OF SUBSTANCE AND SPIRIT
By DIWA C. GUINIGUNDO
Diwa C. Guinigundo
I write this column while travelling to Tokyo, Japan, where I will attend the AMRO (ASEAN + 3 Monitoring and Research Office) / ADB (Asian Development Bank) Joint Kick-Off Seminar on History Book and Electronic Library Project.
The idea to write a book or two about the region’s great efforts to come together and quite literally, as one asset class, came to me last year, at the sidelines of one of the meetings of the ASEAN + 3 finance and central bank deputies.
My then forthcoming retirement was already on my mind, so I informally broached the idea to my peers, especially as many with institutional memory of the Asian Financial Crisis (and how it triggered a stronger partnership between ASEAN and the plus 3 dialogue partners of China (with Hong Kong), Japan and Korea) have since retired from public service. Some have even passed on.
Without doubt, this region is really very strategic. The ten-nation ASEAN market is driven by 650 million people with a total nominal Gross Domestic Product of nearly $3 trillion. This comprises around 3 percent of global output. Adding the population of China, Hong Kong, Japan, and Korea would bring this grouping’s total count of people to more than 2 billion. Combining their aggregate output will result in an economic performance that could easily compete with and outshine Europe and the United States.
To be sure, the importance of regional cooperation cannot be ignored especially at this time. Last November 2, I was invited by the Shanghai Academy of Social Sciences to speak about ASEAN + 3 regional financial integration with focus on policy dialogue; regional surveillance; financial safety net; and capital market development.
While some participants, including former deputies from Japan’s Ministry of Finance and Thailand’s Fiscal Planning Office, dwelt on APEC and Transpacific Partnership, the pressing concern on everyone’s mind was clear. With an expected global slowdown accompanied by lower productivity; narrowing fiscal and monetary policy space; greater geopolitical stress; and increasing economic policy uncertainty; the drive to invest more as well as consumer confidence would be weakened — clear threats to a John Meynard Keynes’ imagined and thriving “animal spirits.”
A general economic sluggishness is settling in and nations must resist the lethargy. A very good way to achieve this, and to meet the challenge is to intensify regional cooperation.
Scripture advises in Ecclesiastes 4:12: “Two people can accomplish more than twice as much as one; they get a better return for their labor. If one person falls, the other can reach out and help. But people who are alone when they fall are in real trouble. And on a cold night, two under the same blanket can gain warmth from each other. But how can one be warm alone? A person standing alone can be attacked and defeated, but two can stand back-to-back and conquer. Three are even better, for a triple-braided cord is not easily broken.”
For the last 20 years, regional cooperation in Asia has addressed several causes of many a crisis. Regional cooperation has mitigated the impact of globalization in amplifying shocks across borders. Regional cooperation has also contained shocks that were mostly outside the control especially of many emerging economies. Finally, regional cooperation has resulted in a multi-country economy of scale that acted as a counterweight.
Cooperation and coordination among countries in the face of a crisis, edifies. It builds number and multiplies strength.
When countries face crisis together, risks are shared, inter-temporal demand, especially consumption expenditure is stabilized. Kalemi-Ozcan, et al (1999) found empirical evidence that sharing risks across the region enhances specialization in production, with well-known benefits for individual countries.
Regional cooperation also presents better allocation of capital. When cooperation levels up to integration; and when barriers to external trade and investment are eliminated, the production frontier is significantly advanced. Individual economies grow as their markets have enlarged to encompass the whole region.
The challenge is to further liberalize the movement of goods and services as well as financial resources across national borders. Bureaucratic customs and banking rules should be straightened. Greater movement of natural persons would also benefit worker-sending and worker-receiving economies alike.
Over the years, ASEAN regional integration has resulted in higher intra-ASEAN trade; more intra-ASEAN investments, both direct and portfolio; and of course, greater financial deepening. The spectacular growth of the ASEAN region including those of the plus three dialogue partners for the last 20 years is incontrovertible proof of how countries are stronger together.
But regional cooperation can be misused. Such misuse could be devisive rather than unifying. This was very graphic during the recent ASEAN leaders summit meeting in Nonthaburi, Thailand, early this week.
The Summit succeeded in putting together the seminal efforts to create a free trade bloc that is reportedly bigger than the European Union. This is actually under a bigger umbrella of the RCEP, the Regional Comprehensive Economic Partnership consisting of the 10-member ASEAN, China, Japan, South Korea, India, Australia, and New Zealand. Tariffs barriers would be reduced. This is a milestone in the history of regional cooperation because that would result in the bloc accounting for a third of the world’s output.
This is so because ASEAN + 3 would be boosted by the inclusion of India, Australia, and New Zealand pushing the bloc’s population to 3.5 billion and swelling global markets by as many people, and by as much prosperity.
It is good that this early, Trade and Industry Secretary Ramon Lopez assured Filipino farmers and manufacturers that safeguards would be established to allay fears of irrelevance and dislocation. After all, they have been competing with their ASEAN neighbors all these years when tariff rates were brought down practically to zero. The way to manage this new reality is not to put up higher tariffs and quantitative restrictions again but to improve competitiveness.
This move towards further trade liberalization starkly contrasts with what is happening between China and the United States.
The retreat by some key countries from multilateralism shuns international competition in favor of a “solar system” type of conducting business and external trade.
When US President Donald Trump skipped its summit with the ten ASEAN leaders, and instead sent Special Envoy Robert O’Brien, the United States missed the rare chance to dialogue and advance its cooperation with the RCEP core group. Seven out of ten ASEAN leaders skipped the summit with the US perhaps because without the US president and with only a special envoy, the summit depreciated into a ministerial meeting.
The US has, for many years after World War II, been adept at holding hands with its friends in this region. But now, with policy dialogues and external trade dominating global agenda, the US has decided to withdraw. It now avoids clasping hands with those of its Pacific neighbors. It is baffling that it does this even in the face of a very dim global economy.
It would do well for it to be reminded of Solomon’s woven strands that are definitely much stronger than a cord of one.