Rola Dashti of the Kuwait Economic Society, and the African representative was Prof. Daniel Bradlow of the University of Pretoria.
The session began with a 5 minute speech by each panellist on his or her region. The first panellist to speak was Dr. Somchai Jitsuchon of Thailand. He pointed out that the effects of the crisis are much smaller in Southeast Asia. Most countries have sustained GDP growth, albeit at slower rates, and the recovery will be quicker. He did caution however that there may be a 2nd wave to the crisis, with potential negative impacts for the region.
Dr. Somchai used the example of the two Thai stimulus packages to make two points: that it is hard to evaluate the success of any particular stimulus initiative, and that although the response was quick, a lot of the money went into the wrong hands. Dr. Somchai also pointed out that the crisis’ social impact was contained relatively well in Thailand. For example, in the months following the crisis, there was only a small increase in unemployment.
Dr. Vu of Vietnam spoke next. He discussed the financial crisis’ general implications. First, he noted that the crisis had made countries aware of their interdependence, but that there was a trend towards decreasing coordination. He criticized the G20 for leaving out smaller countries. Next, he pointed out that the crisis would accelerate the shift of power from West to East, from the US to China.
Dr. Vu recommended that the region work together closely to coordinate its recovery efforts. He noted that China’s role in the global economic recovery is still unclear, as there is a murky division of its responsibilities between dealing with domestic issues and becoming a global leader. Finally, Dr. Vu raised concern over rising global protectionism.
The next speaker was Dr. Reza of Malaysia. His talk first highlighted the issue of coordinating central banks. He pointed out new challenges in the financial sector- such as the fact that most banks are no longer “local” having many investments and responsibilities abroad, and thus they have much more complex challenges. He highlighted that the crisis had shown that banks are the financial system’s backbone, with large impacts on trade and foreign direct investment. Dr. Reza then mentioned the challenge of how to supervise a global banking system, especially since countries have had much difficulty in regulating their own domestic banking systems. Nonetheless, he said there may be a need to go beyond management in the national level, in spite of the inherent difficulties.
After the three speakers from Southeast Asia, Dr. Akmal Hussain of Pakistan took the floor. He made three points on contextualizing the crisis. First, on the economic level, there has been a tectonic shift towards Asia, especially China and India. He cited the present gap in GDP growth rates as a main premise. Second, he argued that the crisis has imperilled state structures, which are now even more threatened by non state entities, such as terrorism. Poverty is a main component to this problem, he said. Third, he pointed out that the ecology of the planet is under threat and that there will be an increased risk of floods and drought moving forward. Dr. Akmal recommended that countries regulate financial markets, refocus on human security, and take action on climate change.
Dr. Rola Dashti followed up by pointing out the drastic impact of shadow banking on Middle Eastern economies. She argued that they had compounded the stresses of declining oil prices, which themselves had severely impacted revenues, expenditures, and fiscal budgeting in the region. She pointed out that the middle class sector had been much affected, with social problems such as rising unemployment becoming magnified during the crisis. To combat such social problems as well as other economic malaise, she advocated the need to coordinate policies among central banks, as well as the need to get central bank staff trained to handle a new and different banking world. Finally, she argued the 2nd round of the crisis will be human-centric and that there must be investment in human capital.
Prof. Bradlow concluded the 5-minute round by introducing the African situation. He first mentioned the difficulty of making generalizations, due to there being more than 50 countries in Africa. But, in general, he said that most African countries thought they would escape due to better regulation for banks. Nonetheless, the food, energy, and financial crisis compounded the pressure on Africa. He then pointed out three phenomena: one, the continued need for better infrastructure; two, the continued competition for Africa’s resources among more developed nations; and three, the lack of coordination between the World Bank and IMF aid efforts, many of whose Africa programs were among the first programs to be cut.
After the speakers had wrapped up their opening remarks, Prof. Tay posed two questions: what is happening to the power balance between East and West, and will the policy responses so far be sufficient to ward off another round of the crisis?
First, Dr. Rola Dashti responded that the policies may be sufficient for now, but that complications would arise moving forward. To tackle such challenges, she advocated an alternative to the G7 such as the G20, but cautioned that no single group knows exactly what to do. Dr. Akmal added that there are many ways of managing the crisis as well as great uncertainty over the crisis.
In terms of the US-China question, Dr. Akmal argued that the US must be strong. Currencies in Asia are traded in USD. And Asia is heavily invested in the US. Dr. Vu weighed in that China is growing, but concerns include the lack of social security and safety nets and poverty. He also suggested that the reason China would eventually pass the US is a question of technological innovation and whether China can eventually catch up.
Dr. Somchai of Thailand then said that the US is declining relatively, but that the entire process will take time. He said that it’s debatable whether China can take the US’s place, and that the US will be in the picture for some time to come.
The chairs then opened the floor to questions from the audience. The first round of questions targeted the problem of greed in the global economic system, the role of state and non-state actors, whether global governance can really impact local communities, and whether regulation is feasible.
Dr. Dashti replied that even though it is impossible to regulate greed, that institutions ought to position themselves with respect to the next global crisis. Dr. Reza argued that while national self regulation may be appropriate, there may be questions about other non-regulated subsidiaries. Prof. Bradlow cited the example of Chinese involvement in Angola, and the difficulty of comparing what African governments themselves do to potential exploitation by the Chinese companies.
Another audience member posed a question as to whether it was time to re-examine existing economic structures. She noted that a change in accounting regulation was what triggered the financial recovery- the removal of mark to market accounting. Another audience member asked about the future of East Asian regionalism and the panel’s opinion of an East Asian community.
Dr. Somchai responded first by saying that regulations are needed, but it is difficult to discern which ones should be implemented first, and even more difficult to ascertain how regulation could be accomplished. As for the East Asian community idea, he stated that we must consider the different levels of economic development in Asia.
Dr. Mahani Zainal Abidin, Director-General of the Institute of Strategic and International Studies in Malaysia, and also a participant in the conference, responded to the idea of an East Asian community. She stated that the crisis is a good time to think of regionalism, and that both the US and Japan are open to the idea. Nonetheless, Dr. Mahani said that regionalism is not an attractive approach if it leaves out India, China, or any of the ASEAN countries. She said that reducing the development gap may be a prerequisite for such an institution.
Dr. Vu of Vietnam spoke next, saying that the East Asian Community idea had merit, but would need a leader. The difficulty, he argued, is that different countries have different ideas on which countries the EAC should include. For example, China likes the ASEAN+3 framework, but Japan would prefer to include India, Australia, and New Zealand as well.
Dr. Reza then drew parallels between the current crisis and the one of 1997-98. In the wake of that one, there was a reaction against APEC, and strictly intra-East Asian regional institutions began to blossom. Dr. Reza admitted that there may be a need for different institutions, so that there is flexibility for different responses to different problems.
Dr. Cronin then called the Stimson-SIIA “Regional Voices: Transnational Challenges” to a close. He thanked the participants for providing their unique perspectives for having illuminated many of the diverse aspects of the global economic crisis. He pointed out that it had been an honor for him and his American colleagues to come and listen to so many geographically diverse opinions, and drew the session to a close.