Aisa-Pacific undergoes unprecedented growth

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.