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Political implications of the crisis for regional economies: The East Asia case

Updated On: Jun 16, 2009

Jusuf Wanandi,  Jakarta Post, Mon, 06/15/2009 1:24 PM
 
There are many political-security challenges in East Asia, such as terrorism, proliferation of WMD, transnational crime, climate change, energy security, pandemic diseases, and natural disasters. However, in the last 18 months or so a new political-security challenge has arisen that has overridden everything else, not only in the East Asian region but also globally, namely the financial and economic crisis that started with the sub-prime mortgage problems in the US.
 
This has been recognized by Admiral Dennis Blair, President Obama's top national intelligence director. He considered this new threat as one that is global and overriding everything else in the security field, because it could have so many impacts on the world, all the regions, and all countries, developing or developed. 
 
This crisis has definitely been very damaging to developing countries in the East Asian region. The greatest danger to them is to become failing or failed states. Although they are not directly responsible for the outbreak of this financial crisis, but the resulting deepest recession since the 1930s are felt by the whole world and are going to have an impact on their export, developing assistance and capital flows, including foreign direct investment (FDI). It has increased poverty and unemployment, and could even cause deflation, political instability, and even anarchy, civil strife and regime change if not attended to seriously. 
 
For the more developed nations, new challenges will arise and a tendency towards "beggar thy neighbor" policies, such as protectionism and the withdrawals of their capital from other places will create tensions, dissidence, and possibly frictions and conflicts, although wars are not imminent. 
At the beginning of the crisis there was talk about de-coupling between developing East Asian countries and developed countries (the US, EU and Japan). And questions were asked whether China and India could become the new locomotives for the world economy. This was immediately answered in the negative by economist looking more deeply into their economic capabilities, which were still far behind that of the US. 
 
By now, however, it is recognized that the impact of the crisis on East Asia has not been as dramatic across the board as was expected earlier. China will grow around 8 percent in 2009, while India will be around 6 percent, and Indonesia will be at 4 percent. And that is going to help also the other economies in the region, whose outlook has improved and is better than expected. 
At the global level there is the G 20 that is becoming the most important forum to find a way out of the crisis and in the medium term to establish new rules and institutions, such as the IMF and the IBRD (World Bank), which can incorporate the rapid changes that have happened over the past two to three decades. 
 
To be successful at the G20, East Asian governments have to come together and cooperate closely to have the necessary impact at the global level. There are five countries from East Asia in the G20, namely China, Japan, Indonesia, South Korea and Australia. The APT (ASEAN plus Three) members have already come together at the Summit level on the sideline of the ASEM Meeting in Beijing in October 2008 and have instructed the ministers and senior officials to take steps towards the multilateralization of the Chiang Mai Initiative (CMI). This is conceived of as an emergency fund whose amount was increased from US$80 billion to $120 billion. The Finance Ministers Meeting in Phuket has endorsed it and in May 2009 in Bali they created the fund.
 
But for the five East Asian member of the G20, there is the necessity to cooperate closely because next year's summit will be organized by South Korea. This provides a golden opportunity to influence the G20 for the interest of the region, especially to make sure the G20 will continue and replace the G7/G8, which is no longer relevant for today's world. To prepare this, the think-tanks in the East Asian region, especially the 5 member countries, should give the necessary support to their governments.
 
It should be noted that despite the urgency, it has taken the ASEAN Plus Three (APT) a lot of time to implement the idea of the regional fund. Although the idea has been there for some time, and APT leaders had given a go ahead at the ASEM Beijing Summit, it took several months before Finance Ministers finally concluded the deal. This process has been too slow for the initiative to have an effect in overcoming the crisis.
  
This is why the coordination of the East Asian members of the G20 is becoming more urgent than ever. A better-coordinated East Asia opens the way for informal meetings to be established among them with G20 members on the other side of the Pacific, namely the US, Canada and Mexico. This Asia Pacific caucus will help strengthen trans-Pacific cooperation, similar to the established trans-Atlantic dialogue and cooperation. It is critical that this caucus be formed soon. 
Author: 
Jusuf Wanandi
About the author: 

The writer is vice chair of the Board of Trustees, CSIS Foundation




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