The Southeast Asian Perspective on Globalization
The Honorable Laksamana Sukardi
Minister for Investment and State Owned Enterprises
Republic of Indonesia
A dramatic change is sweeping over the vast and diverse region of Southeast Asia. In 1985, everyone in the ASEAN region lived under dictatorship or anti-democratic regimes. A year later, with the fall of Marcos in the Philippines, about 15% of the region's people lived under democracy. By the early 1990s, with changes in Thailand, the percentage rose to 27%. As of last year, the balance in ASEAN has shifted strongly in favor of democracy. Now the Indonesia's 210 million people have overthrown the long dictatorship of Suharto, fully 67% of ASEAN's population lives under democracy.
This is a major achievement, and one that has given many of us from Southeast Asia a renewed sense of pride and optimism about where we are going in this new millenium. It is also a powerful trend that should give those in the international community, particularly investors, a sense of confidence and optimism as well.
For if the rampant corruption and ultimate collapse of the Suharto regime teaches us anything, it is that there can be no solid foundation for business and economy if there are no checks and balances on the power of government leaders. Predictability, the sanctity of contracts, the stability of governments, and most important, the rule of law - all of these things correlate highly with democratic governments and poorly with military dictatorships.
ASEAN is moving away from the "quick fixes" of dictatorship and moving toward the solid foundation of democracy and rule of law. Only with a government of, by, and for the people can we move forward, reduce corruption, and build a stable political and economic infrastructure for investment and development.
The message I bring you from Southeast Asia is one of greater political freedom, greater government accountability, full and responsible engagement in the global community, and a determination to raise the standard of living of the 525 million people who live in the region. That is a market that is almost as large as the U.S., Japan, France, Germany, and Britain combined.
Have we achieved our full potential? Have we reached our social, political and economic goals? The honest answer is that we have not. Many people in ASEAN still lack the most basic freedoms of expression and political participation. Many people, even in democracies like Indonesia, still live in poverty - and for many, the economic crisis that began in 1997 made it even harder to find good employment and maintain a decent standard of living.
But momentary snapshots of Southeast Asia are far less important than the overall motion picture. If we look at the situation over time, what we see are unmistakable indications of progress. And although the Asian crisis was a major setback economically (though politically, we in Indonesia are at least grateful that it helped trigger the downfall of Suharto), it is important to note how quickly the region has bounced back. Except for Indonesia, which had to get its political house in order before it could turn to economic matters, the growth and investment data are remarkably strong. It is a much faster turn-around than we saw, for instance, in Latin America after their financial crises. Thus both economically and politically, there is a sense of optimism and confidence in the air in the ASEAN region.
I would like to share with you some observations about how Southeast Asia is positioned to meet the challenges and opportunities of globalization. First let me run through some basic facts about the region. Southeast Asia consists of ten countries sandwiched between the two giants not just of Asia, but the world - China and India. Apart from geography, there is not much that unites ASEAN. In size, the countries range from the Sultanate of Brunei, which has only about 300,000 people, and the city-state of Singapore, with 4 million people, all the way up to Indonesia, the fourth largest country in the world following the U.S. The second largest country in ASEAN is Vietnam with 80 million people, roughly the size of Germany and much larger than France and the U.K. Politically the region is also diverse. We have democracies I mentioned. But we also have sultanate, one of the world's last communist governments, and another government dominated by army officers.
Perhaps most surprising of all is our economic diversity. At one extreme is Singapore, with a GDP per capita of $21,000. At the other extreme is Cambodia with just $270 per capita. The weighted average GDP per capita is about $1,000. The total GDP for the whole region is about $575 billion. This slightly larger than the total GDP of India and slightly smaller than the GDP of China (minus Hong Kong).
Taken as a region, ASEAN represents a major share of the world's population, a major market where economic growth rates are likely to be in the 7-12% rates during most of the coming decade, and an area of dynamism and rapid adaptation and change.
It is useful to think of ASEAN in three senses - we are individual countries, we are a region with significant coordination and cooperation in economics and politics, and we are a region that trades and interacts as a loose bloc with the rest of the world. When ASEAN was established in 1967, only about 10% of our trade was among our member countries. Intra-ASEAN trade remained rather low throughout the 1970s and 80s. But in 1992, we established the ASEAN Free Trade Area (AFTA), and we made a commitment to integrate our trade and investment more aggressively. We would drop barriers internally and promote intra regional economic linkages. By 1995, intra-ASEAN trade grew to 20% of all ASEAN trade. In 1997, just on the eve of the crisis, we move forward even more aggressively with ASEAN Vision 2020. By 1999, intra-ASEAN trade reached 25%. Compared to intra-NAFTA trade (which is 44%) and intra-EU trade (which is 53%), this is still a modest proportion. But in less than a decade, and despite a contraction of trade among ASEAN countries of 16% at the height of the crisis in 1998, by 1999 we had more than doubled intra-ASEAN trade, and the momentum continues.
I would like to end my comments today with a comparison of the last three decades of the 20th century with the coming first three decades of the 21st century. I believe this is the most useful way to think about the challenges and opportunities for Southeast Asia in an increasingly globalized and competitive world.
Although politically the last thirty years were difficult for ASEAN (with corrupt dictatorships dominating the scene), economically Southeast Asia was in a relatively easy and beneficial position. The Cold War guaranteed that our region could count on annual injections of grants and loans from the West and Japan, from the World Bank, the ADB, and so on. Meanwhile, we also had it easy because India was inward-looking and not a player in the global and regional economic scene, and China was still hostile ideologically to markets, investment, and trade with capitalist countries. Thus the two biggest populations in the region, and indeed in the world, were effectively "offline" and not particularly attractive to investors and not serious competitors for trade.
Under such circumstances, Southeast Asia was the ideal place for investment and trade, especially after some of the NIC's became more expensive places for production.
This ideal set of circumstances no longer exists. The Cold War is over and it is getting harder and harder each year to get commitment of foreign aid out of the rich countries. But most significantly of all, India but especially China are now very much "online" and presenting themselves as very serious competitors for the ASEAN countries. Both countries have huge and cheap labor pools and large potential markets.
In short, the easy days for Southeast Asia are gone and won't be coming back again soon.
What does this mean for us? Does it mean ASEAN is doomed to be overlooked economically by investors? I don't think so. I think there are two implications. One is that we are going to have to adjust to slightly lower growth rates than we enjoyed during the last three decades. We're going to have to work harder than we did before to reach those growth rates as well.
The second consequence of this tougher context for the ASEAN states is that we have no choice but to get leaner and meander than we were in the past. The pressure is greater than ever for us to create excellent climates for investment, production, and trade. I believe we are faster on our feet than our huge neighbors. China still has not worked out its political transition to a more open system, and one cannot assume that the transition will necessarily be a smooth process. Just ask any Indonesian about how disruptive it can be to uproot and deeply entrenched regime and try to put a new government with a new way of doing things in its place!
India's problems are different. There is a certain undercurrent of resistance to being engaged globally that India still needs to confront, and there are serious internal conflicts and difficulties with neighbors that may take many years to overcome. Both of these situations buy a little bit of extra time for the ASEAN countries to get their acts together and become the lean and competitive economies I spoke of. The biggest challenge for us in ASEAN is to continue the reforms we have already started. No area of reform is more important than strengthening the rule of law and our court systems. This is the key to tackling the difficult problems of corruption and abuses of power - which rotted our countries and economies for years. You cannot be lean and competitive if your population is kept stupid and cowering in fear. You cannot be lean and competitive if massive corruption eats away at the flesh of your economy and government budget. And you cannot be lean and competitive if investors have not rust in the court, judges, and contracts are not worth the paper they are written on.
Rule of law means predictability, certainty, confidence, and justice. These are the stable and enduring foundations of a truly competitive society, and our greatest challenge lies not in getting technocrats to come up with brilliant economic plans, but in having a solid basis upon which to build from the ground up. As we know in Indonesia, if you build without that solid foundation, you only end up with a vulnerable house of cards.