Indonesia, Australia and overcoming the Asian crisis (3)
Indonesia, Australia and overcoming the Asian crisis (3)
This is the third of three articles based on former Australian
prime minister Paul J. Keating's lecture at the University of New
South Wales in March on the impact of the Asian economic crisis
on the region in his capacity as visiting professor of public
policy.
SYDNEY: The current Asian economic crisis has demonstrated how
central the trans-Pacific links are but they require careful
tending on both sides of the ocean.
It was openness and links across the Pacific which delivered
Asia's enormous growth.
Asian economies are looking at a lengthy and painful period of
adjustment. It took Australia about five years to fully exploit
its new competitiveness in the 1980s. We turned a huge nominal
depreciation of the exchange rate in 1985/1986 into a real
depreciation. That is, we captured the competitiveness.
But we did not start really seeing the longer-term results in
our export performance and our import replacement performance
until about four or five years later.
But I believe that the adjustment time in Asia will be shorter
because the voices of so many people looking for better lives for
themselves and their families will not be denied.
The underlying factors underpinning Asian growth have not
changed: Young demographics, high savings rates, sensible
macroeconomic policies, entrepreneurial cultures and the high
value placed on education.
And if regional governments can get through this immediate
period and take advantage of the reforms now being imposed on
them, and the competitiveness benefits which the devaluations
provide, they will have tremendous horsepower for the next stage
of economic growth. The International Monetary Fund (IMF) may not
have all the answers, but it has provided governments with the
authority to make reforms which they could not have drawn down
from their own political system.
But the long-term problems for Asia have not gone away. In a
sense, the real Asian economic crisis is still out there,
waiting.
This is the crisis of funding and building the infrastructure
required to support more than two billion people, to feed and
educate them and deal with the profound environmental consequence
of that growth.
Asia's energy demand is doubling every 12 years with all the
consequences that has for air quality and global warming.
In the early 1990s, around 500 million East Asians lived in
towns. By 2020, this figure will have trebled to 1.5 billion.
This demographic shift from the countryside to the cities will
put a huge strain on basic services like water, sanitation and
shelter. Only half the urban populations in developing Asian
countries currently have access to safe water supplies and 42
percent to sanitation.
Food is a looming issue, too. We are already seeing across the
region the consequences of unconstrained heavy use of
fertilizers, irrigation and pesticides. Agricultural productivity
is better, but at the expense of soil erosion, salinity and the
pollution of water resources. How will the region supply itself
with food without destroying the land for future generations?
These looming problems have largely been forgotten in the
current turmoil. But they will require even greater attention
once the current crisis has past.
Unfortunately, as we have seen over the months since last
July, global and regional organizations are nowhere near ready to
respond effectively to the new challenges of globalization, and
the changes it is bringing to the international system.
Throughout this past year, the principal institutions we might
have looked to for help have been out of breath, or behind the
play, or playing the wrong game.
Many writers have commented, and all of us know intuitively
anyway, that the pace of global change is quickening. It is still
less than 10 years since the Soviet Union collapsed, and with it
the whole post-war international order. Now, only a few years
later, we are seeing an economic crisis in Asia which threatens
to hobble the region which had promised to be the world's
economic growth engine as we enter the 21st century.
History is made up of discontinuities. But surely one of the
main lessons of the past decade is that those discontinuities are
becoming more frequent and deeper.
In other words, it is not the speed of change which should
concern us most but the fact that change seems to be becoming
inherently more sudden and less predictable.
The reason lies in the profound impact on the international
system of the information revolution in all its various forms,
including the way it has made economic globalization possible and
has accelerated the mobility of capital, information and ideas.
The Asian economic crisis has been an obvious example of this.
In a recent speech, Alan Greenspan, the chairman of the U.S.
Federal Reserve Board, pointed to the way the new technology
appears to have facilitated the transmission of financial
disturbances far more effectively than ever before. Vicious
cycles of ever-rising and reinforcing fears have become
contagious and are emerging more often.
It is likely, he says, that the root of the sharp exchange
rate changes in Asia "is a process which is neither measured nor
rational, one based on a visceral, engulfing fear." And once such
cycles are triggered, damage control is difficult. Once the web
of confidence which supports the financial system is breached, it
is difficult to restore quickly.
I think this argument can be extended to the political and
strategic realm. In other words, "contagion" is not just an
economic phenomenon. Change -- any change -- is being magnified
by the speed and variety of the transmission mechanisms which
make it known. It spreads more rapidly, is less subject to
filtering by governments and less easy to control.
We saw this phenomenon clearly in the political/economic
crisis which led with such startling speed to the collapse of the
Soviet empire in Eastern Europe.
If that judgment about the international system is right, the
practical consequence for public policy-making is that we are
likely to have less warning of future crises and, therefore,
fewer opportunities to avert them. And when they come, the swings
they generate are likely to be larger.
I agree with Alan Greenspan's conclusion that we do not as yet
fully understand the new system's dynamic and that we need to
update and modify our institutions and practices to reduce the
risks inherent in it.
The IMF has had a lead role in this crisis, but it is a very
different, much broader, role than the sort of balance of
payments crises it has had to contend with in the past. The
finance ministries and the IMF have not been able to assimilate
properly the political dimensions of the new sort of job they are
now being asked to perform.
The momentum for changes to the processes and policies of the
IMF is now probably unstoppable.
The Group of Seven (G-7) industrial countries has had a go at
thinking about the crisis, but its problem in these circumstance
is that the interests of its European members demonstrably do not
extend to the political stability of Southeast Asia.
The Asia-Pacific Economic Cooperation (APEC) forum ought to
have been ideally placed to respond to the region's difficulties
because it is an economic organization which includes all the
countries most affected.
One problem which has clearly emerged has been the absence of
a strong APEC secretariat with institutional backing able to
bring issues and current data to the attention of member
economies.
But more basically, APEC has been hobbled by the agreement
last year to add Russia to its membership.
I think this decision was an act of international vandalism. I
would have opposed it to the end. It was a fundamental mistake
which was made worse because it was designed in part to atone for
another fundamental mistake -- the 1997 decision to expand NATO
to the European borders of the old Soviet Union.
I am certainly not anti-Russian and I well understand its
long-term importance as a great power. But its participation in
APEC has already changed the dynamics of the organization.
Under no conceivable stretch of the imagination is Russia
currently part of the Asia-Pacific economy. And its strategic and
political priorities are totally different from those of APEC's
other members.
Precisely because it is such an important power in its own
right, its participation will make it harder to use APEC and the
leader's meetings as a focused and effective forum to oversee and
coordinate the various responses to the economic crisis. Russian
membership makes it impossible, for example, to contemplate using
APEC as the basis for a financial fund to address future balance
of payments problems in the region because the potential
additional demands it would generate are just too great.
The declaration which emerged from the leaders meeting in
Vancouver last November described APEC as the "region's most
comprehensive economic forum" and "particularly well placed to
play a pivotal role in fostering dialog and cooperation." It
asked APEC finance ministers and central bankers to accelerate
their work. It talked about an increasing role for APEC.
Well, we haven't been swept aside in the rush.
This year's APEC meeting in Kuala Lumpur has to send firm
messages that Asia remains on the path to openness. This is not
just a matter of making declarations but of taking specific
actions which will restore confidence within the region and in
key markets that Asia can resume its growth path.
This means showing a determination to move forward on the
Bogor free trade and investment agenda.
It means giving some clear support to the development of more
structured cooperation between regional central banks.
But if APEC is to get anywhere, the bulk of the work to
achieve it has to be going on now. It will be useless for leaders
simply to turn up in Kuala Lumpur in September and expect to put
something together in those couple of days.
I am not prepared to write APEC off yet. But if it does not
show its relevance to the Asian economies this year, it will
write itself off.
What happens to any individual international organization is
not in the least important.
But APEC matters because it embodies a big idea -- that of an
open Asia-Pacific region. And that idea lies at the core of how
we can best overcome this mess.
On the trade front, the message has to be sent out strongly
that the world is not in the business of building barriers. We
need China in the World Trade Organization, and as quickly as
possible, I hope this will be one of the outcomes of President
Clinton's proposed visits to China in June.
More broadly, this would be an excellent moment to press ahead
with the proposed Millennium Round of trade negotiations.
On the subject of Australia and Asia, I believe the changes
Australia made internally in the 1980s and 1990s have prepared us
well to cope with the challenges we now face. We went voluntarily
through much of the painful integration into the global economy
that our neighbors are experiencing.
I also believe the progress we have made in forging closer
bilateral and regional ties will help both Australia and the
countries around us.
And I think the current government has generally been pursuing
the right policies towards the region. Its speedy contribution to
the IMF packages was the right thing to do.
But I have to note that a few worrying signs about Australia's
relationship with Asia are emerging. For example, I was taken to
task by the Sydney Morning Herald last week.
This is not a new phenomenon, of course, or one which strikes
fear in the heart. But it is worth mentioning because the
criticism has broader implications.
I was criticized for a speech I made in Singapore in 1996,
from which the editorial quoted. I had said that Australia's
"engagement with the region around us is not just commercial. And
it is not just the result of some crude economic determinism. It
goes -- and must go -- much deeper than that. It goes to a
genuine desire for partnership and real involvement ... Australia
needs to seek its security in Asia rather than from Asia."
This view was described by the newspaper as "lightheaded".
But to assert, as those words of mine do, that Australia's
engagement with Asia has a political, security and cultural
dimension as well as an economic one, and requires a genuine
national commitment on our part, seems to me so deeply true, so
basic to Australian interests, so blindingly self-evident, that
it is perhaps only a Sydney Morning Herald editorialist who could
take exception to it.
But unfortunately, there are other hints of revisionism
around. A sort of sotto voce whisper that the Labor government
rather overdid the whole Asia and that we are now paying the
price. Some of the old brigade obviously think Asia's recent
economic problems mean that Australia can heave a sign of relief
and head for the safety of old friends and familiar geography.
Others argue that some historically determined conflagration
is coming in Indonesia and that Australia should distance itself
from it by tiptoeing quietly to the side of the field in the hope
that no one will notice we are there.
This is dangerous nonsense.
Australia must have a deep and continuous commitment to Asia
-- and for reasons that lie at the heart of our national
interests. None of that has changed as a result of recent
developments.
The intrinsic economic complementarities between Australia and
Asia have not changed. Australia has not suddenly developed
security interests in Africa rather than Asia.
Australian engagement with Asia is not a temporary enthusiasm.
Asia is not a flavor of the month. We have not been on a 10-day
package tour from which we can return with a couple of T-shirts
and a handful of color prints for the album. Australia cannot
bolt on the Evinrude and motor off to the coast of California.
If we know anything about dealing with Asia it is the
importance of building relationships for the long term.
That is the business Australia needs to be in now.