Asia's economic policy goes back to rural roots

Asia's economic policy goes back to rural roots

Alan Wheatley, Reuters, Singapore

Developing Asia is not about to turn its face on export-led
manufacturing. But rising commodity prices, fears in China and
elsewhere of a widening town-country income gap and the power of
the ballot box are all spurring policy makers into action.

Thai Prime Minister Thaksin Shinawatra came to office through
the farm vote; Malaysia's Abdullah Ahmad Badawi preaches rural
revival through crop diversification and yield-boosting
biotechnology.

And India's Congress-led coalition, swept to power by the
votes of millions of peasants who felt neglected by the country's
urban elites, is expected to learn the lesson of the election by
placing rural needs at the heart of its first budget on Thursday.

"Clearly everybody knows they need to leverage rural support
to gain either political advantage or maintain political
stability," said Daniel Lian, Southeast Asia economist for Morgan
Stanley in Singapore.

"Even China is starting to talk about it because they know
they have suppressed the rural sector for far too long," he said.

Lian is a long-standing advocate of a more balanced growth
model for Asia. Given what he sees as Asia's lack of pricing
power in mass-manufactured exports, he believes developing rural
communities is a key to any strategy to spur domestic demand.

The rural development challenge looms especially large for the
new leaders of Indonesia and the Philippines, where 58 percent
and 41 percent of people respectively live in the countryside.

Because they pay little if any tax, Asian peasants have
traditionally been regarded by policy makers as a burden to be
steered off the land toward industrial jobs in urban centers.

But Lian said neither Indonesia nor the Philippines could look
forward to attracting much foreign direct investment in the near
future. "The low-value generic mass manufacturing-based export
model will not bring sufficient economic growth and the
prosperity that are desperately needed to circumvent low growth,
high debt and poverty traps," Lian wrote in a report.

Ric Shand, an expert on Asian agriculture with the Australian
National University in Canberra, was scathing about what he
called Jakarta's gross neglect of the farm sector.

"They've been running an economy which has robbed the outer
islands of export revenue to pay for development programs in Java
at the center," he said.

Shand singled out Malaysia as the emerging Asian economy that
had most successfully balanced industrial expansion with a series
of crop development programs based on strong research and
agricultural extension support.

Industrialization has long been touted as the route out of
rural poverty for developing Asia as it has been for the likes of
Japan, South Korea and Taiwan.

But Jim Walker, chief economist at brokers CLSA, said Badawi's
stress on reviving Malaysia's farm sector and Thaksin's efforts
to recharge Thailand's rural economy should be welcomed as a step
forward in economic thinking, not a step backwards.

"The value added that Malaysia can extract from properly
exploiting its natural resources is much greater than the meagre
retained income from electronics components companies and
multinationals searching for cheap labor resources.

"Too much is paid away in government subsidies for these bolt-
on industries to make the step-up in incomes and wealth
permanent," Walker said in a note to clients.

In the case of India, Shand ran through a daunting list of
obstacles in the way of reinvigorating a rural economy that he
said had been all but ignored by both Congress and the Hindu
nationalist Bharatiya Janata Party since 1991.

Villagers needed better roads to get surplus food to market.
Irrigation systems had been sadly neglected. Diversification into
higher-value-added crops was urgent, as was more research -- to
say nothing of improving poor health and education levels.

Yet Shand said tackling these problems will depend on the
willingness of debt-ridden state governments, which largely have
responsibility for agriculture under India's federal system, to
find the money for rural infrastructure. That in turn could force
states to slash subsidies deemed politically untouchable.

"They'll have to bite the bullet at some stage on this," Shand
said. "It's a really hard one. But unless they do, they're going
to be severely handicapped in achieving what they need to in the
rural areas."