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Home » Opinion » Foreign Views
Asia takes its place to fight for open trade
By Jaspal Bindra |
March 30, 2009, Monday
|
Print Edition
Print Edition
IN a few days, China, India, (the Republic of) Korea and Indonesia will be sitting at the global high table to decide on ways to reshape the world's financial and economic order.
As leaders from the Group of 20 nations converge in London in April, there are expectations that the outcome will include concrete steps to revive economic growth, a boost in funding for the International Monetary Fund, and an understanding on the new financial architecture to restore trust in the financial system.
Asian policy makers are looking for two other critical assurances from the meeting - one, that the developed countries will keep their markets open; and two, that global capital flows needed to finance trade and investment will remain unchecked.
No one doubts the difficulty of reaching consensus. But the stakes have never been higher.
Amid the frenetic attempts by individual governments to tackle the biggest economic crisis since the Great Depression, it is easy to forget that the progressive dismantling of barriers against international trade and investment contributed to the biggest economic boom the world has seen.
More than 200 million jobs were created worldwide between 2000 and 2007, according to the Institute of International Finance, and millions of people in the developing world were lifted out of poverty, as a result of free flow of capital, goods and services.
Yet, as the crisis continues, governments and businesses in Asia are increasingly worried that the world's biggest and most developed economies will legislate to encourage manufacturers to keep production onshore and, banks and insurance companies to keep money within their borders.
Exports from Asia have declined sharply, bringing down economic growth. In addition, the International Institute of Finance estimates that net private capital flows to emerging markets could drop to US$165 billion this year, from over US$925 billion in 2007.
Steps to ensure that trade and capital keep flowing ought to be at the top of the agenda for the G20 leaders. Getting developing nations to the table with the Group of Seven developed countries is a good start.
The G20, whose member countries account for over 80 percent of the world's output and two-thirds of the world's population, is a forum that represents the global economy. But will it produce real benefits for Asia?
The London meeting will be only the second time that the leaders of the G20 nations have held a summit meeting. The first was just recently, in November 2008 in Washington, as a direct response to the economic crisis.
At this second summit, the emerging Asian powerhouses are expected to assert more leverage due to the relative strength of their position. Though weakened, the economies of China, India and Indonesia are still expected to show reasonable GDP growth this year.
The emerging powers have already notched up some gains. The G20 finance ministers, meeting in London in March, agreed to expand the Financial Stability Forum - a body that will set new standards for global financial institutions - to include developing country members.
Ironically, it is the financial upheaval in the West that has brought the systemic importance of the emerging markets to the forefront. It is now clear that the imbalances between the high-saving nations in the East and overspending economies of the West led to the asset bubbles in the US and Europe.
To correct the imbalances, the big savers, particularly in Asia, will have to find ways to spend more to boost domestic economies.
Higher local consumption will help the economies reduce their dependence on exports. Domestic spending will also help ameliorate the slowdown in investments from the West.
China has made a decisive move on this front, with its stimulus plan to spend almost US$600 billion, largely in infrastructure projects. Other countries in the region have also taken unprecedented fiscal and monetary steps to stimulate local consumption.
Asian economies will need to trade more between themselves and with the Middle East and Africa. That is already happening in some trade corridors.
It was the progressively free movement of capital, goods, people and services across borders that fuelled the economic rise of the emerging markets and raised affluence in the developed world.
The risk is that this could unravel if the current financial turmoil leads to heightened protectionism, curbed capital flows and fragmentation of the global economy. The G20 has the duty to ensure this does not happen.
(The author is chief executive, Asia, for Standard Chartered Bank. The views expressed are his own.)
As leaders from the Group of 20 nations converge in London in April, there are expectations that the outcome will include concrete steps to revive economic growth, a boost in funding for the International Monetary Fund, and an understanding on the new financial architecture to restore trust in the financial system.
Asian policy makers are looking for two other critical assurances from the meeting - one, that the developed countries will keep their markets open; and two, that global capital flows needed to finance trade and investment will remain unchecked.
No one doubts the difficulty of reaching consensus. But the stakes have never been higher.
Amid the frenetic attempts by individual governments to tackle the biggest economic crisis since the Great Depression, it is easy to forget that the progressive dismantling of barriers against international trade and investment contributed to the biggest economic boom the world has seen.
More than 200 million jobs were created worldwide between 2000 and 2007, according to the Institute of International Finance, and millions of people in the developing world were lifted out of poverty, as a result of free flow of capital, goods and services.
Yet, as the crisis continues, governments and businesses in Asia are increasingly worried that the world's biggest and most developed economies will legislate to encourage manufacturers to keep production onshore and, banks and insurance companies to keep money within their borders.
Exports from Asia have declined sharply, bringing down economic growth. In addition, the International Institute of Finance estimates that net private capital flows to emerging markets could drop to US$165 billion this year, from over US$925 billion in 2007.
Steps to ensure that trade and capital keep flowing ought to be at the top of the agenda for the G20 leaders. Getting developing nations to the table with the Group of Seven developed countries is a good start.
The G20, whose member countries account for over 80 percent of the world's output and two-thirds of the world's population, is a forum that represents the global economy. But will it produce real benefits for Asia?
The London meeting will be only the second time that the leaders of the G20 nations have held a summit meeting. The first was just recently, in November 2008 in Washington, as a direct response to the economic crisis.
At this second summit, the emerging Asian powerhouses are expected to assert more leverage due to the relative strength of their position. Though weakened, the economies of China, India and Indonesia are still expected to show reasonable GDP growth this year.
The emerging powers have already notched up some gains. The G20 finance ministers, meeting in London in March, agreed to expand the Financial Stability Forum - a body that will set new standards for global financial institutions - to include developing country members.
Ironically, it is the financial upheaval in the West that has brought the systemic importance of the emerging markets to the forefront. It is now clear that the imbalances between the high-saving nations in the East and overspending economies of the West led to the asset bubbles in the US and Europe.
To correct the imbalances, the big savers, particularly in Asia, will have to find ways to spend more to boost domestic economies.
Higher local consumption will help the economies reduce their dependence on exports. Domestic spending will also help ameliorate the slowdown in investments from the West.
China has made a decisive move on this front, with its stimulus plan to spend almost US$600 billion, largely in infrastructure projects. Other countries in the region have also taken unprecedented fiscal and monetary steps to stimulate local consumption.
Asian economies will need to trade more between themselves and with the Middle East and Africa. That is already happening in some trade corridors.
It was the progressively free movement of capital, goods, people and services across borders that fuelled the economic rise of the emerging markets and raised affluence in the developed world.
The risk is that this could unravel if the current financial turmoil leads to heightened protectionism, curbed capital flows and fragmentation of the global economy. The G20 has the duty to ensure this does not happen.
(The author is chief executive, Asia, for Standard Chartered Bank. The views expressed are his own.)
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