Jenina Joy Chavez / Focus on the Global South

 

(Presentation at the Conference on “Regional Integration: an Opportunity Presented by the Crisis”, Asuncion, Paraguay, July 21-22, 2009.)

 

What I will tackle this evening is an updated version of the notes I used for the Regional Integration: Opportunities to Face the Crisis conference in Asuncion, Paraguay, and the Philippine WS on ASEAN, earlier this year. There is no claim that regional responses are the only viable responses to the global crisis, but hopefully we would be able to determine if it is appropriate to study and consider them as part of the many options on alternates we can try.

Before the crisis, it has been projected that in about a decade, the South –that is, the developing countries – would account for more than half of the world income and more than 50% of global trade. It has been trumpeted all over that Asia together with other emerging economies would be the major growth drivers in the world economy, highlighting the relevance of South-South cooperation, particularly regional economic integration in Asia.

For Asia, at least, this claim has been put to the test with the onset of the global financial crisis that put into the spotlight the basic development paradigm deployed by what is considered the world over as prosperous Asia.

In terms of what has happened in the last year and a half, following are some observations on how Asia tried to respond to the crisis:

First, unlike what characterized how the North (particularly Western Europe and North America) responded to the crisis, Asia’s response does not include massive bailout packages to failing corporations, particularly ailing financial entities.

This highlights the differential manifestations of the crisis. While financialization is a global phenomenon, sparing no one and certainly not Asia, Asia still hosts one of the most robust productive capacity worldwide – that is, the real economy remains the most significant feature of Asia’s growth and development.

Second, in most countries, though, the immediate response was to address the liquidity crunch and the crisis of confidence, especially in the banking system. This included moves to increase deposit insurance coverage, and guarantees on deposit-taking institutions. As a result, massive bank runs have been avoided.

Third, from the initial liquidity crunch, economic slowdown became the norm. Hence, governments moved to address this by increasing liquidity and easing credit and monetary policy, including intervening in foreign exchange markets. Many state enterprises also increased their shareholdings in publicly-traded companies. The result – relative low interest rates.

Fourth, stimulus packages have at their center fiscal policy and public spending, although social sector spending has not received much attention.

Asian countries have devoted between less than ½ percent of GDP to their fiscal stimulus package to more than 9%.

Among the biggest packages are those of the following:

• • • Singapore, $15B (6%)
    • Malaysia, $2B initially to $16B (9% of GDP)
    • China, $600B spread only over 2 years

Most of the stimulus packages have a central tax break or tax credit component, as well as capital spending, including re-capitalization of state-run banks, most notably in India.

Fifth, the Asian response has been centered around resiliency. That is, they are focused on minimizing unemployment and on creating employment opportunities

With programs like job credits or payouts to employers of up to 12% of salaries (Singapore)

Various skills upgrading and retraining programs

Welfare support to retrenched workers and returning overseas workers.

Such resiliency packages, though, highlighted some tensions inherent in the increasingly connected Asian economies and job markets.

• • • For instance, part of Malaysia’s and Singapore’s response is to cut down or crackdown on migrant workers, a classic response to appease worker’s restiveness at home, and a blatant disregard to the ripple such moves might effect.

Sixth, at least the ASEAN+3 is trying to improve on a regional financial cooperation first introduced in 2000 as a response to the 97/98 Asian financial crisis.

The Chiang Mai Initiative is a collaboration to create a network of bilateral swap arrangements to manage short-term liquidity problems.

From $20B in 2000, it increased to $80B in 2008, and earlier this year was increased further to $120B.

Moreover, the swaps are being multilateralized, a step towards developing from a bilateral into a regional pool.

This is about the only such regional initiative in Asia. There is no equivalent for South Asia, or in West and Central Asia.

From these observations, several key questions emerge:

1^st: would Asia be able to export its way out of the crisis? Is it even proper to aim only for this?

2^nd:: would the regional integration vaunted to be necessary to solidify and further the growth in Asia be resorted to, or given life in practice, in the wake of this crisis?

3^rd: in the design of crisis response, what is Asia aiming for?

Is it just to recover previous levels of consumption and economic activity?

How much of the response is for immediate relief, extremely necessary at this time?

And how much of this response is for the long-term and tries to take advantage of converting the crisis into opportunity?

At this point, I would like to emphasize three points that interrogate what Asia has managed or not managed to do:

One, note that the responses now differ qualitatively from the responses Asia had a decade ago.

There is no IMF, not least because the IMF has gained notoriety and lost a lot of credibility because of how it bungled its job in the late 1990s.

Not only is there no IMF, the policy and programmatic responses of Asia have been antithesis to what the IMF formerly prescribed.

• • • There was no interest cure that killed business; instead efforts were concentrated on preserving relative low interest rates (including intervention in the forex market).
    • There were many elements of direct transfers, subsidies, and re-capitalization; something the IMF would never do (at least before).

In short, the responses are not patently neoliberal.

Two, these responses have not warranted enough incentive towards a focus on internal demand, on the one hand, and on coordinated expanded demand regionally, on the other.

More pointedly, it is a concern that Asia should even set as its main objective the recovery and maintenance of consumption levels prior to the crisis.

We should not be overly concerned about trying to save what has been clearly a cause of failure. It is high time for Asia to draw from regional resources and invent something that will again set it apart – or, place it in cooperation with other regions trying to imagine things differently.

Three, there is concern that ASEAN+3 finds it difficult to make good on regional financial cooperation as designed through the Chiang Mai Initiative and related processes.

Take for instance, when South Korea got hit when the Lehman Brothers collapsed, it negotiated a $30B foreign exchange swap with the US Federal Reserve and not the ASEAN+3. (They came later.)

Despite increases in commitments, the CMI is still not functional, and the IMF still plays a role when countries tap the CMI for more than 20% of their requirement, detracting from the importance of financial as well policy autonomy for Asia.

There are certainly elements of response – some quite innovative or at least properly targeted – in Asia. The question is whether Asia is able to turn the crisis on its head, and be able to emerge with another unique contribution to development discourse as it has been known to have done in the past.

Moreover, we as civil society and social movements, in our interrogation of possible alternatives, esp. if we have little or no hold on power – the question of how to get that power either by holding political power ourselves or rallying massive constituencies on our side – is key.

The final set of points I wish to make has to do with the areas where regional response would be crucial:

One, the need to focus on internal demand and a more coordinated rationalization of regional demand.

There is need to re-imagine trade and production cooperation, where instead of competition, the prevailing principles would be cooperation, complementation and solidarity.

Such arrangement must address the issue of excess, and should have as outer limit some climate and ecological threshold.

Two, there is need to overhaul the financial architecture for Asia

Away from dependence on Northern currencies, esp. the American $

And towards the pooling of alternative sources of development finance

As well as appropriate surveillance and monitoring systems (without the IMF) that assist countries and build confidence that every one takes responsibility for regional financial stability

Three, there is need to strengthen regional stockpiling for food security

South Asia has better experience on this although technically Southeast Asia pledges bigger reserves

Away from trade logic and towards regional self-help and development of crisis response capabilities.

Four, there is need to re-imagine the public

It is time to talk about the public not only in the narrow confines of the State or the government, but also support different forms of provisioning that allowed communities to survive at a time that the State was neglecting them.

It must be recognized that such strength can be scaled up at the national and the regional level.

Five, whatever alternative we think of, resonance with the people is important.

We need to start where there is clear demand, and patent need, to make regional arrangements acceptable to the people

• • • Migration
    • Rights and democracy
    • Decent living standards and environment
    • Ability to generate economic activity and distribute its fruits equitably

There is need to also work on something that works and shows results in the immediate even as the strategic alternative structures are still being constructed.

Asia