From January 25-29, the world’s most powerful leaders from the public and private sectors gather in the Swiss town of Davos to try to agree on measures that will eventually impact billions of people across the world. The event is being held against an unprecedentedly gloomy global economic picture.

While many Asian nations have shown great resilience to the global economic crisis, the European slowdown is threatening their heavily export-dependent economies. Photo by flickr user OlliL.

The World Bank recently reported that the world economy will grow by only 2.5 percent in 2012, far below initial estimates of 3.6 percent. In Europe, leaders have yet to come up with a comprehensive solution to the eurozone crisis. As a result, World Bank forecasts for eurozone growth are now predicted to be at -0.3 percent, down considerably from a low but slightly positive 1.8 percent. In order to deal with this situation, IMF Managing Director Christine Lagarde recently called for a “larger firewall” against default in Greece, Spain, and Italy through a European Stability Mechanism (ESM).

While the World Bank predicts a positive growth forecast of 2.2 percent for the United States, problems in the eurozone are having an impact on U.S. growth. The Department of Commerce estimated that U.S. exports to eurozone countries dropped 6 percent in November of last year. In addition, a contentious U.S. election season could give lawmakers an incentive to move slowly on economic issues – including taxes and the budget – which could further impair the U.S. economy.

Within this high-risk context, there is no doubt that one of the focuses of the Davos discussions will be the risk of recession and debt crisis involving the world’s developed countries. The role of Asian and other developing economies in buoying world growth will be at the center of these discussions. Large Asian economies like China will certainly have a major say in the types of measures that need to be taken to save the eurozone and other developed economies to avoid recession. For example, China’s capacity and willingness to invest more in the European economy and to sustain Western countries’ exports will be high on the agenda.

However, latest reports indicate that Asian and other emerging countries may not be in the position to become the engines of economic growth that developed countries envision. While Asia still appears to host the most dynamic economies in the world and seems to be better positioned to resist or even mitigate the impact of the crisis, many Asian nations are facing domestic crises of their own in addition to dealing with the global economy crisis.

The World Bank recently said it expected India’s economy to grow by just 6.8 percent, down from 7.75. It noted that India is suffering from lower domestic demand and a slowdown in investment. It also stated that South Asia as a region suffers from “domestic policy paralysis and uncertainty about regulatory reform” that has kept the region from making “second-generation” policy reforms to spur growth.

China’s economy expanded by 8.9 percent in the fourth quarter of 2011, but as high and healthy as this rate may appear, for China, it is the confirmation of a slowdown that began at the start of 2011 and is expected to continue into 2012. This is underscored by a slowdown in China’s domestic demand. In December, China saw a remarkable 40 percent plunge in the rate of property investment compared to November, even as consumer spending and overall consumption lagged far behind overall growth.

Other Asian emerging economies – including Indonesia, the Philippines, Malaysia, and Vietnam – have less domestic risk, but are also exposed to the global economic crisis. Such economies are, like China, heavily dependent on exports. The crisis in Western countries, if worsened, could result in difficult times for these economies as the World Bank predicts that commodity prices could decline as much as 24 percent and global trade volumes could fall by more than 7 percent.

In this context, Asia’s economies may not be in a position to buoy global growth in the way that many developed country analysts would hope.

Unfortunately, the risks of the global economic crisis to emerging countries are not just economic, but also have important social and political implications. Many emerging Asian countries still have weak political institutions and poor governance. In societies where economic growth has fueled social and political stability, an economic slowdown would trigger increased risks of a socio-political crisis. The 2012 World Economic Forum Global Risks report notes that in these emerging economies, “social contracts may not be forged quickly enough to rectify increasingly visible economic inequalities and social inequities.”  Such inequalities could be exacerbated by further global slowdown.

At Davos, world leaders have two titanic tasks. First, they must contemplate ways to mitigate the global crisis, with a particular focus on stabilizing the eurozone. This is not only a matter of pumping sufficient capital into the system, but building enduring financial and governance institutions that can ensure future stability. But equally important, at Davos, the world’s most powerful public and private leaders have the difficult task of restoring trust, trust in the economic and financial systems, trust in the political and economic leaders, and, above all, restoring trust in the social contract that bring societies together.

Véronique Salze-Lozac’h is The Asia Foundation’s director for Economic Development Programs and Nina Merchant-Vega is associate director. They can be reached at VSalze-Lozach@asiafound.org and nmerchant@asiafound.org, respectively. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation. 

For much of the past two decades, many Southeast Asians have expressed frustration that U.S. policy treated their region with benign neglect or indifference, and that the United States’ attention was episodic rather than consistent.

In 2011, the Obama administration announced that the U.S. needed to pay greater attention to the Asia-Pacific, particularly Southeast Asia. In the past, many Southeast Asians have expressed frustration that U.S. policy has neglected the region. Photo by Karl Grobl.

In 2011, the Obama administration announced that the U.S. needed to make “a strategic pivot” in its foreign policy, where over the next decade the dynamic will be to downsize the United States’ presence in the Middle East and Afghanistan, and to invest more and pay greater attention to the Asia-Pacific, particularly Southeast Asia. In the past year, Washington accelerated its relations with Southeast Asia in a number of symbolic and important ways. The U.S. was the first non-ASEAN country to establish a dedicated mission to ASEAN in Jakarta, named and confirmed a special representative and policy coordinator for Burma (also known as Myanmar), and expanded and deepened its bilateral relations with most Southeast Asian nations, particularly Indonesia, Vietnam, Malaysia, and Cambodia. Moreover, the Obama administration has made clear that it wants to be involved in regional architecture where ASEAN serves as the “fulcrum,” to borrow Secretary of State Hillary Clinton’s word. Hence, the importance of U.S. participation for the first time in the East Asia Summit (EAS) as a full-fledged member this past November in Indonesia. By engaging ASEAN nations, both multilaterally and bilaterally, the U.S. is dispelling the widespread belief in the region that it does not have a sustained commitment to Southeast Asia and its importance in helping to address both regional and global issues.

The United States is trying to make this “strategic pivot” at a time when it is facing enormous domestic challenges – a rising national debt, high unemployment, a housing crisis, deteriorating infrastructure, and an inadequate education system at the primary and secondary levels, among others. With 2012 being an election year, these issues will resonate more strongly with Americans than foreign policy. The 2012 EAS meeting will be held in Cambodia. If President Obama attends, he will be the first U.S. president to ever visit Cambodia. His attendance could serve as a big boost to U.S.-Cambodian relations, which have improved over the past couple of years. However, President Obama will likely only attend if the next EAS is held after the November 6 U.S. elections. The question will then be whether President Obama will go to Cambodia having been reelected to a second term or as a lame duck.

In addition, the reform process in Burma has been gaining momentum – from the creation of a national human rights commission and the easing of press censorship to welcoming back exiles and the suspension of the controversial Myitsone Dam project. Moreover, the government in Naypyidaw has allowed the National League for Democracy, Burma’s main opposition party, to re-register, which would allow its members to run for political office, including Aung San Suu Kyi, winner of the 1991 Nobel Peace Prize who has spent 14 of the past 20 years under house detention. Aung San Suu Kyi has made it clear that she intends to run in the country’s parliamentary by-elections that are likely to be held in late spring. Barring any massive fraud, she will undoubtedly win. However, the U.S. Congress is extremely reluctant to lift economic and trade sanctions because of the insufficient number of political prisoners released, continued fighting between Burma’s military and various ethnic groups (particularly the Kachin); opium and methamphetamine production and concerns about the military’s involvement; and a genuine reservation by the Congress on whether recent reforms can or will be sustained.

While the United States has shown a very proactive engagement with the region on the political and security fronts, it has fallen somewhat short on trade and economic matters. Although U.S.-ASEAN trade was $182 billion in 2011, the U.S. market share continues to decline as China has become the region’s economic behemoth. The United States remains the only major country not to have a free trade agreement (FTA) with ASEAN. One reason is sanctions with Burma. But the United States’ ability to establish FTAs generally has become increasingly difficult as evidenced by the four years it took to pass a FTA with South Korea, a key U.S. ally. Given ASEAN’s diverse levels of political and economic development, any U.S. FTA with ASEAN will be several years in the making. For the moment, the U.S. wants to focus on shaping and negotiating the Trans-Pacific Partnership, an administration initiative that includes eight nations, only four of them from Southeast Asia: Brunei, Malaysia, Singapore, and Vietnam.

In light of the United States’ economic difficulties, Southeast Asian nations are concerned that Washington may not be able to maintain its stated commitment to the region. Secretary Clinton has said: “Asia is critical to America’s future and an engaged Asia is vital to Asia’s future.”  Southeast Asia is a critical element to the United States’ strategic calculus, and America needs to engage and invest more wisely and constructively in this important part of the world.

John J. Brandon is The Asia Foundation’s director of the Regional Cooperation Program in Washington, D.C. He can be reached at jbrandon@asiafound-dc.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

In 2011, Asia grappled with a host of devastating shocks, both natural and man-made. As challenging and economically harsh as they have been, they have provided an opportunity for Asia’s emerging economies to dramatically assert their economic resilience and regional influence.

Despite a suffering global economy Asia, mostly driven by emerging super-powers like China and India, has emerged as a credible long-term partner for the United States and the European Union.

Despite a global economy plagued by low economic growth, high unemployment rates, and threatening debt levels, Asia has emerged as a credible long-term partner for the United States and the European Union, shedding its long-familiar image as merely a trade partner. Driven by emerging super-powers like China and India, Asia in 2012 is more self-confident in positioning itself as a global economic, financial, and political power.

A Year of Challenges

In 2011, two major natural disasters underscored Asia’s place at the center of global trade. March’s massive 9.0 earthquake off the northeast coast of Japan and subsequent tsunami constituted the most expensive natural disaster on global record, with a total estimated cost of $235 billion, according to the World Bank. In Thailand, monsoon flooding over the past six months has resulted in approximately $45 billion in economic losses thus far. In both cases, global supply chains were severely disrupted, sending ripple effects through the global economy.

Additionally, a stagnating eurozone and anemic U.S. recovery have created market anxieties over the strength of Asia’s own recovery. While Asia’s emerging economies are still on a growth trajectory, slumping global trade tied to a potential slide of the eurozone and the U.S. economies back into recession could slow Asia’s growth significantly. At the same time, Asia’s two largest emerging economies face serious domestic challenges of their own. China may find itself face-to-face with its own real estate bubble in 2012, and critics are quick to point out that consumer spending and household consumption lag far behind overall growth. Meanwhile, India’s large fiscal deficits threaten to derail its already slowing recovery. The government now faces the stark choice of raising taxes, which may further dampen growth, or cutting popular programs for the poor.

Asia Rising Internationally

Despite the enormous challenges that these and other events have presented, they have also proven how critical Asia is to the international economy. With a meager 1.3 percent growth forecast for the U.S. and 1.2 percent contraction expected in the eurozone in 2012, the west is increasingly turning to Asia to help lift ailing western markets out of their protracted stagnation. As the world’s second largest economy and largest holder of foreign exchange reserves worth an estimated $3.2 trillion, China finds itself in a position of strength in the face of eurozone woes. While China expressed interest earlier in the year to contribute to the IMF’s eurofund and to buy eurobonds, it more recently indicated that it would not participate in the latest round of fund-raising and would not be involved in a direct bailout. Instead, China is looking inward for ways to deal with a potential local debt crisis precipitated by the housing boom. Nevertheless, the fact that the west is increasingly looking toward emerging Asian economies in general and China in particular underscores their increasing importance as major international players.

Asian countries are also finding themselves in positions of influence over important trade and investment matters. In November 2011, Korea ratified the U.S.-Korea Free Trade Agreement, and following the latest World Trade Organization (WTO) Ministerial talks in December, governments are increasingly calling for India and China to take a larger leadership role in breaking the impasse in the Doha round of trade negotiations. In fact, India has agreed to host the trade ministers from all of the emerging BRIC nations in March of 2012 to discuss the Doha Round and how they can play a pivotal role in pushing the negotiations forward.

With increased wealth and power comes greater responsibility, and many of Asia’s former aid recipient countries are now recognizing this as they become influential donors themselves. Though sometimes characterized as “emerging donors,” many Asian countries have a long history of aid and development cooperation. The Fourth High Level Forum on Aid Effectiveness (HLF4), convened in South Korea at the end of 2011, drew further attention to the role of non-Development Assistance Committee member countries in aid activity, which now constitutes about half of total aid – up from about 20 percent just two decades ago. A highly visible actor across Asia and Africa, China also publicly articulated its foreign aid policy for the first time in 2011 in an effort to increase transparency and to address criticism that its initiatives are driven by a hunger for natural resources. As traditional donor countries contend with domestic constraints, Asian sources of aid have the potential to fill much-needed gaps.

Asia in Search of more Regional Cooperation

As their influence has grown internationally, Asian nations are also realizing the importance of increased economic cooperation in the region to counterbalance global instability. Asian nations are still heavily dependent on exports, particularly to the west, which remain volatile and vulnerable as a result of the dampened economic conditions of the United States and the eurozone. Realizing the renewed importance of regional markets, regional bodies like ASEAN are opening up talks in 2012 to harmonize trade deals among its member countries and other partners like India and China. Such harmonization will act as a counterbalance to the U.S.-promoted Transpacific Partnership Agreement (TPP), which includes Vietnam, Singapore, and Malaysia.

In South Asia, a promising new round of trade talks are taking place between India and Pakistan under the South Asia Free Trade Agreement (SAFTA) to extend tariff concessions between the two countries. Such measures are important in the region, as South Asia is the least economically integrated sub-region in Asia.

Overcoming Future Challenges Domestically and Regionally

Asia has gained prominence on the global stage and has begun to take assertive measures as it steps into its increasingly influential international role. However, if Asia is to take full advantage of this increased international visibility and responsibility, countries will have to strengthen their domestic economies and become more integrated as a region.

Domestically, Asian countries need to generate better conditions for more inclusive growth, which will reduce poverty and offer citizens more broad-based access to economic opportunities. Regionally, countries must work together to gain consensus on matters of pressing consequence, such as trade, human resources and migration, and disaster management. Common issues such as rapidly urbanizing landscapes and ever-growing demands on a finite supply of energy sources also have serious implications that must be mutually and collaboratively addressed. As they work toward greater regional cooperation, Asian leaders, policy-makers, and economic actors will also have to accelerate their efforts to reduce disparities in capacities and infrastructure among Asian countries and narrow the development gap within Asia.

In the long run, these issues will be critical to the continued and sustainable growth of Asian countries. Indeed, the future of the world is Asia’s to shape.

Véronique Salze-Lozac’h is The Asia Foundation’s director for Economic Development Programs and can be reached at VSalze-Lozach@asiafound.org. Nina Merchant-Vega is assistant director, Katherine Loh is a program fellow, and Reid Hamel is a program associate, all with The Asia Foundation’s Economic Development Program. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation. 

One of the virtues of a regular exercise at peering into a new year is that you can check your own predictions from the past year. My predictions that I made here for the Philippines in 2011 were correct in three of four instances:

• Peace talks did begin (those with the Moro Islamic Liberation Front had more progress than those with the National Democratic Front).

• The budget system continued to work as the 2012 budget was signed into law in mid-December 2011 (with the government adopting a national payroll system for government employees).

• And, of course, boxer Manny Pacquiao defeated Shane Mosely.

My political prediction, though, that there would be continued concern with factionalism in the administration of President Benigno S. “Noynoy” Aquino III, did not pan out. While there continues to be talk of disruptive internecine feuding among certain groups, there has been relatively little evidence of that beyond the walls of the palace in the past 12 months.

Some of what transpired in 2011 happens so regularly that it does not merit the term “prediction.”  As one of the most disaster-prone countries in the world, when the Philippines is struck by a tragedy of the scope of the recent typhoon Sendong (international name Washi), one is not surprised but can instead try to draw lessons for future preparedness.

What did transpire over the course of 2011 was a series of heated political events and wins by the current administration that cumulatively were so striking that some alarmists spoke of a “soft coup” on the part of President Noynoy. First came the resignation in the face of an impeachment trial of Merciditas Gutierrez, head of the powerful anti-corruption Ombudsman’s office. This allowed President Aquino to appoint a new Ombudsman that he trusts to pursue his anti-corruption agenda.

Next came the resignation of a senator over allegations of cheating in the 2007 elections. Then, linked to that alleged cheating, was the well-publicized arrest of former president (now congresswoman) Gloria Macapagal-Arroyo for electoral fraud in those elections. Linked to that, since the Philippine Supreme Court had issued (just prior to the arrests) rulings that favored Ms. Arroyo’s right to travel – rulings that the Aquino administration ignored to keep her in the country – was the impeachment by the House of Representatives of the chief justice of the Supreme Court, Renato Corona. The Philippine Senate will begin the impeachment trial of the chief justice on January 16. A further step in this drama occured when former Commission on Elections (COMELEC) chair Benjamin Abalos was also arrested in connection with alleged fraud in the 2007 elections.

So, in a dramatic finish to the year, Ms. Arroyo and the COMELEC chair she had appointed were both indicted for electoral fraud (Ms. Arroyo is under hospital arrest and former COMELEC chair Abalos is currently detained in a Taguig City jail); the chief justice of the Supreme Court faces an impeachment trial (and previously the ombudsman resigned rather than undergo an impeachment trial); and for the first time in history, a senator resigned over allegations of cheating in the election he supposedly had won. Far from being split by internal conflicts, the current administration looks like a juggernaut as it pursues the president’s campaign slogan, “if there’s no corruption there will be no poverty.”

Such tactics are approved by the Philippine citizenry, and are endorsed by anti-corruption theorists and activists, such as Robert Klitgaard who said “an important step in fighting systematic corruption is to ‘fry big fish,’ that is, to prosecute and punish high-level perpetrators.” But Michael Johnston in his monograph, “Political and Social Foundations for Reform: Anti-Corruption Strategies for the Philippines,” concludes: “If a new administration can fry some big fish, more power to it, but beyond the clear value of punishing specific wrongdoers such an approach should be seen as a way to open the door for more basic reforms, not as a solution to the corruption problem in its own right.”

The Aquino administration has taken steps toward basic reforms, as I noted when predicting that the government’s fiscal system would continue to improve. The Philippines has joined the international Open Government Partnership, started 2012 with the president’s approval of a Good Governance and Anti-Corruption Plan, and is pressing ahead with a Freedom of Information bill.

However, pushing for more basic reforms is not an easy task. In 2011, the government’s caution to avoid corruption in projects slowed down spending, which in turn slowed down economic growth. On similar grounds, the government’s highly touted Public-Private Partnership (PPP) continued to drag with only one project actually signed in 2011. Analysts have pointed to declining public satisfaction with government performance in fighting poverty and creating jobs, while the government vows to speed up spending in 2012 to kick-start the economy.

As 2012 begins, people here are the most optimistic they have been in the last 25 years, according to the Social Weather Stations, and, to the exasperation of his more vociferous critics, continue to support PNoy. So now, the stage has been set for a powerful, popular president to move forward on his key agenda item: anti-corruption. 2012 will be the testing ground.

Steven Rood is The Asia Foundation’s country representative in the Philippines. He can be reached at srood@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

My colleagues in The Asia Foundation’s Environment Program recently returned from Bangkok, where the Asia-Pacific Climate Change Adaptation Forum they were scheduled to attend was canceled due to the worst flooding in Thailand in 60 years.

Bangkok residents evacuate flooded neighborhoods during Thailand's worst flooding in over half a century. Experts predict that massive floods will hit Asia’s coastal megacities even harder due to stronger storms and sea level rise. Photo: Voice of America.

The disaster resulted in over 600 deaths, approximately 10 million lives affected, $21 billion in lost revenues from major industries, and an estimated $24 billion dollars in damage to property, according to the World Bank. Technical specialists blame the disaster in part on an unusually wet monsoon period coupled with the bad timing of a seasonal high tide in the Gulf of Thailand, but also on the government’s inefficient watershed management and infrastructure for draining high floodwaters on the Chao Phraya river.

In October, the Foundation’s country representative in Thailand, Kim McQuay, blogged about the poor readiness of the recently elected Puea Thai government and the Bangkok Metropolitan Authority to protect communities and businesses and to coordinate recovery for flood victims. In November, In Asia interviewed McQuay about the lack of foresight and responsibility on behalf of a succession of Thai governments and other stakeholders to undertake necessary preventive and mitigation plans that build resiliency to natural disasters.

So it’s sadly fitting that a flood prevented a network of adaptation practitioners from meeting to discuss solutions on how to make watershed management, among other challenges for strengthening disaster preparedness, more resilient to climate change. In fact, it was in the script. According to a 2009 World Wildlife Fund report, massive floods – predicted to be even harder on Asia’s coastal megacities due to stronger storms and sea level rise – are bound to disrupt business-as-usual more frequently by 2050 as a result of missed investments in crucial urban infrastructure over the past few decades.

The floods in Thailand are just a glimpse of what’s to come. The UN Population Fund (UNFPA) forecasts that urban population will rise from the present 3.2 billion to nearly 5 billion by 2030 and that three out of every five people will live in cities. Asia will be home to at least 10 megacities (cities with populations over 10 million), many of which are located in tropical areas or floodplains, and where climate scientists predict rainfall intensity and temperature are likely to increase the most. Many other Asian megacities, including Dhaka, Manila, Ho Chi Minh City, Jakarta, and Mumbai, are particularly vulnerable to climate change flood risks as a result of their low-lying coastal location, total area prone to flooding, and expected population growth.

To compound this risk, each of these urban centers also has densely growing populations of urban slum dwellers and squatter settlements located in high-risk, flood-prone areas. In many cases, these areas do not benefit from a city’s watershed management infrastructure that handles potable water access, water runoff flows, water pollutants, or solid waste. As a result, inhabitants of slums and squatter settlements are far more susceptible to vector-borne and water-borne illnesses (such as malaria and dengue) even under normal conditions, and more so immediately after flooding occurs.

Yet socioeconomic factors in Asia’s megacities, such as weak economies, inadequate health care, corruption, and poor governance, continue to overshadow efforts to position climate change adaptation as a top priority in today’s urban planning. A recent Maplecroft Climate Change and Environmental Risk Atlas predicts that infrastructure, already inadequate in many Asian cities, will struggle to cope as urban populations grow, “making disaster responses less effective at a time when disasters might become more frequent.” The World Bank states that the total costs of damage from floods to buildings and land subsidence are likely to be significant under the most severe climate change scenario (A1F1), ranging from 2 to 6 percent of Southeast Asia’s regional GDP over the next 30 years.

As we plan development goals in Asia for 2012, urban environmental issues should increasingly be on the development agenda given the predicted additional high costs associated with threats from climate change. Urban planners throughout Asia need to prioritize disaster preparedness and infrastructure that builds resilience to potential impacts from heavier rains, stronger storms, and sea-level rise. Bangkok, Beijing, Delhi, Dhaka, Hanoi, Hong Kong, Jakarta, Karachi, Mumbai, Seoul, Shanghai, and Tokyo are already participating in the C40 Cities Climate Leadership Group, a network of major global cities that are sharing knowledge and tactics for responding to climate change. The C40 Group urges governments and heads of state to empower and provide resources to city leaders in order for them to be well equipped to take action within their cities.

A broad, low-cost place to start for climate action planning should include implementing sustainable water management approaches that work to imitate the way nature handles high water flows and water runoff, such as through increased use of green roofs, urban gardens, and greening urban landscapes. More long-term, nuanced responses must be city-specific strategies that include a combination of coordinated zoning guidelines, flood monitoring stations, a system of levees and retaining walls, waste water treatment systems, and communicating flood warnings to residents.

A new year offers a new opportunity for city leaders in the areas at greatest risk in Asia to set solid climate action plans and begin ramping up investments in climate change adaptation to become resilient to more frequent natural disasters. Anything less will be met with more of the same.

Note: The Asia-Pacific Climate Change Adaptation Forum has been rescheduled for March 2012 in Bangkok.

Kourtnii S. Brown is a program associate for The Asia Foundation’s Environment Programs in San Francisco. She can be reached at kbrown@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.