Wed, 07 May 2003

Economic development strategy in Southeast Asian countries

Narongchai Akrasanee, Former Thai Minister of Commerce, Jakarta

What should we do about our economic development strategy for the next phase of our development? The answer depends on our background and the situation which our economy is in at this time. Members of the public may be concerned about globalization and Western domination, and may prefer a less open economy. Economists may continue to insist on export and foreign investment oriented strategy, with additional focus on productivity/ creativity improvement.

Technocrats may insist on restructuring and reform, with emphasis on sequencing. Businessmen may ask for both protection and promotion, with support for commerce development. I do not believe we have a ready-made formula for economic development strategy.

The formula of the three "lions", i.e. liberalization, deregulation, and privatization as endlessly advocated by the World Bank and the International Monetary Fund (IMF) cannot be taken as a cure for all strategy. The strategy should cover at least three major areas, with each one designed according to the development mode of the area.

Area 1 is foreign trade, which has three modes: More for more, more for less and less for more.

Thailand is in the mode of "more for less", because we are producing and selling products at lower prices, partly because of more competition in the markets of the United States and the European Union. In this case, we must move to the mode of "less for more". We have to stress "productivity driven growth" particularly in sectors which we believe we can compete internationally such as food processing, tourism, and automotives.

And we need sub-regional, regional cooperation in the forms of the Greater Mekong Subregion (GMS), Association of Southeast Asian Nations (ASEAN), ASEAN+ Japan, China and South Korea, for the purpose.

Area 2 is international finance, which comprises three codes: No access, accessing without owning, and accessing and owning.

Again for Thailand before 1990 we had no access to international money and capital market. Our government could have foreign borrowing, but not the private sector. We had some foreign direct investment, but with foreign control.

In the 1990s we moved to "accessing without owning". We had access to global finance, but we ended up owning hardly any assets bought by that money. Now we need to move to "accessing and owning". We must make sure that reliance on foreign financing must be for the purpose of eventual owning of business.

Hence we must be aware of the volatility, mobility, and sensitivity of global finance. As the 2002 Nobel Laureate in economics, Daniel Kahneman, teaches his students, decision-making under uncertainty is determined more by psychology than economics. The best demonstration of his theory is how global finance works.

Thus, we cannot afford a fully open capital account, despite whatever the IMP tells us. And we need to have regional cooperation to cushion the volatility effects of global finance.

Area 3 is technology, comprising pirating and reverse engineering, accessing with conditionality and own technology.

Thailand is only moving from mode 1 to mode 2. Now we can access technology, but with a lot of conditionalities on intellectual property rights (IPR). We have to develop a system conducive to innovation, which involves a very comprehensive IPR system, apart from strong science and technology infrastructure. For Thailand we are trying to take all those above actions.

We continue to promote exports, but we put much more effort on the domestic market than before. Domestic capacity enhancement is the key issue. For foreign market we put more emphasis on ASEAN, East Asia, and other countries in Asia such as India.

We are active in the GMS, ASEAN economic cooperation, and the ASEAN+3. And we have initiated an Asian Cooperation Dialog (ACD) while we maintain links with traditional trading partners in the West. We refer to this strategy as "Local/regional link-global reach" or the "dual-track economic policy".

Some of these issues may be of relevance to the deliberation of economic development strategy in Indonesia.

Do not shut out the West, their ideas and ideals, for there are a lot of good things in them. Do not ignore economic theory, for it is the truth. It is the interpretation and application of the theory that is sometimes the problem.

Don't give up the technocrats, despite their improper sequencing, for they certainly did a fine job for Indonesia up until the early 1990s.

Do not blame only the businessmen for the heavy debt of the economy. The crisis of 1997/1998 was a systemic failure for which all parties must share the blame. I am a true believer of the growth and development prospect of Southeast Asia.

We can achieve that by taking a multi-dimensional approach to economic development strategy. Indonesia can do it. It is important for Southeast Asia, for Indonesia to be able to do it. Because, for Southeast Asia, for ASEAN, we can grow only as far as Indonesia allows us to grow.

The above article is abridged from the writer's presentation at The Jakarta Post's seminar on Strategy for Indonesia's Economic Development held on April 28.