(a) Regional efforts to address the crisis
(b) Social impact of the crisis
(c) Effects on the international community and its role in restoring stability
Regional Efforts to Address the Crisis
Since the onset of the crisis, ASEAN member countries have taken steps, individually, collectively, and in cooperation with international financial institutions and other countries, to overcome the crisis. Substantial progress has already been made to restore confidence and stability in the region, although the situation still remains volatile.
With support from the IMF, the affected ASEAN member countries are pursuing macro-economic policies aimed at stabilizing the exchange rates and tightening the public sector’s financial position. Far-reaching structural reforms are also in place to strengthen the financial sector, restructure the financial system and enhance transparency. Competition and corporate governance are also being improved in such areas as privatization of government assets, bankruptcy and foreclosure laws, corporate disclosures and foreign investments.
Furthermore, social safety nets are also being strengthened in the affected countries to alleviate the social impact of the crisis. The Social Investment Project (SIP) recently approved by the Thai Cabinet, for example, is aimed at creation of employment opportunities, income generation and provision of social services in health and education for the affected population, in particular the lower-income groups, and strengthening of local communities and organisations and their role in social development,
Apart from individual countries’ efforts, ASEAN member countries as a whole have been working closely for the past year in order to restore financial stability in the region. The ASEAN Finance Ministers are now meeting regularly as part of the process to maintain regional macro-economic and financial stability, promote financial sector liberalisation and strengthen ASEAN cooperation in finance. An ASEAN Central Bank Forum has also been established to strengthen cooperation and facilitation in economic and financial matters.
During the Second Informal ASEAN Summit in Kuala Lumpur last year, the ASEAN Leaders discussed the regional financial crisis with the Leaders of Japan, China and Korea, and together they endorsed the implementation of the Manila Framework as the basis for regional cooperation to restore financial stability. Under the Manila Framework, ASEAN is currently in the proces of establishing the ASEAN Surveillance Mechanism. The Mechanism is designed to act as an early warning system, to improve policy coordination and promote a peer review process for ASEAN member countries. The Manila Framework also provides a useful forum for frank and open discussions, as well as mutual surveillance and assistance. Malaysia has agreed to host the next Manila Framework meeting in the second half of this year. A joint meeting of the Manila Framework and G-7 was also held in Tokyo in June this year at the wake of the Yen depreciation and banking crisis in Japan.
In addition, the ASEAN Leaders have agreed to accelerate regional economic integration and increase intra-ASEAN trade through liberalisation and facilitation of trade and investment. ASEAN is working actively to accelerate the realization of the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA). A bilateral payment arrangement is also being developed as a means to promote the use of ASEAN currencies in intra-regional trade settlements. Negotiations on the bilateral payment arrangement are already in the final stages between Malaysia and the Pbilippines, and are ongoing between Malaysia and Thailand.
Challenges to the Regional Efforts and the Social Impact
Although various regional initiatives and response have been carried out with some degree of success, it appears that such measures may not be sufficient to deal with the scale and impact of the crisis.
The regional currency situation remains volatile. Growth rates of ASEAN economies have also been revised downward. There has been a downward trend in imports of the most affected economies due to collapse of domestic demand. The Asian region continues to register capital outflow, with many economies experiencing severe liquidity crunch. At the same time, lack of investor confidence and uncertainty over the regional economic situation poses great difficulty for the Asian economies to raise funds in the international markets.
Bankruptcies and unemployment have risen and are likely to rise further as the necessary corporate sector restructuring continues. The situation is placing greater strains on ASEAN societies, in particular the poorer segments of society.
Role of the International Community
Thus far, the impact of the crisis on major industrial countries, with the exception of Japan, has been modest. But let us be clear about the fact. This problem is a global problem and further down the road will have impact on all countries. Already, U.S. and European markets are beginning to feet the effects of the situation. A global response to the crisis is needed, not only for Asia’s recovery, but also for the stability of the global market and health of the world economy.
So far, there have only been insufficient concrete measures from the global community. Although the ASEAN economies have become stable and are on their way to recovery because of their restructuring efforts, there is still a great need for the industrialised countries to open their markets further for products from ASEAN to ensure that the recovery is fueled by the strong export growth. In this light, ASEAN hopes that the industrialized countries will continue to stimulate domestic demand and to encourage investment in ASEAN because of the attractive investment opportunities.
There is also need for international cooperation to recycle capital that flowed out of ASEAN and to extend long-term credit to the affected countries. This would provide much needed liquidity for countries in Asia and boost confidence of the ASEAN financial markets.
Japan is the major player in the region, being our largest trading partner, financier and investor, ASEAN welcomes Japan’s recent announcement to restructure its financial system, accelerate the implementation of the fiscal stimulus package and reform its income tax system. We urge Japan to implement these policies as a matter of highest priority.
We also hope that Japan along with the major industrial countries take steps to stabilize the Japanese Yen. ASEAN welcomes China’s firm commitment to maintain the stability of the Renmenbi or Yuan, as an important coritribution to financial stability in the region.
As ASEAN is facing a severe liquidity crunch, international support is needed to resolve private sector debt problems. This would alleviate the financial burden of the financial institutions and facilitate the adjustment process of the corporate sector.
We note with appreciation that some of the major countries are working closely with governments in the region to finalize details for the extension of trade credits. Trade financing can help to revive ASEAN’s export sector. We hope, therefore, that other industrial Countries would consider taking similar action.
Lastly, the expansion and strengthening of social safety nets are vital aspects of restoring confidence and stability in the region. ASEAN welcomes the flexibility the IMF has shown in adapting its economic adjustment programmes to the changing economic and social situation. ASEAN is also pleased with the support given by the World Bank, ADB, the Overseas Economic Cooperation Fund (OECF) and United Nations Development Programme (UNDP) to the affected ASEAN member countries to implement social safety net measures. We hope that the international community will continue to support the efforts to alleviate the human and social consequences of this crisis,
Although ASEAN’s growth has been temporarily set back by the regional financial crisis, the region’s economic fundamental remains strong. The savings rate of the region remains high. The region’s economies continue to pursue market-oriented policies and advocate trade and investment liberalization. The adjustment programmes undertaken by the affected countries would make ASEAN economies more competitive and their financial system stronger. Economic and political reforms are also being pursued to bring about greater transparency and good governance as ASEAN advances towards becoming open societies. It would be in everyone’s interest to ensure that ASEAN is able to stay on course towards an early and smooth recovery.
ASEAN-PMC Caucus on Human Security
I would like to take this opportunity to advance a proposal for the PMC to consider. The past two days have raised a heightened awareness of the human costs of this economic crisis. We are not dealing here with the present, but we are also looking into the eye of the future social storm. The social and economic dislocation, poverty, disease, illiteracy, alienation, disorientation among our peoples would surely lead to violence, rebellions, instability and insecurity. All these would impact upon all the achievements that we have made together so far. And these would inevitably threaten the region as a whole.
Sensing your concern on this, knowing your compassion and goodwill, I am proposing, Mr. Chairman, that we here at the PMC consider setting up an ASEAN-PMC Caucus on Human Security. Those members who are interested and ready should join hands in mapping out steps and strategies for long-term approach to the cure for and prevention of “human insecurity” in our region.