Asian leaders look to forge stronger ties

June 4, 1999

Special to The Nikkei Weekly

Asian government and business leaders, gathered in Tokyo for a two-day conference last week, spoke confidently of a regional crisis that has bottomed out, but they also stressed the need to put in place structural reforms to ensure permanent recovery.

"I believe that sooner than skeptics think, the East and Southeast Asian economies, imbued this time with the wisdom derived from a harrowing experience, will be making a full recovery from the crisis," Indonesian Foreign Minister Ali Alatas said at the 5th international conference on "The Future of Asia" in Tokyo's Hotel Okura.

In an apparent bid to give impetus to the recovery process, Japan's Prime Minister Keizo Obuchi unveiled plans to come up with a comprehensive aid package by year-end for six Asian countries. A government mission will visit South Korea, Vietnam, Indonesia, Malaysia, Thailand and the Philippines in the next three months to finalize a package that would include assistance for the unemployed and the poor, as well as environmental protection.

Malaysian Prime Minister Mahathir Mohamad said at the Nikkei-sponsored conference that Asian economies have only just started on the long road to recovery. He stressed that there was much to do before strong growth would return to the region.

Government officials in the conference admitted to mistakes such as overvaluating their currencies and relying heavily on foreign borrowing. They confessed to corruption, nepotism, collusion, inefficient regulation, and lack of transparency in their banking and financial systems.

But they also spoke of their willingness to pay the price to correct these mistakes as well as their determination to regain confidence in their battered economies and recover lost ground.

Lee Hun-jai, chairman of South Korea's Financial Supervisory Commission, said the crisis had threatened all Korean corporations and financial institutions with bankruptcy.

To prevent total collapse, Seoul raised over $60 billion to restructure its financial system.

"There is no country in the world that has ever decided to spend 17% of its gross domestic product within six months of a crisis," Lee said.

Impact of the crisis on Indonesia was just as deep. In 1998, Indonesia suffered hyperinflation of 77.6% and saw its GDP growth fall to minus 13.7% from a high of 7% growth in previous years. Social unrest and political tension aggravated by food shortages and millions of lost jobs finally led to the fall of former President Suharto.

As President B.J. Habibie took over the reins of government, political and economic reforms were put in place that the government hopes will bring back stability in the country.

"We are determined to achieve transparency in all public and business transactions, convinced that effective public scrutiny of all economic and financial activities, coupled with political stability, will earn for Indonesia the trust of investors and trading partners," Alatas said.

Reform, stability

Mahathir remained steadfastly behind his government's decision to impose capital controls. But he conceded that reforms are necessary.

"In the days ahead, we must continue - let me stress continue - with the needed reformation and reinvention of our economies and every critical aspect of our societies," he said.

As Asia moves out of the crisis, both Philippine President Joseph Estrada and Japan's Foreign Minister Masahiko Komura stressed the importance of peace and stability to economic prosperity in the region. While Komura pressed for a stronger role for the ASEAN Regional Forum (ARF) in preventing conflicts, Estrada expressed dissatisfaction with ARF's present mandate. If ARF is not revitalized, Estrada suggested that a new East Asian security mechanism be created. He did not provide details.

Most of the conference participants emphasized Japan's vital role in leading Asia out of the crisis both by providing financial assistance and by strengthening its own economy.

Singapore's senior minister Lee Kuan Yew, however, expressed impatience at Japan's lack of confidence in its own ability to get out of the crisis.

"The Japanese people are too pessimistic. They have no reason to believe the end of the world is coming," he said. "We need a healthy Japan, confident and expanding."

Estrada also noted "some caution of late" among Japanese businessmen investing in the Philippines.

Komura assured the audience that Japan would live up to the expectations of its Asian neighbors.

"Japan has made and will continue to make efforts by adopting measures in the full conviction that it must demonstrate its leadership to realize prosperity in Asia," he said. "The high savings rate, diligence, craftsmanship and other factors that have supported the economic growth of Asia have not been lost."

China's decision

Several participants, notably Mahathir, expressed appreciation for China's decision not to devalue the yuan, which would have aggravated the impact of the economic crisis on Asian economies.

Wang Xuebing, chairman and president of the Bank of China, assured conference participants that the yuan will not be devalued.

"Our analysis on a series of factors that may affect the exchange rate made us believe that the renminbi has strong economic fundamentals to stay at the present level," he said.

The participants agreed that Asian economies must take steps toward economic integration. Estrada suggested it was time to seriously consider adopting a common East Asian currency.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.