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"Securing Economic Development and Stability in Asia"

June 3, 1999

His Excellency Joseph Estrada
President, The Philippines

At the outset, let me congratulate Nihon Keizai Shimbun, Japan's leading economic journal, and its President, Mr. Takuhiko Tsuruta, for successfully organizing this year's future of Asia Conference.

We have come to this conference fully aware that the whole world is currently undergoing dramatic political, economic, and social transformations. At the threshold of a new millennium, we are still trying to form a coherent world view -- while certain nationalities seek to find their place under the sun, globalization brings existing states ever closer and more interdependent.

In Asia, the financial crisis that hit us was a painful reality check. Only a few years ago, the miracle economies that sprung in our midst gave rise to a consensus that the coming century will be "the pacific century." All of a sudden, the feeling of euphoria turned to gloom as we came to realize that a free market system alone could not guarantee continued economic growth.

I personally felt the sting of the Asian crisis because it was in full swing when I assumed the presidency one year ago this month. I rode to victory on the promise of a good life to the Filipino masses and there I was, faced at the start with a problem of the first magnitude -- the recovery of our economy.

My economic team and I were struck by the degree of the downturn. So in my first state of the nation address to the Philippine Congress, I honestly expressed concern over this state of affairs. I did so to ensure that Filipinos would understand the challenges ahead and to remind them that much needed to be done before I could even begin fulfilling my campaign promise.

Now, we can confidently say that, although we are not yet out of the woods, we are certainly on our way to recovery. The IMF managing director himself practically gave us the seal of good housekeeping when I met with him in Hong Kong last month. We even considered the Philippine economic recovery program as a model for other ASEAN nations.

Today, the press is full of reports about an Asian economic resurgence. The IMF managing director has also said that the global financial crisis "seems to be over", first trimester indicators suggest that the crisis may finally be bottoming out. The Nikkei has regained a quarter of its value and some southeast Asian markets - including Manila's - are coming back strong. Hope is beginning to return, and this year may still be difficult but it promises to be better than 1998.

I must take this occasion to highlight the role of Japan in contributing to East Asia's economic rebound. Allow me to acknowledge the efforts of Japan to assist its crisis-stricken neighbors despite its own economic difficulties. Since the onset of the crisis, Japan has so far committed 82.6 billion U.S. dollars, including the 30 billion-dollar new Miyazawa initiative for the five affected countries in East Asia.

The economic revival and sustained growth of the region requires a strong and resilient Japanese economy. I, therefore, wish to congratulate Prime Minister Obuchi in his steadfast determination to reform and revive the Japanese economy.

Philippine Economic Revival

The Philippines is fortunate that the ravages of the Asian crisis, while serious, have not been as heavy as those inflicted on our neighbors. Our national economy still managed to post to modest 0.1 percent growth for 1998.

The value of the Philippine Peso has appreciated and stabilized, Philippine benchmark for interest rates have fallen to less than 10 percent today. From 10.3 percent last year, the inflation rate dropped to 8 percent last April. A total of 679,000 new jobs were created last year.

Non-resident direct investments to the country in 1998 amounted to 1.75 billion U.S. dollars, the national government successfully carried out last March a Eurobond flotation worth about 400 million U.S. dollars. And our central bank reported that, for the first time in history, the dollar reserves of the country have reached an all-time high of 13.78 billion U.S. dollars as of the end of April.

The IMF even predicts real GDP growth of about 2 percent his year and about 3 percent in 2000 -- not bad to start the new millennium.

Moreover, our gross national product reached 2 percent in the first quarter of this year, which is greater than the expected growth of 1 to 1.5 percent.

Some commentators have said that the main reason for our relatively credible performance in the face of the crisis was because we were late in joining the Asian tiger economies. Indeed, the Philippines was not among the first tigers of Asia. We started very cautiously because we underwent the difficult transition from dictatorship to functioning democracy.

Thanks to my worthy predecessors in government, the Philippines began rebuilding its political, social and economic structures in time. While we were not among the first to enjoy the boom, we were also not among the ones hardest by the bust.

One of the reasons we fared better than most of our neighbors at the height of the crisis was the banking and finance sector reforms we introduced ahead of them. This is a lesson we have not forgotten. "Preventive Reform," or the implementation of modernization measures to prepare for more globalization, is now our guide to action in the Philippines.

Our main goal is to sustain a Philippine economy different from the one that impoverished a previous generation of Filipinos. My administration aims to lower levels of poverty from 32 percent of the total population in 1997 to 20 percent by the year 2004. This may be ambitious but it can be done.

To achieve this, we must initially focus on three important priorities.

First, we must make agriculture, a core element of our economy, a strong engine of export growth.

Second, we must focus on what economists call "social infrastructure capital." This means education and job training, we want our people to be ready for the quickly shifting demands of the 21st century global economy.

And third, I am determined to see the Philippines adapt to the age of information technology. Global electronic commerce is estimated to become a 300 billion dollars-a-year market early in the next century. Hence, we must build our I-T highways if we want to get our fair share of this technology-driven business bonanza.

Moving Asian economies forward will require international cooperation in the form of direct foreign investment. My investment philosophy is simple: "We have to earn it."

This is my goal for the Philippines. That is why to complement incentives and policies aimed at encouraging more foreign investments, we have established a number of export-processing zones with favorable tax treatment and other commercial benefits.

I am pleased to inform you that top Japanese companies are represented in some of our industrial parks. But we have noted some caution of late, perhaps due to your slowdown at home. We understand this because your success is important to us and our neighbors in ASEAN.

We are insuring peace and order in the Philippines because we believe this is necessary for our economic development. We are, therefore, pursuing the peace process with the remaining rebel groups while intensifying our anti-crime campaign, in the first year of my administration, we have succeeded in breaking up organized crime. Criminality is now at an all-time low while the national sense of security is at an all-time high.

We are also pushing for the amendment of our constitution to insure that it is consistent with the demands of present-day geopolitics and modern economics. If we are to reform our country and start the genuine struggle to become a tiger economy in Asia, we must begin with our constitution. Let me emphasize here, however, that constitutional change can come about by the year 2001 when the economic reforms can be immediately implemented but political reforms will be effective only after my term. Thus, our people need not worry about extending the terms of incumbent officials, including that of the president.

The message that my economic policies conveys is this: the Philippines has not been sidetracked by the crisis but it is determined as ever to pursue growth and investment.

International Economic Cooperation

It is also very clear that the Philippines cannot fully recover from the crisis - much less develop in a sustainable way - if it does not work hand-in-hand with the rest of the world. In a global economy where 1.4 trillion dollars in currency changes hands every day, no national economy - not even America, Japan or China - can stand alone.

This is the reason why we adopted a market-oriented approach, using liberalization, deregulation, and privatization as our guiding philosophies. Philippine commitments to AFTA and the world trade organization consistent with the national interest will also be maintained.

We must also redress past practices which led to the crisis. This requires structural reforms, the most urgent of which lies in the reform of our financial institutions, including the establishment of a new international financial architecture - with adequate supervision and surveillance mechanisms.

Northeast Asia's steadfast commitment to economic reform is vital. Much will depend on Prime Minister Obuchi's "quiet reforms" of the banking and financial systems. Structural reforms of South Korea are also crucial. Given its regional influence, China may also be encouraged to consider steps that will promote the growth and stability of the Asian region.

Measures should likewise be taken at the international level. A positive step, in this regard, would be to develop a set of internationally agreed-upon codes and standards. If rigorously implemented, they will promote greater openness and transparency in national policy-making and more intense cooperation between the public and private sectors.

Regional cooperation is another important means for sustaining economic growth and development. In fact, the weakness of joint regional action in responses to our crisis was indeed unfortunate.

The Philippines thus adheres to the goals of the ASEAN vision 2020, because of economic integration, the Hanoi plan of action is still the most viable strategy for national resilience, stability, and productivity.

APEC continues to be a major vehicle for expanding economic collaboration in various fields. We also view the Asia-Europe meeting, or ASEM, as a framework of cooperation between these two continents across a wide range of activities.

An East-Asian Currency

This is my outlook of the future - a future of integrated and dynamic East Asian economies.

Given the growing and extensive economic relations among East Asian countries, the idea of a common East Asian currency should no longer seem farfetched. If the European Union can have its Euro, why should East Asia not consider a similar economic undertaking?

I strongly feel the time has come to start thinking seriously and practically about this. To my mind, a common East Asian currency would facilitate transactions, reduce dependence on other major currencies, and promote economic interaction and integration. More importantly, a common currency would generate forces conducive to greater monetary and fiscal cooperation among East Asian countries.

Lessons Learned from the Crisis

We have learned from the financial crisis that rapid growth is neither the sole nor decisive factor in national development.

I, therefore, wish to remind international organizations to balance economic rationality with political reality, what is economically imperative is sometimes politically destructive. Austerity measures may not be politically tenable if they produce extensive human misery, this is especially true for democracies where policies are sustainable only if the people support them.

I trust that the Philippine record and my personal commitment to free market principles affords me the right to raise this matter.

We in the Philippines have learned that progress is attained best where citizens have a real say in how government affects their lives. Indeed, many have observed that countries with more robust mechanisms for lessening social conflict also managed the regional crisis better. Democracies are effective in easing social tension.

At the World Economic Forum's East Asia Summit in Singapore last October, I mentioned that our region had a democratic deficit. Fortunately, this deficit is now being filled, and as we meet today on the eve of the elections in Indonesia, let me emphasize our solidarity with this largest member-nation of ASEAN.

Democratic transitions follow different timetables because each country faces its own unique set of challenges. For the long run, however, all our people know that only greater democracy, greater openness, more transparency, and truer accountability can handle the complex problems of national modernization. There is no turning back the clock.

National and Regional Security

This brings me to my other main concern for today's presentation - the security of my country and of the East Asian region.

Events after the cold war have conspired to make us re-think national security not only in terms of military threats arising from beyond our borders, but also of non-military threats - both within and beyond the state. Essentially, modern-day security is intertwined with addressing the broad range of development needs.

The traditional concept of security is the defense of national sovereignty through the maintenance of the state's territorial integrity and of its natural resources. Such concerns remain high on our regional agenda, particularly the tensions in the Korean Peninsula, the China-Taiwan issue, the South China Sea dispute and the escalating Indo-Pakistan conflict.

The deterioration in relations between Washington and Beijing is another cause for concern. In these troubled times, it is necessary for the major powers particularly, China, Japan and the USA to provide leadership both in our pursuit of prosperity and in our quest for peace.

The nature of the South China Sea dispute involves several actors; the importance of peacefully resolving the dispute is thus proportionately high. It would be in the interest of all that cooperative non-confrontational, security arrangements are established, they should be based on a commitment to good neighbourly policies, and to transparency in military and strategic matters. In the context of the 1992 ASEAN declaration on the South China Sea. Given the urgency of this matter, we are prepared to resolve this issue through a combination of diplomatic approaches.

Let me emphasize lest I have been lately misunderstood, the Philippines values its relations with China and we consider it important that ASEAN-China relations remain strong and friendly for the sake of peace and prosperity in East Asia.

The Korean Peninsula problem remains a security fault line in the region. Hence, we must continue with the policy of greater engagement. I therefore support the sunshine policy of the South Korean leadership. The Korean Peninsula Energy Development Organization (KEDO) and the four party talks.

The United Nations could regain much of its diminished role on political issues if it could undertake a major initiative to bring the escalating violence between India and Pakistan to the negotiating table.

However, security threats to our region are not purely military in nature. A redefinition of security says that new forces around us become security issues because they have the potential of first, threatening the quality of life of our people and eroding our development efforts; and, second, of seriously limiting the policy choices available to us. If left unattended, these factors tend to degenerate into national security problems.

I refer here to terrorism, transnational crime, drug trafficking, trafficking in children and women, money laundering, food security, environmental degradation, pollution, migration, population growth, and natural catastrophes.

These threats affect all nations in varying degrees. They could easily undermine the international community of nations if we do not address them effectively. They require not military responses but foresight and longer-term policy cooperation among states.

A New Regional Security Arrangement?

There clearly is a need for an East Asian regional security agenda relevant for the 21st century. Such an agenda should incorporate both traditional and non-traditional aspects of security.

In this regard, it maybe wise for us to review if the ASEAN Regional Forum, or ARF, and the ASEAN plus three summit are sufficiently equipped to address our regional security issues. We may want to consider new security approaches, such as expanding the mandate of the ASEAN plus three summit, revitalizing ARF, or creating a new East Asian Security mechanism altogether.

If ARF, which is based on promoting confidence building measures, is to continue being effective and relevant, it must be improved. It should be given the mandate and the capability to undertake preventive diplomacy, conflict-prevention and conflict-resolution initiatives and activities.

The aim would be to prevent or resolve conflicts through peaceful means before they erupt into armed confrontation. The ability to respond to ongoing crises, disputes or conflicts should also be another responsibility given to ARF.

Revitalizing and expanding the mandate of ARF or creating a new security mechanism are options towards addressing my fundamental concern - that present-day East Asian security arrangements may be unable to prevent future Rwandas or Kosovos, much less inter-state conflicts, from happening in our region.

Closing

Ladies and gentlemen: in the aftermath of the Vietnam War, Asia entered a cycle of remarkable growth which belied predictions about falling dominos and instead produced a group of Asian dynamos. For twenty years, Asian tigers roared and fruitful partnerships between this region and others developed.

Just as the Philippine tiger began to claw its way in that magic circle, the bottom fell out. Now, we hear some experts say that Asia's economic miracle was just a stroke of luck, we must prove them wrong.

To do so, and enable Asian statesmen to concentrate on economic and social advancement, the use of force to resolve international disputes must be off-limits.

I speak to you as president of a country that coined the term "people's power." My conviction is that freedom and interdependence are the way of the future, and that economic and political freedom go together. And regional security creates the environment necessary for economic progress.

Each of the countries represented in this Forum has its own culture and institutions worthy of respect. Here in Asia, we can secure the peace and forge economic progress which will do justice to the dreams of our people. All it takes is the kind of determination, hard work and mutual respect which created the Asian miracle of the last quarter of the outgoing century.

Let us work towards this end and, in the process, fulfill the promise of the next hundred years as "The Pacific Century."

Thank you and good day.

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