Special Author: Yoichi Funabashi, Editor-in-Chief, Asahi Shimbun, Tokyo

‘The magic is over.’

So said French Foreign Minister, Bernard Kouchner, referring to the financial crisis that originated in Wall Street and the battered global standing of the United States.

Under a formula of low interest rates and financial leverage, the US government and investment banks choreographed an asset-inflated housing-bubble boom, enabling Americans to go on a spending free-for-all on the strength of debt.

That alchemy no longer works.

The credit crunch spread from the financial arena to the automotive sector, along with discount stores and government, eventually hitting family finances hard and dragging the global economy into recession.

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Special Author: Geoffrey Barker, Strategic and Defence Studies, ANU

The Australian Labor government’s first full year in office became a momentous political and economic challenge as it moved to deal with the impact of the deepening global financial crisis while seeking to advance national foreign policy and security interests.  By year’s end it seemed inevitable that Kevin Rudd’s government would be judged primarily by its economic management over 2009-10.

But Rudd remained committed to expanding Australia’s role as an activist, if largely conformist, middle-power. Despite changes of emphasis, and new multilateralist initiatives, he left little doubt that there would be more continuity than change in Australian foreign and defence policies while the government’s economic management would be cautious, orthodox but consistent with giving a nudge to global big spending stimulatory economic policies.

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Author: Tobias Harris

The transition from the Bush administration to the Obama administration has been met with angst in Tokyo. Japanese politicians and bureaucrats worry that after eight years of working with an administration that has repeatedly maintained that the U.S.-Japan alliance is the key relationship for the U.S. in Asia, it will face an administration more focused on the relationship with China than with Japan.

The reality, of course, is that the so-called “golden age” of the U.S.-Japan relationship ended several years ago, if it existed at all.

The first half of the decade was marked by a flowering of security cooperation between the U.S. and Japan that grew out of bilateral negotiations in the late 1990s. Following the acrimony of early 1990s trade disputes, the allies agreed in 1996 to refocus on the security relationship.

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Special Author: Yongsheng Zhang, Development Research Centre, State Council, and Renmin University, Beijing

The Chinese people had high expectations for smooth and fruitful year at the beginning of 2008 – the year of the Beijing Olympics, the 30th anniversary of China’s reform, and a number in Chinese culture signifying good luck and good fortune.

As it turned out, 2008 was a year in which there was as much bad luck as good. In February, southern China was lashed by a severe snow storm; in March, social turmoil in Tibet; in May, the devastating earthquake hit Sichuan; and the Olympic torch was met by protests in some Western countries.

The Olympics in August were a stand-out and government and land reforms were welcomed. But after the Olympics, the world was thrown into economic crisis, and China had to turn to fighting the rapid onset of economic recession.  The poisoned milk scandal also took place.

These were no trivial tests of the achievements of 30 years of reform. The scale of China’s growth and its speed is without precedent in world history. But the question remains: how resilient to natural and social disasters is the new China ? And what further reforms are needed to assure a harmonious role in the world?

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Special Author: Soogil Young, National Strategy Institute, Seoul

Lee Myung-bak, the candidate from the conservative Grand National Party, won the Presidency of the Republic of Korea on 17 December 2007, with an unprecedented margin over his main opponent. The landslide victory provided a strong mandate for him to undo most of what had been done by his populist predecessor, President Roh Muh-hyun.

Roh had sought to undo what he thought were the injustices that the engineers as well as the beneficiaries of Korea’s industrialization between the 1960s and 1990s had built into the economic and political system.

Roh’s favourite keyword to describe the economy was ‘polarization’, a phrase meant to highlight what he believed to be deepening divisions in the Korean economy and society: between big Chaebol businesses and small and medium enterprises; between the rich (whom he considered morally corrupt) and the middle class and the poor; and between the populous and dynamic greater capital region around Seoul and the vast but ‘hollowing-out’ countryside.

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Author: Shandre Thangavelu, National University of Singapore and ANU

Despite an average growth rate of nearly 8 per cent from 2004 to 2007, Singapore was the first East Asian country to fall into a recession from the current global economic crisis after July 2008. This clearly reflects the greater vulnerability of the Singapore economy to global economic shocks.

The exposure of Singapore’s banks to sub-prime mortgage is limited, due to its well regulated market. The recession came mainly through the fall of the non-oil exports in manufactured goods, induced by the overall deterioration of economic conditions in the US and Europe.

Economic conditions in Singapore have been affected by the huge loss in wealth from the collapse of the stock market that came with global crisis. This depressed domestic demand, reducing consumption and investment in assets. The immediate concern in the ‘liquidity-crunch’ from the financial crisis has been to provide sufficient liquidity in the system. Read more…

Special Author: Rod Eddington, CEO, J P Morgan Australia and Chair Designate ANZ Bank

Australia began 2008 hoping that the growing global financial crisis might pass it by. Our major trading partners in Asia were in better shape than their American and European counterparts and our underlying economy was sound. All this is still broadly true, but it is clear that the Asian economies in general and the Chinese economy in particular are not as ‘decoupled’ from the global economy as many thought.  Australia has not been spared from many of the economic challenges other nations face as its Asian partners struggle with problems of their own.

The new Australian Federal Government under Prime Minister Kevin Rudd has worked hard at home and abroad to lessen the economic fallout following the global financial crisis. The Australian economy has slowed significantly and this foreshadows increasing unemployment in 2009. Keeping that increase as small as possible is a priority for businesses and governments alike.

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Special Author: Josef Yap, Philippine Institute for Development Studies

The Philippine economy slowed down sharply in 2008. GDP growth in the first three quarters of 2008 fell to 4.6 per cent, compared to 7.5 per cent in the same period a year ago. The jump in the inflation rate following a sharp rise in food and fuel prices was the first big setback. Inflation averaged 9.4 per cent in the first 11 months of 2008 after recording only 2.8 per cent in 2007.

Another factor was the sharp deceleration in construction activity following a surge related to the 2007 elections and the initial implementation of President Macapagal-Arroyo’s ambitious infrastructure program. The US recession, which officially began in December 2007, was alsao a likely contributor to the slowdown.

The economy seems continue to slow further following the chaos in the global financial system and the recession in major economies including Germany, Japan, Singapore and Hong Kong that has followed. Key multilateral agencies are unanimous in the view that the Philippines will see lower economic growth in 2009.  The IMF, the World Bank and the ADB all forecast growth around 3 per cent, or at most 3.5 per cent. Growth in 2008 is estimated at 4 per cent or a touch over. In 2007 it was well over 7 per cent.

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Special Author: Pang Eng Fong, Singapore Management University

Singapore’s economy grew by 7.7 per cent in 2007.  Growth was broadly based, jobs plentiful and inflation low.  The official forecast a year ago was that growth would slow to around 5 per cent in 2008 as external demand would likely weaken.  As it turned out, this forecast was revised downwards several times as economic conditions deteriorated in response to a rapid deceleration of external demand.  Singapore’s economy, officially in recession having shrunk two quarters in a row, appears likely to end up with a growth rate of less than 2.5 per cent in 2008.

Singapore’s current recession is different from its two previous economic contractions in 2001 and 2003.  In both periods, no synchronized global downturn engulfed both developed and emerging economies.  In the current recession, recovery is likely to be modest and slow.  The large fiscal stimulus packages in the developed economies, especially the United States, as well as those announced by China, Japan and other Asia Pacific countries will boost domestic demand and restore consumer confidence but they will take time.  For Singapore, as for its neighbors, the deepening global recession will likely last well into 2009.

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Special Author: Hadi Soesastro, Centre for Strategic and International Studies, Jakarta

Indonesia entered 2008 on a note of optimism. In the previous year, the economy grew by 6.3 per cent, better than its neighbours (with the exception of Vietnam and China). The government aimed at achieving 6.5 per cent growth in 2008. While, at the end of 2008, there are a great many anxieties about the impact of the global financial crisis on Indonesia and the region, the latest estimates suggest that Indonesia could still grow by 6 per cent in 2008. It could end up being a star performer in the region. This, the minimum growth rate to produce sufficient jobs, may be difficult to maintain in 2009.

Indonesia is an open economy, and must remain open. Although its banking system is much stronger than a decade ago, the economy remains vulnerable to a sudden halt and reversal of external financial flows.

Fortunately, the country faces this economic challenge with a much improved political situation at home. In 2008, Indonesia is entitled to celebrate a decade of democratization. It has undergone a remarkable political transformation. It successfully conducted democratic elections in 1999 and 2004 at the national level and, since 2005, has seen over 450 local elections take place without major incident. The fourth most populous country, home to the world’s largest Muslim community can also pride itself on being the world’s third largest democracy. Read more…