1. The last two years have been difficult for ASEAN. The regional economic crisis hit the region like a tidal wave, leaving devastation in its wake. Many governments came under tremendous pressure to cope with the political, economic and social effects of the crisis. Millions of people were impoverished.

Taking Stock

  1. Fortunately, the worst is over. We, the ASEAN countries, have embarked on structural reforms like improving corporate governance, recapitalizing banks, and enhancing financial system supervision. Helped by the improved external environment, many ASEAN countries are now running current account surpluses and building up reserves. Exchange rates have strengthened. Interest rates have declined. Regional stock markets have rebounded sharply. We are on the road to recovery.

  2. But we cannot be complacent. Our nascent recovery can be easily derailed. Many internal weaknesses remain. For example, the large corporate bad debt overhang is not yet resolved. Despite serious efforts to deal with the problem, progress generally remains slow. Another weakness is the sluggish rate of corporate reforms. Compared with financial reforms, restructuring the corporate sector has proven much more difficult.

  3. External factors may also impede our economic recovery. I have four main concerns. First, although the US is still growing robustly, many analysts are concerned about the exuberance in Wall Street. If it dissipates, for whatever reasons, it would trigger a chain of negative wealth effects on the US consumers. This could derail US growth and have tidal effects on Europe and Asia’s recovery.

  4. Second, Japan’s economy has just begun to turn the corner. The Japanese Government’s fiscal stimulation and banking reform are having an effect, but recovery will be slow. Japan has to revamp its banking and corporate sector and this will take time. A slow Japanese recovery colours the prospects of the entire region.

  5. Third, China will face internal deflationary pressures and slower growth this year. By its sheer size, China’s economic health will have an impact on the region’s growth.

  6. Fourth, the stability of the US-China-Japan triangular relationship is a vital factor underpinning regional security, and by extension, regional economic recovery. In a very diverse region where potential security problems abound, a stable triangular relationship provides the framework for security. We were fortunate that when the economic crisis first broke, the triangular relationship between Japan, China and the US was stable. Our current recovery also depends on the continued stability of this relationship. Regional stability enables us to concentrate on domestic reforms. But the triangular relationship itself is under stress. US-Japan relations continue to experience periodic ups and downs, while Japan-China relations are still seen through coloured historical lenses. US-China relations have recently come under strain with the nuclear technology issue and the tragic bombing of the Chinese Embassy in Kosovo. And now there is the cross-strait problem between China and Taiwan which may test US-China and Japan-China relations.

    Context Has Changed

  7. ASEAN must also recognise that we are living in an era of global change, not only strategically, but economically and technologically. Our operating environment is entering a new phase. Larger and newer forces are at work in shaping the region and the world. Global interdependence has increased.

  8. The financial crisis opened our eyes to the new world of global interdependence, especially in the financial sector. The crisis, which started in Southeast Asia, spread quickly to the rest of Asia, then Russia and Brazil, sending tremors through markets worldwide. Technology has virtually eliminated distance and time, breaking down national market boundaries and turning the world into one global shopping mall.

  9. Global prosperity since the Second World War has been built on a free and open world economy. But many countries are not enjoying a slice of this global prosperity. Clearly, there is a need to address the adverse impact of globalization on countries. The international community has taken fledgling steps towards a new international financial architecture. Any such architecture will require concerted cooperation and joint action. This will take time and patience. But not all affected countries have this luxury. Their problems are real and immediate. Hence, disillusionment with the free market system has grown in some countries, especially against the backdrop of the financial crisis. We may see many developing countries resorting to protectionist measures to counter the unhappy effects of globalisation. Even some developed countries may become selectively protectionistic to stem the influx of more competitive products from the developing world.

  10. We are not immune from such temptations. This is understandable because not all arguments for protectionism are entirely illogical. But whatever the abstract logic for or against, we must understand that the march towards greater economic integration and interdependence is inexorable. This is a fact that we must accept, like it or not. A retreat from openness is at best a temporary solution. The only real long term solution is to strengthen our economies to cope with global competition. The lessons of the great depression of the 1930s remain instructive. Erecting walls – as all historical experiments in autarky have shown – is futile. It only harmed the countries that tried it. ASEAN must keep our markets open and plugged into the rest of the world. The price of disconnecting from the global network is a significant loss of growth.

  11. More importantly, ASEAN must become more united to stand up to the rise of regionalism in North America, South America and Western Europe. It is too early to say whether regionalism will encourage greater interaction between nations or greater insularity of regions. This uncertainty underscores the importance for ASEAN to build bridges with other regions sooner rather than later. The ARF, the ASEAN PMC, APEC and ASEM are all attempts at bridge building. The proposed East Asia-Latin America Forum will help us reach out to the South Americans.

    ASEAN

  12. As for ASEAN, the regional economic crisis has seriously dented its reputation. It has exposed the structural flaws behind ASEAN countries’ past miraculous growth. New tensions between ASEAN countries have also emerged under the stresses of the crisis. ASEAN countries were seen to lack a clear vision and a common strategy in overcoming a common enemy in the economic crisis. ASEAN’s expansion with new members at different levels of economic and political development has also made decision-making clumsier and slower. Not surprisingly, some of our Dialogue Partners quietly questioned ASEAN’s future.

  13. To be sure, the disquiet may not be valid. But whether or not the criticisms that have been leveled at ASEAN are deserved, they exist. This is a fact that we must deal with, because perceptions, even inaccurate perceptions, can define political reality.

  14. ASEAN is not a supranational body like the EU. ASEAN promotes cooperation among sovereign nations and helps manage relations within a diverse region. These fundamental purposes remain valid and we have performed them relatively well through the crisis. But we cannot pretend that all is well or that there were no disagreements or new challenges. The first step in dealing with any problem is to recognize that it exists. We must first honestly and realistically look at ourselves.

  15. I hope that this AMM will begin a process of honest reappraisal. Clearly, ASEAN’s core principles of sovereign equality, consensus decision-making, non-interference in each other’s domestic affairs and open economies have served us well. Equally clearly, the global and regional environment is evolving and ASEAN must evolve with it, preserving the core but not hesitating to modify what we must. We need to deal with current problems and our future directions. We need to demonstrate credibly that we are serious about doing so and that we will not just rest on past laurels. We need to send a strong signal that we are united and are working as one region to shape a better future for ourselves.

  16. It was with this in mind that I am proposing a Joint Investment Roadshow by ASEAN. I first raised this idea when I visited Brunei in April this year. My basic idea is for ASEAN to organize joint investment promotion initiatives to market ourselves to the major economies in North America, Europe and East Asia. Each Roadshow should be led by an ASEAN Economic Minister. I understand that my officials have fleshed out the concept. I hope that the AEM in September will formally adopt my proposal as an ASEAN initiative so that we can get things moving as soon as possible.

  17. These Roadshows serve ASEAN’s interests at two levels. First, ASEAN’s high reputation rested on our economic success. It will not be restored until our economies fully recover. We have begun the journey of recovery and we must seize the initiative to market our countries collectively and actively. Collective marketing of ASEAN will pool our strengths and make our region more attractive as an investment destination. We must pull in more foreign investments into the region.

  18. Second, the symbolism of such collective events is important. We have been criticized for being ineffective and disunited. A concerted effort by all ASEAN members would be a striking demonstration that these criticisms are misplaced. Joint Investment Roadshows will demonstrate our unity and common purpose. They would highlight our resolve and ability to work together to overcome common problems. In short, they would tell the world – by deeds and not just words – that ASEAN is resolute, that ASEAN is united, and that ASEAN will emerge stronger from this economic crisis.

    Conclusion

  19. Before July 1997, observers from the region and beyond confidently expected the millennium to usher in an Asian century. These expectations proved far too sanguine. The regional financial crisis has restored our sense of perspective. But as much as we should have avoided over-confidence before, we must now avoid excessive pessimism.

  20. ASEAN will not fail. It cannot be allowed to fail. Although our problems remain daunting, we still retain the will, the pre-requisites, and the resolve to work together and prosper. Our challenge now is to pick ourselves up, adapt, and emerge stronger. Past experience has shown that ASEAN has a remarkable capacity to work together to achieve common goals, especially when the going gets tough. We can pull together again to turn this crisis into an opportunity. We must use our shared experience of the past two years to build a better common future.

  21. Thank you.