2001 Batam – Sustainable Asian Recovery: Short and Long Term Issues
1. The ‘Asian economic turmoil’ which commenced in 1997 has had, and in a number of economies continues to have, a major impact on business, people and governments around the Asian region. Short-term costs of the turmoil include dramatic currency depreciation, sharp downturns in economic growth, falling standards of living, and substantial losses of employment and investment opportunities in the most severely impacted countries.
However, the turmoil offers the prospect of longer-term economic, commercial and political benefits if appropriate policy responses are effectively implemented. These include spreading and entrenching democracy, tackling corruption and expanding transparency in the official sector, and removing unnecessary distortions to the effective operation of market forces;
2. CACCI regards the ‘Asian economic turmoil’ as having two principal ’causes’, namely the interaction of huge and volatile international capital flows responding to inappropriate exchange rate policies with fragile domestic financial sectors and inadequate prudential supervision and poor corporate governance in a number of regional economies.
The consequences of the ‘Asian economic turmoil’ has been variable across the region, with some economies experiencing only modest impact, while others have been subject to sharp ‘V-shaped’ growth trajectories, and others have endured (and continue to endure) painful economic and political strains.
3. Appropriate economic and commercial policy regimes will differ between countries and over time. There is no ‘one size fits all’ model, with simple rules or easy solutions.
Nevertheless, there are some common elements to ensuring sustainable economic development and growth for all countries, regardless of their level of development and pace of growth, building on effective and liberal market forces.
4. With regard to exchange rates, governments in the region should continue to adopt flexible exchange rates. Cooperation in the region to avert currency crises, and to help each other in case such crises should arise, should be increased.
Capital flows should continue to be monitored by individual governments in cooperation with international and regional institutions, and with other governments.
5. An essential element of such a policy regime must be sound policy frameworks and implementation processes. Policy settings – economic, commercial and legal – must be consistent, credible, mutually reinforcing and oriented towards clear, stated market-oriented objectives. Foreign investors, domestic markets and ordinary voters are increasingly willing to punish governments for poor policy settings and management.
6. Policies of reform and transition – from regulated to liberalised systems – can provide substantial challenges for governments, and for markets. Such challenges should not deter governments and markets from pursuing necessary reforms and structural adjustments, but should proceed in a carefully sequenced manner in the context of the individual circumstances. The development of public-private partnership programs will play a critical role in transition.
While CACCI, for example, has a general preference for liberal financial, foreign exchange, foreign investment, and labour market regimes, we also acknowledge each country must reach these objectives taking into account its own circumstances, without using such circumstances as a reason for not reaching these objectives.
7. For reform and transition countries in Asia, this means, amongst other things, eradicating corruption and increasing transparency in government decisionmaking, and putting in place world’s best-practice accounting, legal and corporate systems and regulation (including bankruptcy and liquidation). Credit and investment decisions of financial institutions must be based primarily on the commercial merit of the application. Transparency in corporate governance systems, including shareho ldings and lending arrangements, should also be pursued with vigor.
8. Where structural adjustment assistance is required, in the form .of externally imposed policy change, reform of weak industries or firms, or in labour market programs for impacted employees, these should be no more than necessary to achieve the stated objective, and should not be used to impair the reform process or create a long-term dependency on such assistance;
9. While few countries can reasonably plan for economic shocks, sound polic ies can reduce the probability of such events occurring, and mitigate the impact on commerce and industry, and ordinary citizens of effected economies. Policy reactions will necessarily vary depending on the causes, timing, severity and consequences of the instability, although impacted countries can usefully look for guidance on policy responses from comparable economies, and multilateral and/or regional institutions.
