ASIA'S PRIORITIES: Confronting the Challenge of Economic Uncertainty A Presentation by H.E. Imron Cotan Secretary General of the Department of Foreign Affairs of the Republic of Indonesia


At the 4th Conference of the Asia Economic Forum
Phnom Penh, October 14, 2008

Distinguished Guests,
Ladies and Gentlemen,

First of all, I would like to thank the Asia Economic Forum for inviting me to participate in its fourth Conference here in Phnom Penh. I am greatly honored to share the podium with eminent academicians, politicians, and religious leaders to discuss issues of importance to Asian countries.

This Conference is timely: Asian countries, like the rest of the world, are in the midst of an economic crisis. Currencies are unstable, stock exchanges are plunging, multinationals are going bankrupt, unemployment rates are spiraling and people in huge numbers are dropping to below the poverty line. Natural disasters have been striking various parts of the world, armed conflicts continue to rage in several regions, and nations have to confront a food crisis, an energy crisis and the reality of climate change.

In the midst of these debacles, the question is: how will Asian countries cope?

When we speak of Asia, we refer to a region of four billion people or 60 percent of the world’s population, with a GDP of US$18.334 trillion or 35 percent of the world’s GDP. And while Asia is the largest continent, it is also the most diverse ethnically, demographically, politically and economically.

In this age of globalization – especially when economic depression looming large – Asia’s economy has a great deal to do with how well the world economy fares.

Considering the challenges that it is facing, Asia’s top priorities, to my mind, should include:
1. Enhancing regional cooperation;
2. Promoting democracy and stable regimes;
3. Sustaining a healthy regional economy;
4. Empowering Small and Medium Enterprises (SMEs) and microfinance systems;
5. Protecting the environment;
6. Promoting the development of alternatives to fossil fuels;
7. Pursuing food security measures;
8. Addressing community health issues;
9. Providing adequate education systems; and,
10. Narrowing the digital divide.

1. Enhancing regional cooperation
For decades now, nations have been resorting to regional cooperation as a way of speeding up their response to the challenges they face, because multilateral cooperation at the global level often takes such a long time to launch and pursue.

Regionalism therefore makes a lot of sense, especially in the field of trade. According to the IMF, Asia's growing share of world trade is largely the result of increased intra-regional trade. While trade flows in the rest of the world roughly tripled between 1990 and 2006, inter-regional trade involving emerging Asia rose five times over, and intra-regional trade within emerging Asia increased by 8.5 times. As a result, trade between the economies in emerging Asia has steadily risen from about 30 percent of total exports by the region in 1990 to more than 40 percent in 2006.

The virtues of regionalism and regional cooperation go beyond the economic field. ASEAN, for an instance, in spite of doubts about its effectiveness and relevance, is undeniably the main factor behind Southeast Asia’s stability. With stability, ASEAN members can focus on national development. In 2003, ASEAN began moving toward becoming an ASEAN Community by 2015 based on a legally binding ASEAN Charter. ASEAN will thus transform itself from a loose association to a true community that stands on three mutually reinforcing pillars: an ASEAN Security Community, an ASEAN Economic Community and an ASEAN Socio-cultural Community.

As an Economic Community, ASEAN, with a total population of almost 580 million, has a GDP of US$1.2 trillion at current market price. It attained a dynamic economic growth of 6.5 percent in 2007 for an increase of 0.5 percent over the previous year. Intra-ASEAN trade reached an average 24 percent of total ASEAN trade during the past three years. Meanwhile, foreign direct investment flows into ASEAN increased to US$52.3 billion in 2006, compared to US$41.0 billion in 2005. ASEAN’s Free Trade Agreements with its dialogue partners will, of course, increase ASEAN’s trade volume. As a single market and production base, it should be able to attract even more trade and investments.

The readiness of ASEAN members to cooperate in the political field today reflects a rise in mutual confidence. And when the ASEAN Charter enters into force by the end of this year, ASEAN will become an even more rules-based and people oriented organization.

2. Promoting democratic and stable regimes
Democracy is the political system that is most compatible with human dignity and human rights. Still, a democratic system can fail when its political institutions are too fragile and weak to forestall economic stagnation and social turmoil. It often happens that when a suppressive government crumbles and so-called ‘people power’ takes over, the new government tends to be weak.

This was certainly the case in Indonesia, following the fall of President Soeharto in 1997. It is certainly fair however to mention that currently under the leadership of President Susilo Bambang Yudhoyono democratic reforms continue to prosper in Indonesia and economic growth has started to reach its peak again, albeit shadowed by the current economic crisis.

Indeed, under a weak government, it often happens that people begin to define their identity less by nationality and more by ethnicity or by religious affiliation. Compounded by a global economic crisis, the situation can lead to social and political unrest.

Nations in transition to democracy should therefore be supported to make sure that they do not fail. The best support system is likely to be region-based, such as the politico-security component of the envisioned ASEAN Community. Democracies and aspiring democracies should help each other in every way possible. In this regard, I am pleased to inform you that Indonesia will convene the Bali Democracy Forum in December. This will be a forum for governments in Asia and the Pacific to share insights, experiences and best practices in promoting democracy and the capabilities of democratic institutions.

3. Sustaining a healthy economy
The 1980s and the 1990s were a glorious time for Asia. Japan’s post-war economic boom helped bring about the emergence of newly industrializing economies in East Asia, the ‘Asian Tigers’.

Unfortunately, in 1997, what started out as a streak of currency speculation led to a full blown regional financial and economic crisis. Indonesia was the hardest hit, with its once dynamic economic growth reduced to negative 13.5 percent. It took the better part of a decade for the affected economies as a whole to recover from the disaster.

That crisis taught us a bitter but valuable lesson. We have since been determined to create an enabling environment to boost confidence in business sectors. We strengthened our economic fundamentals. We adopted policies that ensure transparency and accountability in decision-making processes, increase effectiveness and efficiency in the bureaucracy, strengthen law enforcement, and curb corruption. By 2007, Asia’s average GDP growth had reached 7.9 percent, according to the Asian Development Bank (ADB). Although the ADB predicts that GDP growth will be slightly slower in 2008 and 2009, it is clear that Asia is on the right track.
This high growth rate has been largely due to large investments by domestic and foreign firms. In turn, investor confidence has been fostered by transparency and accountability, improved judiciaries, a reduction in the cost of doing business and in the incidence of corruption, and stricter law enforcement.

4. Empowering the SMEs and microfinance systems
As large corporations were crushed by their debt burdens during the 1997 Asian crisis and, apparently, in the current world’s financial crisis, the small and medium enterprises (SMEs) proved to be resilient and served as the backbone of the affected economies. Today we should assist these small enterprises and provide them more opportunities for growth. That means the promotion of sound and solid micro-financing systems.

In this regard, it should be noted that internationally recognized models for micro-financing small businesses, like the Grameen banking system and Bank Rakyat Indonesia’s village unit system, are Asian based.

5. Protecting the environment
Asia’s rapid industrialization, combined with high population growth, has led to serious environmental problems, such as urban congestion, deforestation and desertification, over-fishing, global warming, air pollution, and dwindling safe water supplies.

The economic crisis aggravated these problems.
Environmental degradation alone has generated exorbitant social costs. In Jakarta, it costs US$20 million to US$30 million annually to boil water for drinking. In Manila Bay that is reported to be heavily polluted by sewage, fish catch has dropped by 40 percent in the last decade. Air pollution in China also reported to have killed more than 175,000 people in 1995 and caused nearly two million cases of chronic bronchitis.

At the Conference on Climate Change in Bali in December last year, the international community produced a Bali Roadmap that would show the way to a new post-Kyoto regime on climate change by 2012 that will contain global warming in the next 20 years. Asian countries – the rest of the world – are called upon to actively participate in that process.

We should also include environmental issues in trade forums, since trade has significant effects on the environment. Likewise, environment degradation will definitely adversely impact on our way of doing business.

As a region that is prone to natural disasters, Asian countries should strengthen cooperation in disaster response and management. The existing mechanisms for such cooperation in the region should be fully tapped. The successful ASEAN-led coordination of international efforts to deliver humanitarian assistance in Myanmar in the wake of Cyclone Nargis, could be a model for future post-disaster regional cooperation.

6. Food security measures
The food crisis in Asia can be attributed to several factors: loss of agricultural land to residential and industrial development, the rise of world oil prices to more than US$100 a barrel, population growth, climate change, growth of consumption in China and India, which has raised the price of grain, as well as improper irrigation and fertilization practices by poor farmers, which has rendered soils salty and toxic, thereby reducing land fit for farming. That, in turn, has decreased opportunities for employment in agriculture, adding to the alarming rate of urbanization at a time when Asian cities lack resources to support explosive population growth.

To address these issues, Asian countries need to take the following steps: first provide farmers with microfinancing, improved seed varieties, cheap but appropriate farm technology and affordable fertilizers. To this end, relevant agencies in Asian governments should meet to share experiences and expertise; second, develop ways to help national governments spend more on agriculture and on rural infrastructures that empower small farmers; and, third, establish linkage between existing regional mechanisms for food security and the relevant multilateral agencies.

7. The search for alternatives to fossil fuels
The current energy crunch has prompted governments to make tremendous efforts at finding alternatives to fossil fuels, including bio-fuels. Unfortunately, the use of agricultural land to produce bio-fuels has contributed to food scarcity.

It is therefore important for Asian countries to work together in support of research aimed at developing alternative energy sources that are affordable and accessible to developing countries. These energy sources should be cleaner and more efficient, such as hydro power, solar power and other renewable energy sources. The East Asia Summit has been promoting cooperation to help ensure energy security, without adding to the problem of food scarcity.

8. Addressing community health issues
In the past several years, Asia has suffered and overcome outbreaks of diseases like SARS and avian flu. Recently, an incidence of widespread melamine-contaminated milk has claimed the lives of our toddlers. We cannot afford not to take collective actions to redress the situation.

The success of ASEAN countries in curbing the spread of SARS through regional cooperation could be applied to other endemic diseases. Asian countries should forge cooperation at the bilateral and regional levels, with the assistance of the WHO, to develop early warning systems on endemic diseases, to take precautionary measures and to provide affordable medication that benefits developed and developing countries alike.
Food and drug production and distribution must, of course, be strictly regulated, or many lives will again be lost.

9. Providing adequate education
Despite impressive numbers in terms of economic growth and economic indicators, education remains a problem in many Asian countries.
The UNESCO literacy statistics for 2005-2007 show that the literacy rate in Asia has reached 82.1 percent for adults and 89.8 percent for youths. The ADB’s Key Indicators for 2008 reveals that the percentage of children starting grade 1 and reaching the last grade of primary school averages 80 percent. But some problems of education are yet to be addressed, such as the lack of school facilities, especially in the remote areas, the very low teacher-to-students ratio and the inadequacy of curriculums in the face of the demands of the time. There is, for instance, the need to match school curriculums with the requirements of industry, i.e. ‘link and match’. The solution to this problem is conscientious national planning with an eye to the goal of universal education.

10. Narrowing the digital divide
Rapid globalization is at least partly due to advances in information technology. The lack of physical and legal infrastructure, however, has prevented Asian countries from reaping the benefits of information technology.

I therefore suggest the following measures to address the problem: first, the use of regional mechanisms to help fund projects to build information technology infrastructures, particularly in the remote areas; second, the setting up of regional forums for exchange of views and experiences in regulating information technology, with emphasis on the prevention of cyber crimes; and, third, the building of a regional mechanism to curb cyber crimes in the region and make Asia a safe place for conducting cyber economic activities.

Ladies and Gentlemen,

For the past several years, Asia has grown to become the world’s most economically dynamic continent. The 1997 crisis might have temporarily slowed our progress, but we have been quick enough to get back on track.
The current global economic crisis will again test Asia’s economic resilience. I am confident that the same resilience finally will again prevail if the nations of Asia together address the ten priority issues that I have just highlighted. But in the shorter term, we should promptly take a series of stop-gap measures to cushion the severe impact of the current global economic crisis, by inter alia restoring confidence in our stock markets through buy-back shares schemes; throwing security blanket to secure private shavings in the affected banks; working in concert to stabilize and maintain reasonable central bank interests; and, last but not least, increasing public spending to help sustain economic growth that has been long dependent on consumption.

Coupled with the help of multilateral institutions and agencies, I am sure that we can overcome these challenges and continue on the high road to development, walking together shoulder to shoulder, without missing a step.
Let me conclude by inviting you to study carefully the new concept, ‘regulated capitalism’ introduced by President Sarkozy of France in front of the 63rd Session of UN General Assembly. He stressed inter alia that the time has come: ‘… financial activity won’t be left to the sole judgment of market dealers. Let’s rebuild a capitalism in which banks do their job, and the job and the banks is to finance economic development, it isn’t speculation…’. ‘Let’s build capitalism in which the credit agencies are controlled and penalized when necessary’.

Thank you.