Simon Tay for the Straits Times
The G20 leaders met in London, a trillion dollars was pumped into the International Monetary Fund and US President Barack Obama emerged as a charismatic and credible global leader. Stock markets rallied, notably in Asia.
Can we all now sit back and just wait for the global economy to recover? Did the meeting deliver what Asians hoped for? What else will Asians need to do?
True, the G20 meeting exceeded expectations and the show of global unity helped. But differences remain, especially over the size and funding of government stimulus packages. Moreover, roots of the problem – rotten financial institutions in the USA and then across Eastern Europe – remain unresolved. Decisions lie ahead about what exactly to do.
Asians cannot sit back. After all, while weakened, Asian growth is still predicted and the region holds the bulk of the global savings. The G20 partly recognizes this rebalancing in the world.
Asia on the World Stage
The group takes Asian representation forward by including not just Japan, a G8 member. China, India, Indonesia and South Korea also sit at the global high table and Thailand was specially invited, as the current chair of ASEAN.
At the London Summit, key points that Asians support enjoyed consensus. This included assurances that developed countries will keep their markets open; and that considerable boost in funding for the IMF to help developing countries.
Asians are coming of age. But even as they play a greater role on the global stage, there is much that Asians can and must do for themselves.
The region had a strong economic agenda before this crisis broke. In response to their earlier crisis of 1997-9, Asians worked to clean up and govern their domestic financial systems, better manage currencies, and grow linkages amongst their economies. Asians would do well to pursue and redouble these pre-crisis efforts.
One example are arrangements to head off problems in short term currency fluctuations. Using the ASEAN+3 framework, this began with the Chiang Mai initiative for modest bilateral swap agreements, before recently scaling up to US$80billion. This may prove to be timely and necessary in view of fluctuations in the Korean Won, weakened Indonesian rupiah and other currencies.
Behind this lurks China’s recent comments on the future of the US dollar. Asians hold the US dollar as the region’s de facto reserve currency. China and Japan are the largest holders of US Treasury Bills. They and other Asians thus must worry if a soaring US deficit to pay for stimulus leads to inflation that undercuts the value of their US dollar denominated reserves.
Thus China’s Premier Wen Jiabao questioned profligate US spending habits and its planned near trillion dollar stimulus package. Some propose that Asians need their own currency to replace the US dollar. Perhaps one day, and perhaps that day will be quickened by current trends.
For the forseeable future, Asians will do well to strengthen exchange and surveillance on currency policies and movements, amongst themselves and vis a vis the US dollar.
Freeing Trade, Increasing Consumption
Freeing trade and increasing consumption in Asia can also assist. More can be done. FTAs amongst Asian countries have proliferated but an agreement that covers all of Asia is currently elusive. Within ASEAN, while a blueprint for economic community has been agreed, the pace of implementation is questioned.
Market integration ties to the need to increase consumption in Asia. In this past decade, while Asians produced and saved, they have largely depended on the US consumer to spend. Now American demand has fallen, there have been increasing calls for the region to be its own engine of consumption and growth.
Some suggest that the Chinese consumer can take up the demand for products. This will be hard in the short term. But freer trade among Asians is one step in this direction for the medium to longer term.
Stimulus packages can also assist. Most in Asia have undertaken to spend more to boost domestic economies. China boldly and decisively embarked on a $600-billion stimulus plan. Other measures differ in scale and method.
Some, like Thailand and Japan, have given out funds to citizens and households. China and others have emphasized state spending on infrastructure. Singapore has resilience measures to assist companies keeping people in jobs.
One key difference is the wherewithal to pay for these stimulus packages. Despite its wealth, Japan for instance finds itself stretched. Its public debt burden, already the largest of the world’s big economies, is projected to reach a sumo-sized 225% of GDP in 2010. Indonesia is another country with limited reserves and, despite projected growth continuing, will face challenges ahead. Given their strong reserves, China and others like Singapore and Hong Kong can afford to do more if need be.
But even if their stimulus packages differ, Asian governments can usefully exchange information and consult as the effects of these measures are felt to better coordinate their effort.
Engaging on Global Governance
Asians should follow up on the G20 Summit and support the London proposal to better regulate the global financial system. They should no longer be content to leave this to Americans and Europeans – who have triggered the present problems -- to decide. Instead of merely accepting rules made elsewhere, Asians must join in setting new standards for global financial institutions and in regulating risk.
East Asia should develop a coherent regional agenda to contribute to resolving the global crisis. Meetings of Asian leaders -- at the ASEAN + 3 and the East Asia Summit -- are coming up in the wake of the London Summit. Whether it is finance, trade and consumption, there is much for Asian leaders to work on to increase their regional cooperation in tandem with global efforts.