Singapore conference: Is Asia staging a comeback?

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The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.

Amid growing optimism in the region, over 30 policymakers, researchers, market analysts, and journalists from the larger economies of the Association of South East Asian Nations (ASEAN)—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—and China and Japan gathered in Singapore for an IMF-sponsored seminar—”Asia’s Economic Challenges and Opportunities”—on December 11-12,2003. The participants foresaw a dynamic future for the region provided it adopted a more entrepreneurial and innovative response to an increasingly competitive global environment.

From the early 1980s through the mid-1990s, the major ASEAN and newly industrialized economies of Asia made extraordinary strides in achieving rapid economic growth, attracting unprecedented amounts of global investment, achieving macroeconomic stability, and reducing poverty. This impressive performance was interrupted, however, by a crisis in 1997-98 that left the region suddenly associated not with a miracle but with structural weaknesses.

The interruption proved relatively short-lived. While a few economies remain fragile, Asia is again playing a crucial role in supporting world growth. This year, developing Asia—with a projected growth rate of percent or higher—looks to top regional growth rankings for the fourth year in a row. Its growth this time is driven by the performance of China and India. Asia now accounts for one-third of world output and one-fifth of world exports, and attracts one-third of all foreign direct investment in emerging markets.

Against this backdrop, seminar participants were upbeat and confident about the region’s future but equally certain that a sharply more competitive global economy would not tolerate rigidity or complacency. In today’s environment, they saw no way to return to East Asia’s “old” model, which had achieved vigorous growth through resource-driven, export-led development, boosted by state-directed capitalism and top-down corporate and bureaucratic organizations. With the greater integration of China and India into the world economy, Asia’s smaller emerging markets have seen their export edge diminish. More fluid capital flows have also made untenable the fixed exchange rate regimes that once helped these economies secure export markets and attract foreign direct investment. And, in some cases, nonperforming loans continue to burden financial systems. What Asia needs, participants agreed, is a new mind-set that will promote entrepreneurship and innovation in a more globalized world.

New development models

But what exactly would a development model look like that reflects this new mind-set? There was a good deal of interest in the potential benefits that Thailand’s dual-track model might offer. This model relies on domestic demand as well as exports to propel growth and places a special focus on rural development. Some participants urged policymakers to take advantage of the region’s growing number of affluent domestic consumers. Others cautioned that a stimulative fiscal strategy ran the risk of building up undue contingent liabilities for the government with questionable impact on poverty reduction. Indeed, there was broad agreement that whatever the composition of the new development model, more equitable income distribution would be crucial in preserving political stability and social harmony.

On the supply side, participants underscored the role that innovative business approaches could play in ensuring that the region played an active role in the technology-intensive, knowledge-based global economy. Some viewed the world as currently dominated by international companies with ties to no particular country and with the capacity to outsource most operations. In this environment, they said, a domestic company is typically part of a complex production chain.

What advice was there, then, for developing Asian economies? Several participants suggested that the focus should be on areas of strength, with these economies seeking opportunities to move up the value chain. As evidence of the benefits of such approach, one participant pointed to the more competitive, and more profitable, Information technology (IT) firms of the United States. These companies use a modular approach to focus on specific areas (notably research and development, and after-sales services) and outsource steps lower in the value chain (such as the manufacturing of parts and components). The modular approach, the participant noted, stands in notable contrast to the integrated and less profitable approach of Japanese IT companies that spread their resources to all fields. Still, not all participants were ready to advise rushing into the production of high-end products, and some suggested that there will always be a demand for “hum drum” activities, such as the production of food and other basic necessities.

Rethinking the state’s role

A new mind-set model seemed likely, too, to call for a new role for government. Researchers and practitioners alike agreed that industrial policies, in which the state selects which products should be made and then promotes investment in their manufacturing capacity, are no longer relevant. Instead, they said, input-oriented policies should be key, with the state investing in, among other things, skill upgrading and technology research, development of urban infrastructure attractive to knowledge workers, and steps to foster open and competitive environments.

Participants were also mindful of shorter product life cycles, especially for electronics and IT products. For less advanced economies to move up the value chain, governments will need to be instrumental in designing incentive systems that ensure fewer barriers to firm entry and exit and greater labor mobility. More specifically, participants cited the importance of developing venture capital markets to help ease entry, putting in place workable bankruptcy laws to facilitate exit, and creating portable pension and benefits systems for employees. It will also be imperative, they added, to establish strong institutions capable of protecting property rights, upholding the rule of law, combating corruption, and promoting social stability. These effective institutions would have dual value—not only boosting economic growth and competitiveness but also helping address growing demands for political accountability.

New model for reform management?

Will a confident Asia, charging forward under a new development model, mean that its postcrisis agenda—notably financial and corporate system reforms—is no longer considered a challenge? Andrew Sheng (Chair of the Hong Kong Securities and Futures Commission) raised the issue in keynote remarks entitled “Managing the Financial Reform Process: Toward a Balanced Economy.”

Asian economies have gone through long and painful adjustment processes, with seemingly piecemeal and transitory payoffs. There is a fear now that “reform fatigue” may be setting in. Are countries in a position to call off corporate and financial sector reforms? Seminar participants answered with a resounding “no,” indicating that the reform agenda remains on the table and that each economy needs to plow ahead.

But the participants also acknowledged that these reforms involve changing long-entrenched behavior of stakeholders who often have conflicting goals. Clearly, the process is complex and may even take another generation to complete. Several participants underscored the importance of sequencing and managing strategic steps, suggesting that governments pursue a few priorities at a time and ensure that regulatory agencies perform in a coordinated way.

Program and participants

Session one: Asia’s economic challenges

Manu Bhaskaran, Centennial Group Holdings, Singapore

Bernardo Villegas, University of Asia and the Pacific, the Philippines

Chia Siow Yue, Singapore Institute of International Affairs, Singapore

Mari Pangestu, Center of Strategic and International Studies, Indonesia

Xianbin Yao, Asian Development Bank, the Philippines

Lunch keynote speech

Andrew Sheng, Chair, Securities and Futures Commission, Hong Kong SAR

Session two: Asian economic integration

Pasuk Phongpaichit, Chulalongkorn University, Thailand

Arvind Subramanian, IMF Research Department

Gordon de Brouwer, Australia National University, Australia

J. Soedradjad Djiwandono, Institute of Defense and Strategic Studies, Singapore; Former Governor, Central Bank of Indonesia

Li Shantong, Development Research Center of the State Council, China

Dinner keynote speech

Haruhiko Kuroda, Special Advisor to the Cabinet, and Graduate School of Economics, Hitotsubashi University, Japan

Session three: Sustaining economic growth

Hiroyuki Hino, IMF Regional Office for Asia and the Pacific

Nibhat Bhukhanasut, Offices of the Prime Minister, Minister of Finance, and Minister of Energy, Thailand

Jim Walker, CLSA Asia-Pacific Markets, Hong Kong SAR

Risaburo Nezu, Fujitsu Research Institute, Japan Shahid Yusuf, World Bank

Session four: Panel discussion

Alan Wheatley, Reuters Singapore

Ammar Siamwala, Thailand Development Research Institute

Tan Sri Noordin Sopiee, Institute of Strategic and International Studies, Malaysia

Haruhiko Kuroda

Other participants

Denis Hew, ISEAS, Singapore

Thanong Khanthong, The Nation, Thailand

Vincent Lingga, The Jakarta Post, Indonesia

Other IMF participants

Thomas C. Dawson, External Relations Department

Sri Mulyani Indrawati, Executive Director

Yoshiko Kamata, External Relations Department

Kanitta Meesook, External Relations Department

Wanda Tseng, Asia and Pacific Department

Here, too, the global environment is dictating change, requiring public sectors to become more flexible, and to be able to collect and utilize feedback from all affected parties. Policymakers and regulators across disciplines—economists, lawyers, accountants, political and social scientists, environmentalists—can no longer perform in isolation if behavioral changes are to be brought about effectively. One participant made the case for adapting hierarchical bureaucratic structures to matrix management. This, it was argued, would force technocrats to seek out and incorporate information and requirements from each other rather than focusing solely on their own functional areas. Although there was no agreement on a single best approach, there was support for holding public servants accountable for the success of the overall reform process.

Increasing economic integration

One of the seminar’s hottest topics and liveliest debates centered on whether there is a need for greater regional coordination of exchange rate management and whether, given China’s entry into the World Trade Organization, the current levels of the renminbi and other Asian currencies are appropriate. Haruhiko Kuroda (Special Advisor to the Prime Minister of Japan) led that debate with a keynote address “Toward a Stable Currency Regime in East Asia.” As one might expect, there was no consensus among participants on the question.

There was, however, broad agreement on several other aspects of Asia’s growing economic interdependence and integration. Participants saw China and India, along with the United States, as the engines for Asia’s strong growth in the period ahead and Japan’s role subsiding. Conscious that Chinese imports from the major ASEAN countries have grown by an average of 14 percent a year over the past decade, participants focused more on the opportunity that further regional integration could bring—expansion of intraregional demand and productivity gains—and less on the competitive challenge posed by either of the two neighboring giants.

While nationalism may have played a part, most participants saw the recent rise of Asian regionalism as a natural response to the setback in the Doha Round and to rising regional integration elsewhere. Participants noted the important contributions that regional policy dialogue had made in terms of economic cooperation (such as the Asian Free Trade Area), institutional reforms (Asian bond market), and support for financial stability (implicit avoidance of competitive devaluation). Asian integration should be viewed, participants insisted, as a constructive step toward global integration and not as a reflection of protectionism. All the same, several cautioned that regional and bilateral arrangements could lead to inconsistencies with the global agenda, especially if motivated primarily by narrow political or security concerns.

The IMF’s contribution?

As Asia strives to overcome what one participant termed its “midlife growth crisis,” there is scope, a number of participants said, for the IMF to play a greater role in advising member countries. The IMF could draw on its international experience—lessons from advanced economies, Latin America, and Asia’s own reform experiences—to demonstrate “how to reform” as well as “what to reform.” It could reinforce the importance of communicating clearly, openly, and often about reform goals and the steps needed to get there. Participants expressed interest in learning more from the experience of the euro area in sequencing the different aspects of regional integration—from trade, investment, and monetary union—before full integration can be achieved. Finally, one participant counseled the IMF not to shy away from providing road maps for reforms and policy advice that may run counter to the thinking of countries’ own policymakers.

Laura Wallace


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