On Thursday, leaders of the G20 economies will meet in Pittsburgh, Pennsylvania, to reaffirm their commitment to economic stimulation and begin forging a new global financial regulatory framework.
This summit is critical. It passes the baton from the frenetic bailout emergency response to avert economic catastrophe to one that must rebuild global confidence in the international financial firmament. It will not only continue to plot a course to a hoped for worldwide recovery, but try to decipher what needs to be done to prevent this happening again. Pittsburgh is a city that knows the grit of both industrial and financial missteps. Americans can relate, but this summit is global. It represents the interests of 20 of the world’s largest nations in terms of income, trade and population.
To us in Asia, the problem is that the talk largely remains the industrial world’s agenda. At this juncture, developing countries cannot afford to have their destiny shunted aside in favor of the interests of industrialized countries. Emerging economies of the developing world must be allowed to speak frankly on their increasingly pivotal role in keeping the global economy growing. They must not just let their voices be heard, but most important, play a major part in defining the reform process.
From our perspective, the crisis was a kind of slap in the face. It showed that developing Asia went too far in pursuing globalization — and too fast. In its rush to recover from the devastation of the 1997-1998 Asian financial crisis, our region slipped into an over reliance on external, extra-regional demand. To protect itself against future crises, developing Asia used export-driven growth to boost savings — via foreign exchange reserves. The result was a dependency that, in today’s global recession, battered the region’s income from exports and, to a lesser degree, reduced capital inflows and slowed the growth of overseas worker remittances. It also contributed to the global payments imbalance. In our rush to become global, we actually increased the region’s vulnerability to the global downturn. The more open our economies were, the harder they were hit.
Does that mean Asia should turn away from globalization?
Far from it, Asia must continue to embrace globalization. It has helped the region give its people more than just greater income and better living standards. It has reduced poverty at unprecedented levels. This will undoubtedly continue, but Asia has embraced globalization with a fervor that has left it unbalanced. Our challenge is to broaden the scope and structure of our economic openness and reassess the speed at which we open our arms to globalization.
Asia’s openness must be broadened in a way that also fortifies economic links between ourselves. To avoid vulnerability to extra-regional demand cycles, we must solidify our own regional demand for the products we produce, including those we export outside Asia. That provides a buffer to external shocks. We need a balance — a delicate balance — to foster a regionally integrated, yet globally connected, Asia. This is true for products, for trade, capital and the movement of workers, whether laborers or professionals. This all needs to be on the international agenda.
We need to balance external with domestic demand as drivers of growth. We need to balance trade with the world and trade within Asia. We need to balance the gift of our labor abroad with what we receive in remittances — quite resilient even during times of crisis — and better skills.
It is indeed a delicate balancing act. The Asian financial crisis and the current global economic crisis both clearly showed the risks attendant to excessive and unbalanced openness. Our integration and openness must be matched by well-entrenched institutions and regulatory systems.
The potential benefits from broader globalization are enormous. Asia is now leading the world out of this crisis. In a new report [to be released today], Asian Development Outlook 2009 Update, the Asian Development Bank forecasts that developing Asia will contribute more than 75 percent to world economic growth this year. That is an amazing figure and, in the years to come, Asia’s global footprint will become even more pronounced. Broader globalization will help Asia reap rewards, while minimizing economic distortions.
The good news is that this growth model need not come at the expense of ties with industrial economies. As we learned from the EU and North American Free Trade Agreement, there is no reason why vibrant international trade cannot coexist with vibrant intra-regional trade.
Balanced openness and globalization is key to the world’s future economic growth, but Asia cannot do this alone. Successfully managing globalization calls for cooperation between advanced and developing countries. We must work together to keep the flow of global trade, financial assets and human resources stable. Protectionism in trade, capital and labor must fall by the wayside.
Promoting regional integration in a global context must be brought center stage. With that, Asia can take its rightful place as we restructure our global economy to the benefit of all.
Lee Jong-wha is chief economist of the Economics and Research Department and head of the Office of Regional Economic Integration at the Asian Development Bank.
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