Authors: Peter Drysdale and Shiro Armstrong, East Asia Forum
Suddenly Asia has emerged as a major player in the global economy.
Asia already accounts for 27 per cent of world GDP and the Asian Development Bank (ADB) 2050 Report issued last May suggests that it will account for as much as 51 per cent a generation hence. The economies of the developed world are slipping back into recession. Asia, especially China, India and Indonesia continue their exceptional and rapid growth with the rest of the region, including Australia in tow. Asia is a region with high levels of interdependence within the region itself, especially within East Asia and between it and the rest of the world. It has a deep stake in the strength of the global economic system that supports open trade and international capital flows.
What sort of changes will these developments wreak in the regional and global order?
There are great expectations of Asia not only as an engine of global growth — led by China but with other emerging economies adding dynamism to the global economy — but also of its leadership at a time of global economic fragility. The new global order, centred on the G20, includes six Asian powers and provides a platform for Asian leadership. But is Asia up to the task? And do the institutional structures and arrangements within Asia provide the foundations that are needed to build coherent policy strategies to deal with the economic problems the world now faces?
The latest issue of East Asia Forum Quarterly addresses these questions. Shekhar Shah’s essay from this volume is our lead essay this week. Shah argues that, while the G20 is central to the new international order, the six Asian economies within the G20 are key to rebuilding the global economic order within a generation, as the realities of the change that has taken place in the world economy now require.
A generation might seem a very leisurely pace of change, but, Shah suggests, it will take time for both the West and the East to adjust to the new economic realities they confront. Pretending otherwise will rule out real opportunities for shaping the G20 into the longstanding forum it needs to become. It must learn from the Asian experience of steady, even if sometimes slow, progress with economic cooperation.
There are two priorities according to Shah. ‘First, on the immediate question of sustaining global demand, it now seems clear that the G20 has not been able to repeat the success it had in dealing with the 2008 crisis in the much harder task of rebalancing the global economy’. That earlier success bred complacency the G20 can no longer afford. Its Asian members, as the ADB has claimed, are ‘passive onlookers in the debate on global rule-making and reluctant followers of the rules’. This has to change or the G20 will lose its way.
Yiping Huang argues that what China wants is reform, not radical change, of the existing international economic system from which China has been among the biggest beneficiaries.
Much will depend on how the Asian emerging newcomers, including India, take up their responsibilities to shepherd the G20 agenda. There is a lot to lose if the G20 descends into nothing more than the old G7 plus others. ASEAN has had considerable experience in coordinating policy responses and domestic policy choices, both those that have been successful and those that have failed. Asian members should bring this experience to the G20. ASEAN’s durability and openness to change presents an opportunity for the Asian G20 members to bring this ASEAN spirit to the G20. This will equip the G20 to be effective over the generation that will be required to rebuild the global economic order.
According to Ishrat Husain, the strengths of the Asian economies clearly show why they should be in the driver’s seat, or at least the co-pilot’s seat, of the G20. He sees advantage in using regional arrangements like ASEAN + 6 in East Asia and SAARC in South Asia for consultation among member countries in the region to add their voice to the G20, through the six Asian G20 countries as a conduit.
Given the size and strength of Asia in the global economy, Mohsin Khan suggests, the region clearly still ‘punches below its weight’ in the global financial institutions like the IMF, for example This is part conscious choice by Asian countries to keep the IMF at arm’s length, reflecting memories of the IMF’s role in the Asian financial crisis. Asia has also not really pushed to have a larger say in global financial circles, but instead has chosen to develop its own regional arrangements and institutions. Playing its rightful role in the IMF need not detract from regional arrangements. The global and regional institutions can and should work together in a complementary way.
‘Adopting an explicit longer-term framework’, Shah argues, ‘allows us to think about future developments that need to be shaped now, such as the G3 relationship between the US, China and India, and the shape it will be in 10 years from now. The relationship between these countries will be important in determining future G20 strategies. India is today by far the poorest member of the G20. But it is nonetheless the fourth biggest economy in the G20, measured at purchasing power parity, and the 11th biggest measured at market exchange rates. Laying the foundations of a more cooperative relationship now will go a long way towards shaping it in productive ways for the future’.
This is Asia’s global moment. Will it meet the test? The verdict is out and far from certain. But this issue of EAFQ provides the outline of the agenda with which Asia must deal if it is to measure up, both economically and politically.
Peter Drysdale and Shiro Armstrong are the editors of the East Asia Forum.