Aisa-Pacific undergoes unprecedented growth
The following article is an excerpt from a paper presented by State Minister for National Development Planning/Chairman of Bappenas Ginandjar Kartasasmita at a seminar organized by The Jakarta Post and the Asia Pacific Economics Group. This is the first of two articles.
JAKARTA: The growth in our region is both contributing to, and relying on, the rapid globalization we are experiencing. In turn this globalization is driven by very fundamental technological forces. Rapidly falling costs in the areas of telecommunications and transportation are driving the latest round of economic integration. The benefits of increased openness in trade, investment and more fundamentally in ideas, have become increasingly clear. Thus more and more countries, especially in our region, have acted to take advantage of the opportunities created.
In fact the impact is already changing the global and especially regional economy. Over the past decade and a half, the Asia-Pacific region has emerged as the most dynamic in the world's economy. Eight of the world's fastest growing economies are located in this region (the "East Asian Miracles" plus China). The main engine powering this growth has been trade. In 1980, trade between nations in the Pacific Basin accounted for just 17 percent of total world trade. Today, annual trade between Pacific Basin nations exceeds US$ 1 trillion and approaches one- third of total world trade. It is interesting to note that this year Japan's trade with Asian countries has surpassed that with Europe and the U.S. combined. Finally, the Gross Domestic Product of Pacific Basin countries now accounts for around 50 percent of the world's GDP.
There are a couple of interesting observations we can make about economic growth and rising trade. In the past, the pattern of global economic growth saw Asian developing countries' economic growth reflect (at higher levels) the pattern of economic growth in the main industrial nations. In the 1990's, this pattern has begun to break down. In spite of one recession after another, economic development in East and Southeast Asia has not faltered. The pattern of trade and investment has changed. Inter-Asian trade has grown and many countries' domestic markets have now reached the maximum size that they can, in themselves, function as economic locomotives. It is difficult to tell, but it seems that investment in Indonesia and many other countries is as motivated by the importance of the markets as it is as an export platform.
This growth in trade and investment in the Asia-Pacific region is not simply an out-growth of multilateral trade agreements. Improved communications, accompanied by greater awareness and an accommodating policy environment have raised capital flows to levels well beyond those of a few years ago. Our region has again taken the greatest advantage of the phenomena of global integration, which has both accompanied and set the stage for global trade integration.
It is interesting to see the impact this last decade's rapid growth (in the Asian region) has had on public imagination. I am sure that, like me, every time you go through an airport you see a new book, with a title like - Mega-Trends Asia, or Asia Rising. These books speculate on the impact of the changing world economic structure being wrought by the magnitude of the economic transformation taking place in Asia. These books' authors, and other observers, feel that the preconditions for high growth in the region may continue for some time to come. As the current Newly Industrialized Economies (such as Taiwan and Korea) begin to slow, new countries including China, ASEAN (driven by Indonesia as by far the largest entity) and countries as far away as India are expected to maintain and even accelerate the regional momentum.
For the immediate future, the IMF predicts continued high real growth, in excess of 7.5 percent, for the Asian region through the year 2000. Not surprisingly it expects this high growth to continue to be associated with rapid trade growth with exports and imports continuing to grow at rates above 10 percent. This compares to their estimate of 2.7 percent medium term growth for industrial countries.
Longer-term predictions are much more difficult. Simple extrapolations are unlikely to occur but they can be startling. For example, it is estimated that China alone, if it achieves Taiwan's per capita income, will, say by 2025, have an economy 50 percent larger than the U.S., and 75 to 80 percent of the combined economy of the U.S., Europe and Japan. Imagine then the combined impact on the world's economy of the ASEAN region and India growing at 7 to 8 percent as well.
On the positive side this could create up to 200 million middle class households (and 800 million to 1.2 billion people) by the year 2000. These people will be by far the world's largest market for many conventional products and may even dominate the market for products that embody new technologies. Unlike consumers in industrial countries, Asian consumers are not as wedded to existing technology, products and brands. In some senses the competition for their interest is starting afresh.
The magnitude of the infrastructure needs to support this growth are also startling. Estimates of infrastructure demand by the year 2000 range from US$700 billion to US$ 1 trillion. In Indonesia alone infrastructure demand from 1994 to 2004 is estimated to be around US$ 190 billion. Again this provides a massive opportunity and, at the same time, challenge. The opportunity and challenge is to develop infrastructure efficiently, and put it in place to strengthen intra-regional linkages while meeting internal objectives on equity.
There is, of course, a downside. The world has never seen the magnitude of an economic transformation like this. Like any new phenomenon there is likely to be friction. Some of these can be anticipated. With the scale of rising demand, the long term secular decline in commodity prices may reverse, putting a premium on efficiency and research into substitutes.
We will also have to pay close attention to potential conflict over increasingly valuable mineral rights, particularly in areas where claims are contested. We also should not overlook the potential for conflict over intellectual property rights, as the meaning and delineation of property rights have become blurred because of the free flow of information. Perhaps the greatest problem, may arise in the scale of environmental and social changes in our countries created by rapid growth.