Asia and the World Economy

8/6/2019 Asia and the World Economy

1/32

Asia and the world economy

1

Universiti Kebangsaan MalaysiaFaculty of Law

Pursuing PHD Program in Law

P58462

Musbri Mohamed

DIL; ADIL ( ITM )

MBL ( UKM )


2/32

2


3/32


4/32

4


5/32

Five major problems before Asia can even begin to competewith the West in the global financial arena. These are theglobal financial architecture problem, the moral high groundquestion, the issue of financial and accounting standards, theToo Big to Fail problem and the need for regional and globalcooperation.

5


6/32

Global FinancialArchitecture

In terms of the global architecture, the dollar and the euro will remain asglobal reserve currencies within the next two decades at the very minimum.This is because it will be difficult to achieve Asian consensus on what theright currency arrangement is for Asia.

Looking to the future, the Asian newly industrializing economies find theyhave no choice but to continue to pursue trade-led growth for development aswell as open-door policies for their domestic financial and capital markets.But they are afraid that there is no assurance of the sustainability and stabilityof their economic growth unless the international financial architecture is

reformed to remedy its revealed weaknesses and the disciplines of themultilateral trading system are strengthened.

6


7/32

China and the other Asian countries may seem to have beenaffected less severely by the global financial crisis than thenewly industrializing economies for now but, as they see it, thedamage being done to their real economies is large and serious.

More significantly, Asias confidence in the global economicarchitecture, and by the same token, in its outward-orienteddevelopment strategies, has been shaken profoundly.

The crisis shows that Asian economies face bleak prospects forcontinuing economic growth and development under existingglobal economic arrangements. If this is to change they need to

be actively engaged in reform of the architecture.

7


8/32

East Asian countries, especially ASEAN+3, have focused on thepromotion of financial and monetary cooperation at the regionallevel in order to supplement the global financial architecture. Theseregional efforts have made progress under two headings, the Chang

Mai Initiative (CMI) and the Asia Bond Market Initiative (ABMI).The current crisis underlines the need for Asian economies toaccelerate that progress, especially that of the CMI, toward thecreation of the Asian Monetary Fund which would augment the IMF.The efforts under ABMI should be accelerated toward the goal ofcreating integrated regional capital markets in order to help makeregional savings more readily available to regional borrowers atlower cost.

8


9/32

The Asian economies can also work together to create newengines of regional economic growth and thus to make Asiamore resilient, launching coordinated investment ininfrastructure, the ecological system, and green growth. Inparallel, they may also promote coordinated reforms behindthe border, to deregulate and modernize the services sector

in the individual economies.

The vision of a resilient Asia could be best pursued by theAsian governments by forming, and working togetherthrough, an Asia-Pacific version of the OECD. The role ofthe Asia-Pacific OECD would be to promote and facilitatetransfer of developmental policy as well as technologicalknow-how.

9


10/32

By exposing the fundamental vulnerabilities of Asian economies toexternal shocks for the second time, the current global financialcrisis reminds Asians of the need for a new thinking as well as anew bold vision of their economic and societal progress, as well asa new approach to regional development beyond the piecemeal

steps which have been taken thus far.

All these efforts to play an active, creative and constructive role inreforming the global financial architecture and enhancing theliberal trading environment, as well as to make the Asianeconomies as a whole more resilient by promoting intra-regionalaggregate demand and creating new engines of regional growthwill help facilitate the shift in global economic governance from abi-polar to a tri-polar structure, and a more stable and betterfunctioning one, with East Asia as the new, third pole.

10


11/32

The Moral High Ground

The second problem is that Western money has reigned supreme

because they commanded the moral high ground. That high

ground has been shaved a notch or two by this crisis. I am still a

firm believer that finance must be at the service of the real

economy, not the other way around. I still believe that finance

must look after the interests of the public first and foremostbefore its own interests.

11


12/32

Financial and Accounting standards

The third issue is the question of regulatory and accounting standardsthat were shown to be flawed. They are too complicated to beunderstood by the layman, which is exactly why the current system istoo complex, non-transparent and can easily be gamed at the expense ofthe public. Asia has to go back to basics and challenge these rules andstandards at the fundamental level. This will take a lot of research and

resources.

12


13/32

The Too Big to Fail Issue

Fourthly, we must address the issue of Too Big to Fail, or what has really

emerged, Too Powerful to Fail, because the largest complex financial institutions

have become even more concentrated, connected and powerful than before.

Asias solution to this problem is state-ownership, because in the largest

countries the commercial banking system has been largely state-owned orguided. This has solved the power problem without solving the innovation

problem.

13


14/32

How do we make financial institutions more innovative to help

fund and foster growth within Asia?

If we are to deal with the question of Too Big to Fail, we have to

deal with leverage, incentives and the political economy of who is

bigger, the state or financial institutions that can hold countries to

ransom. As I said earlier, this problem cannot be solved with zero

interest rates, because low or negative real interest rates are at the

heart of the leverage and incentive distortion problem.

14


15/32

Regional and global cooperation

The institutionalisation of Asian regional and global cooperation willbe challenging, given that it is a geographically vast, culturally diverse,economically disparate and politically complex region. Nevertheless,

there is increasing awareness that many of the problems that Asia andindividual economies face cannot be solved by national action alone.The interdependence and interconnectivity are such that there must begreater national, regional and global dialogue and policy research.Given the disparate levels of financial development and understandingof the issues, convergence towards global standards will inevitably taketime.

15


16/32

Leaders should expand multilateral cooperation on functional issuesthrough inclusive region-wide frameworks. When combined withmultilateral dialogue in the context of existing regional forums,

proactive and cooperative action to address issues of common concernwill go a long way towards strengthening intra-regional ties andconsolidating trust and confidence among nations. The creation of anew East Asia Security Forum to tackle transnational security issuessuch as maritime piracy, resource scarcity, disaster relief,environmental degradation, infectious disease, and nuclearproliferation.

16


17/32

17


18/32

Taking the Proliferation Security Initiative as a model, this newforum would adopt a proactive and operational approach to regionalsecurity. Member states would be bound together by rules andoperations and cooperatively address shared threats through jointoperations. It should be stressed that the proposed forum is notintended as a replacement for the ASEAN Regional Forum (ARF).Rather, it would be designed to serve as a complement toor evenpossibly as part ofthe ARF, which has played an important role infacilitating regular region-wide ministerial dialogue for well over adecade. After all, the primary objective is not to create superfluousinstitutions but to engage regional states in substantive and action-oriented cooperation.

18


19/32

In order to ensure that the new forums mandate is not spread too

thin, membership should be restricted to the ASEAN+6that is,the 10 nations of ASEAN plus China, South Korea, Japan,Australia, New Zealand, and Indiaand the United States.Given that the United States is not geographically situated inAsia, its membership may be met with some resistance fromother nations in the region. However, it is abundantly clear thatUS participation is a prerequisite for this kind of action-orientedsecurity institution to have a legitimate chance of success.

19


20/32

The end of American supremacy

Americans find that easy to believe because they have got so used to exercisingprimacy and they dont want to give it up. It has become a matter of national

identity, which makes it very hard to relinquish. Whats more, they do not yet

accept that they will have to fight to keep it. Most Americans, even those who

know Asia well, do not really accept that China poses a serious challenge to

their power and role in Asia. They remind you that Americas eclipse in Asia

has been predicted many times before, and the doomsayers have always been

wrong. They say this time will be no different: America will bounce back fromits present troubles, stronger than ever.

20


21/32

21


22/32

This is half right. It is true that Americas present problems willpass. The wars in Iraq and Afghanistan have been wasteful anddemoralising, but they will not bring America to its knees.Americas economic problems are serious and debilitating, but itremains a remarkably innovative and vibrant place with animmense capacity for recovery and reinvention. IfChinas

challenge to America depended on American weakness, therewould be little to worry about. But the story of Asias power shiftis not about America. It is about China. This is not a story ofAmerican weakness, but ofChinese strength. Even if the War onTerror and the global financial crisis had never happened, even ifAmericas budget was in healthy surplus and its financial system inperfect shape,Chinas economic transformation would still posethe biggest threat to Americas place at the apex of global powersince it reached there in 1880.

22


23/32

There is an alternative which we might liken to the Concert

of Power that emerged in Europe in the nineteenth century. In

a concert the major powers US, China, Japan and India

would need to share leadership. That is not easy: it requires

mutual recognition and acceptance of one anothers political

systems, international interests and with broad limits military capabilities. Above all it requires all major powers to

agree that peace between them is more important to all of them

than anything else. By definition, a concert system is not

perfect for anyone, but it is best for everyone. But for that

reason ti is hard to build and hard to sustain. But if the EU

model is unattainable, and US primacy is unsustainable, and

the balance of power is undesirable, then the Concert is ourbest bet for keeping war unthinkable in the Asian century.

23


24/32

Hillary Clinton declared in Hanoi: The East AsiaSummit, where you bring other countries in addition tothe core ASEAN countries together to discuss politicaland security matters, is a very important forum for theUS to be part of. Where issues of a political, economic,and security consequence are being discussed in theregion, the US wants to be there.

24


25/32

Chinese Premier Wen Jiabao said: Thesummit had stuck to its orientation andlaunched fruitful dialogue and cooperation infinance, energy, education, bird flu controland disaster relief. China would like todiscuss with all partners the proposals foreconomic integration in East Asia and jointlypromote regional peace, stability anddevelopment. Premier Wen welcomed theparticipation of Russia and the US in theEAS.

A prosperous and secure Asia Pacific requirescooperation between all the major powers

involved in the region. The EAS can hopefully provide the necessary dialogue tonegotiate solutions to regional problems andmitigate incipient tensions.

25


26/32

26


27/32

27


28/32

Of course, regional economic developments will

proceed in a context of global interdependence, US

markets will remain significant, and US officials

and institutions will be important parts of the

international financial system. However, Asian

economic integration can proceed without US

participation in many of its core processes.

28


29/32

29


30/32

30


31/32

31


32/32

The US and Russia must be careful. The economic agenda inAsia is about regional integration, not trade. Communitybuilding is more than rhetoric. It signals an intention to takeaccount of regional interests as decisions are made inindividual economies. It is concerned with establishingregional rules and processes that give assurance that cross-border business generates regional economic welfare. While

this is very likely to proceed at different paces acrossdifferent dimensions tariffs, customs procedures, monetaryco-operation and so on American and Russian leaders andofficials have to adapt to this ASEAN led approach to tradeand economic integration. If they fail to take heed of thiswarning, they may find that EAS is slipping away withoutthem.

Musbri Mohamed

May 2011

32

Documents

Asia and the World Economy