FEATURE: Asia: The Big Questions - The Economy

Asia is suffering deep economic pain in the global recession along with the rest of the world. But politically, Asia has been having a good global crisis.

In a series of reports, Radio Australia's associate editor for the Asia Pacific, Graeme Dobell, looks at the big questions facing Asia.

The first question: Is Asia ready to step up to take leadership of the world economy?

Graeme Dobell

Last Updated: Thu, 2 Jul 2009 13:19:00 +1000

Asia is suffering deep economic pain in the global recession along with the rest of the world. But politically, Asia has been having a good global crisis.

A decade ago, - in 1997-98 - Asia was flattened by financial contagion. Then Asia was berated for its economic mistakes. Today Asia is being implored by the West to help, even to take a greater share of leadership.

What a difference a decade makes - a point gently made by Dr Narognchai Akrasanee, Thailand's former Commerce Minister, now chairman of the Export-Import Bank.

"I used to talk about the financial crisis a lot in 1998 and 2000 when we had the Asian financial crisis," he said.

"At that time Thailand was blamed for causing the crisis...and I went around apologising for Thailand, together with many of my colleagues from Indonesia, Malaysia and so on. And we were lectured to by Western governments and Western credit agencies like Moodys."

It's not Asia's fault this time. But Asia must share the pain. Japan's exports have shrunk 43 per cent in six months. China's exports have fallen by one third in the same time. In Southeast Asia, the total GDP of the ten ASEAN countries has contracted by 13 percent so far this year. The Asian Development Bank says the global recession could this year mean an extra 62 million people live in poverty in Asia.

On the positive side, the Asia Pacific is the only region in the world to forecast economic growth, this year and next.

Is Asia ready to take a full leadership role in managing and restructuring the world economy? That question is being posed because - in the words of a former head of Singapore's Foreign Minister, Kishore Mahbubani - Asia can no longer rely on Western economic leadership as it has for the past 60 years.

"Up to now, both the US and Europe have benevolent custodians of the international economic order, creating a liberal and open trading order. The reason why the US and Europe did this consistently for several decades after the second world war, is because they and their populations assume, they'll be the biggest beneficiaries of an open, liberal international trading order," he said.

"What's happening now is that frankly, more and more people in the US and Europe are beginning to believe that they are keeping this open liberal international trade order and guess who's benefiting? China and India.

"All the jobs are going to China and India so why are we suckers maintaining this liberal order, we should be changing it. So if China and India and the other Asian countries want to continue to benefit from this liberal international order, they'll have to start taking on responsibility for managing it. Unfortunately, as of now, none of the Asian powers are ready to do so.

The most comfortable view for Asia is that the global crisis is all due to mismanagement and mistakes by others - the West showing a blind faith in markets and deregulation and the now much-derided neo-Liberal Washington consensus.

If Asia is to step up to leadership, though, perhaps it needs to examine its own past behaviour. What if Asia - for a range of both virtuous and self-interested reasons - helped create the conditions for the crisis? Asia built itself up through industrialising and exporting, helped by keeping its currencies weak or soft.

But the huge currency reserves thus created were then handed back or invested in the West, fuelling the binge, says Thailand's Dr Narongchai Akrasanee.

"I think we have got to this point because most of us in Asia in particular have adopted the so called 'export oriented strategy'," he said.

"1970's ASEAN, 1980's China, 1990's India, Indochina etc, all of us adopted this policy. It was a good policy to adopt and it was very good for our economic growth, it was good for our creation of wealth. But the problem was that two thirds of our exports ended up in the West. And we also adopted the soft currency policy and this soft currency policy prevented trade adjustment by market forces.

"That's why the surplus kept increasing in size particularly when China came along. China was able to produce as much as the West wanted, and even more. Our business sectors always complained about the so called 'hard currency'. Whenever we have strong exchange rate, they complain. And the governments and the Central Banks always have to keep exchange rates very soft. That's why this situation created huge foreign reserves for Asia and we don't know what to do with it. Again, we have to blame ourselves for not knowing what to do with our money, so we invested this money in the West."

The imbalance between the West and Asia is more than just a matter of financial flows. Asia's population and consumption profiles are vastly different.

If the crisis is the opportunity for Asia to assert a new authority and leadership, how will that change the global system? Singapore's Kishore Mahbubani doesn't see Asia wanting to change the rules too much. Instead, he says, it's more a matter of changing the people who run the system.

"For example even today, you still have a kind of implicit rule that to become the head of the IMF you must be a European, to become the head of the World Bank you must be an American, and 3.5 billion Asians don't qualify even though they have the world's fastest growing economies, the world's largest pool of foreign reserves, and now the world's largest pool of economic PhDs.

"So these are the kind of old rules of domination of international institutions by the West. That will have to change and frankly, they've got to give Asians a greater chance to run these international financial institutions."

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