Asia’s Economic Recovery: Contrasting Narratives
May 19, 2010
As tantalizing hints of recovery from the global financial crisis pop up in international economic statistics, a curious dichotomy of narratives about the status of various Asian economies has emerged in the international media:
First, there is the big story, related with relish and surprise, of unexpected and robust economic recovery in most countries across Asia, with a dominant, triumphant China leading the way. Meanwhile, more-developed Asian economies – such as Japan, which is commonly portrayed as somewhat stuck in a low-growth, lack-luster rut – are seen as mere supporting players. South Korea is the new darling – its quick recovery described as akin to a rubber ball (in sharp contrast with stories surrounding the U.S. economy which at most can claim a “dead cat bounce”).
The Other Asia
Then there is the narrative that the international media applies to “other” Asian countries. Here the tone is starkly different and close to despair, which – in snippets – is told as follows:
- In the Philippines, last week’s elections bring to a close the administration of Gloria Arroyo, who moves out of office at a historic low in approval ratings. While much hope is pinned on her successor, Noynoy Aquino, there is also recognition that it will take superhuman effort to lead the country out of the economic trough it has muddled through for close to two decades.
- In Bangladesh, the return of Sheikh Hasina and the Awami League to power in the 2008 elections is likened to the persistence of old, corrupt oligarchies that hold the population under an electoral spell.
- In Cambodia, stories are relayed of massive land-grabbing and rent-seeking by favored cronies, enabled by the overwhelming political dominance of Prime Minister Hun Sen and the Cambodian People’s Party.
- News stories about Indonesia are mostly about public protests and parliamentary inquiries into alleged favoritism exercised by Vice President Boediono, who was the last central bank governor, and then-Finance Minister Sri Mulyani (read more about her resignation to join World Bank in Laurel MacLaren’s blog piece) in their decisions to bail out Century Bank at the height of the international financial crisis. International punditry speculate that the “Century Bank scandal” has gravely eroded President Yudhoyono’s credibility, given that Mulyani and Boediono were his two key economic technocrats.
- In Sri Lanka, President Rajapakse is rampantly dominant, fresh from his recent electoral victory and, with his brothers securely in office, relishing his unlikely defeat of the Tamil Tigers in 2009. Now the worries about Sri Lanka have turned to the welfare of the communities displaced by the war.
- And Thailand? Today it’s the aftermath of the government’s clash with the red shirts, tomorrow it could be the yellow shirts, and you might ask, what about the deal between former Prime Minister Shinawatra and Cambodia’s Prime Minister Hun Sen that placed Shinawatra as Cambodia’s economic adviser?
- The Nepali constitutional crisis drags on with a May 28 deadline looming and its capital shut down by protesters earlier this month, hampering basic services in the capital like electricity and water.
- Reporters love to speculate on how Vietnam will handle the diminishing size of the giant wave their economic engine has been riding.
- Laos continues to be a quiet, sleepy country, despite its regular occurrence on travel editors’ lists of “top places to visit before you die.”
- And, the story of Timor-Leste as a major aid recipient over the past decade has been told, and some write that it’s time for the nation to start using its oil revenues to become more self-sufficient.
Puzzles and Surprises
What the above narratives miss, amid their handwringing and despair, is that, even in the more fragile economies, economic growth in Asia has continued apace, at rates ranging from 3 to 8 percent, even at the height of the international financial crisis!
In countries such as Nepal, Sri Lanka, Thailand, and Cambodia, despite continuing tension and sporadic violence, tourists continue to arrive, albeit far from peak levels. And when the incidents are over, tourism arrivals bounce back very quickly. Away from urban centers and areas of direct conflict, life and business goes on, and overall growth continues.
All of the countries that had been hard-hit in the Asian Financial Crisis of the late 1990s – Indonesia, Malaysia, Philippines – learned valuable lessons. They have since rebuilt their financial systems into more risk-averse, better-governed structures – and are now less exposed to the exotic financial products that are at the core of the U.S. financial crisis.
China has been an important force that has made up for the precipitous fall in demand from the West. In particular, the economic impact of China’s decade-long “look West” policy where massive infrastructure investments have been made in western China has been greatly underestimated. Western China clearly absorbed much of the labor that was rendered redundant in eastern China by the global financial crisis. Moreover, the scale and growth of trade between Central Asia and South Asia has most likely been underestimated and not captured in official statistics.
Most Asian countries have continued, slowly but steadily, to work toward opening their economies to trade and investment – in commodities, manufacturing, and services. Such gradual but steady liberalization has been accomplished partly through the “noodle bowl” of bilateral trade agreements that many countries have entered into given the stagnation of the Doha round of multilateral trade talks under the World Trade Organization. These key structural reforms have also been accompanied by selective microeconomic reforms in key industries and sectors, with telecommunications the outstanding example.
In many countries, remittances sent home by overseas workers have played a very important role. As the global financial crisis worsened, remittances overall fell, but by far less than economic activity, thus serving as a counter-cyclical force. Moreover, as remittances from the U.S. and the European Union fell, those from the Gulf States and developed Asia rose. Across Asia, remittances make up 8 to 9 percent of gross domestic product (GDP), and in some countries, like the Philippines and Nepal, remittances contribute as much as 17 to 20 percent of GDP.
One definite result of the global financial crisis is a new humility among economists, and somewhat paradoxically, a renewed interest in development economics. The international financial crisis was a shock not only to economies but to economists, most of whom had failed to anticipate the sources and dimensions of the global financial crisis. Such contrasting narratives across Asian countries indicate the diversity and complexity of the analytical conundrums that economists face, and the governance challenges that economic managers must overcome.
V. Bruce J. Tolentino is The Asia Foundation’s Director for Economic Reform and Development Programs. He can be reached at [email protected].
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