World - Asia;Bracing to prevent a future shock

P. S. Suryanarayana

Thailand, currently Chair of the Association of South East Asian Nations, has suggested the formation of an ‘Asian financial community.’


Real challenges lie ahead. This is how Australian Prime Minister Kevin Rudd, a free-thinking ally of the United States, sees the existential dilemma of his country’s developed economy in the context of a now-raging U.S.-origin ‘global financial crisis.’ Significantly, the official mood across the geopolitical zone of East Asia, home to several ‘dynamic’ economies at different stages of growth, mirrors a similar sense of concern about the future. With the additional sense of ‘confidence’ among political leaders that the Southeast Asian sub-region is now “far better placed” than in 1997 to brace for preventing a future shock! The so-called Asian financial crisis of 1997-2000 had its ‘origin’ in Thailand, currently Chair of the Association of South East Asian Nations (ASEAN).

No ‘sob stories’


Unlike the U.S. and the West, East Asian countries are, for now, free from acute ‘sob stories,’ such as the gory reactions of individuals to their sudden losses of jobs or to their heavy losses on the stock markets. No instances of ‘distress deaths or killings’ have come to light at the grassroots of citizens and foreigner-residents in East Asian countries. If the past is any guide, East Asia will, of course, be slow to chronicle such sad stories, should they occur now. In this situation, the macro-level economic picture continues to dominate the regional scene.

All the 10 ASEAN countries, except Singapore as the most developed economy among them, are, also, not severely exposed to the ‘sophisticated’ but ‘defective’ banking practices that triggered the current crisis in the U.S. This aspect has so far lessened the impact of the ‘global financial crisis’ on the populations of East Asia. And, the economy of Singapore, very large for its small size as a City-State, has always ‘benefited’ from vigorous state oversight. It is generally believed that the City-State may have, therefore, remained insulated from the initial shock-waves of this ‘global financial crisis.’

At another level, this reality is heightened by a crucial factor. The Governments of Singapore and China, among those in East Asia, have consistently figured in the list of world’s top five owners of ‘Sovereign Wealth Funds’ in recent years. A few other East Asian economic powers also possess such Sovereign Funds, which have not been listed, though, in the relevant high-ranking spectrum in recent years. Sovereign Funds are, for most part, invested in the developed countries on a long-term basis; and this crucial factor gives Singapore and China some ‘leverage’ over the now-afflicted Western economies! This does not mean, though, that Singapore and China can, through their Sovereign Funds, change the course of this ‘global financial crisis.’

Worldwide pressure


Unsurprisingly in these circumstances, Sovereign Funds have come under worldwide pressure to become transparent in their operations. The Funds’ International Working Group, of which Singapore is an active member, has now formulated ‘Generally Accepted Principles and Practices.’ At a recent ministerial meeting of this group, Singapore said “concerns” over these Funds, “due to their being government-owned, are prospective in nature, rather than reflecting their actual conduct in global financial markets to-date.” Describing the owners of Sovereign Funds as “long-term investors” with the ability to “ride out cycles” in global economy, Singapore acknowledged the need “to continue building trust with investment-recipient countries.”

While Singapore’s role in this rarefied category does not apply to ASEAN as whole, political leaders of the 10 countries have, at a summit, emphasised that the “financial sector [in Southeast Asia] remains solid and sound.” Their “confidence” is traceable to the ground reality that “stand-by liquidity [cash flow] is available to respond to any emergency need” within this sub-region. In a sense, this pan-regional arrangement, a palliative, is in itself the result of the 1997 ‘Asian financial crisis.’

More broadly, the ASEAN had developed, during the 1997-2000 crisis, a cooperative arrangement, known as the Chiang Mai Initiative, so named after the venue of relevant talks that involved China, Japan, and South Korea as well. Shorn of finer details, the Initiative is a means by which the stronger economies of Japan, China, and South Korea can rescue the ASEAN economies, when in trouble, especially so in the financial sector as such.

As a follow-up, Thailand, despite being beset with a series of unsettled political crises now, has suggested the formation of an “Asian financial community,” consisting of all 10 ASEAN countries, China, Japan, and South Korea. In the wider East Asian region, Japan and Australia, being developed economies, are conversant with the ‘western way’ of solving financial crises. China, whose massive economy is now seen to be losing some of its space-age velocity, is reckoned by most ASEAN countries as being as important to them as Japan in the present circumstances.

The current Thai political crises and the competitive politics in Malaysia are not, as of now, driven by the ‘global financial crisis.’ Significantly, Indonesia, whose politics was radically shaped by the ‘Asian financial crisis’ of the 1990s, is now in a far more comfortable situation.