Comment on “Window of Opportunity Opens: Asian and American Views of the International Economic Architecture”

Abstract

Regional cooperation endeavors in Asia since the Asian financial crisis have had no clear and strategic focus on the big global issues of macroeconomic imbalance, financial system reform, trade reform, and the environment. Asia is such a big part of the global system now – truly a huge third force in it – in all these dimensions that it cannot afford not to be proactive in the development of policy strategies to insure against fragilities in the system or even its collapse. The global nature of the current world economic crisis required an urgent global response. Fortunately the elements of that have been put in place through the G-20 process. This global play has, for the while at least, sidelined the role of regional institutions. There were three major achievements out of London. The first is in world leaders' acceptance of the reality that the global economy today is one that can only be managed successfully – with stable markets offering continuing opportunity for human development and growth – if it is managed jointly. The second is crafting a coherent set of strategies to address the challenge of the crisis. Doing “what it takes” in the way of fiscal expansion and monetary policy stimulus may not satisfy everyone, but the political energy and will behind these commitments and the substantial range of programs that have already been put in place around the world will be more secure for what has been done in London. Third, G-20 leaders agreed to meet again before the end of 2009. Success in engineering a rapid and sustained recovery depends crucially on entrenching the G-20 as the theater for global economic action, building an infrastructure that will help to make its work effective and continuation of a process that must shift the emphasis over time from stabilization to sustainability and growth. But the G-20 has taken only the first step. There is a constituency beyond the G-20 yet to be engaged. In Asia, that means bringing along and mobilizing the region beyond the Asian G-20 participants. In Europe that challenge is even more formidable. The Asian participants in the G-20 emerged as an important and constructive force (Soesastro & Drysdale, 2009). Now the real job of implementing the London agreements and the G-20 process itself begins. That is a task that importantly devolves upon Asia because of the expectation that Asia can be at the leading edge of global recovery and an effective force for reform and openness. Dobson (2009) puts her finger on a central element in that whether this part of the world can adjust to lower US consumption and how. This is a structural issue. It will require learning new policy strategies in the reform of markets and institutions so that there is broader access to and intermediation of savings in the region. In China and other parts of Asia, this means opening up the financial system to private sector participation and eliminating the distortions in favor of savings over consumption in the financial market. These are domestic policy challenges, but they are challenges that will be assumed more readily if there is active regional cooperation on financial market reform and development. As I have argued elsewhere (Drysdale, 2009), these are priorities in regional cooperation that will strengthen the global as well as the regional economy. The Asian G-7 now have a new role and responsibility in making sure that the whole region's weight is brought to bear on making that happen. There are two issues here. One is leadership and strategic thinking. The other is settling on the best vehicle whereby to carry that forward. Asia needs its own forum, but a single East Asian platform is unlikely to be sufficient to handle the many aspects of cooperation that are important to the region. The Association of South-East Asian Nations (ASEAN)+3, ASEAN+6, and the transregional APEC process all have their part to play. The principle of “variable geometry,” which Dobson mentions, can productively be built into East Asian regional cooperation in this and other ways (Soesastro, 2007). We now have a functioning group from Asia that is feeding into the G-20 process. Soogil Young (2009) suggests building an East Asia caucus around the Asian G-7 in the G-20. De facto that has now emerged as the practical way forward. Finally, these are not purely economic or technical matters; they are also political matters. The future shape of regional economic cooperation will also reflect political circumstances and big geopolitical choices.