The world economy has become increasingly unstable. Needless to say, the biggest factor is the Donald Trump regime in the United States. His "US first principle" that includes large tax cuts attracts investment, lowers the unemployment rate and seems to have improved the US economy in the short term. The Federal Reserve Board's benchmark interest rate is also increasing rapidly. These pose as serious problems.
As other currencies depreciate relative to the US dollar, import price will rise and the dollar-denominated debt will swell. If it is prolonged, the global economy could become more unstable. We are trying to adapt to the situation that we should call "new state of affairs." The Indonesian currency rupiah weakens against the US dollar, but keeping the currency depreciation within a certain range can help stabilize the domestic economy.
The trade war between the United States and China will also start to impact. What we want is that the friction between the United States and China does not affect the relationship with other countries. The US and China have imposed high tariffs on imported goods equivalent to $34 billion against each other, but we hope they could find some solutions before taking additional measures.
Now the position of the United States and China has reversed. For a long time the United States was a leader in free trade and environmental responsibility. But now it turned to trade protectionism under the Trump regime. It also withdrew from the international framework for global warming countermeasures — the Paris agreement. China, which has positive attitude towards such issues could replace the US. It is doubtful whether China can be a leader in the world economy in a true sense. One of the reasons is the delay in internationalization of the Chinese Yuan. China itself owns a large amount of dollars in its reserves.
Another reason lies in the authoritarian political system. Although it was stable at first, the former Soviet Union that lasted more than 70 years and the Suharto regime in Indonesia that lasted for 30 years fell in an instant. China was under authoritarian regime for more than 4,000 years, so the people may not feel inconvenienced by the current one Communist Party dictatorship. However, authoritarianism is incompatible with human nature, so they will be confronted with the issue of democratization. However, unlike the former Soviet Union and Indonesia, I think that the change will gradually occur.
Asean has overcome many difficulties in the past. Above all, the Asian currency crisis in the late 1990s was serious. In the case of Indonesia, the impact extends not only to the economy but also to the political system. From the experience we took a step forward. We introduced discipline into fiscal and finance system and rebuilt the state. That is why in the global financial crisis that began with the Lehman shock in 2008, we were able to return to the growth trajectory in a short period of time without being seriously affected. The same is true for neighboring countries such as Thailand, Malaysia.
The most important change in the 1990s is that domestic demand grew. The Asean economy has ceased to rely on developed countries like it used to be. In addition to the domestic market, inter-regional trade has also increased rapidly, and it has become more resilient to external shocks.
In the infrastructure development, China's far-reaching development strategy the Belt and Road Initiative attracts attention. But, there are concerns about "debt trap," like Sri Lanka which had defaulted its debt and had to transfer a port usage rights to China. This is not applicable to Asean. Since the Asian currency crisis, we are prudently proceeding with foreign borrowing. Also, the Belt and Road Initiative projects here mostly are private sector investment.
Asean lies literally in the center of Asia, at the nodal point between the Pacific Ocean and the Indian Ocean. Although it was not developed yet, it can not be said that its geopolitical strengths have been fully utilized. If its economic development proceeds to a certain level, it will be able to play a more important role in the world economy. Currently, only Singapore can be counted as a developed country, but Malaysia, Thailand, Indonesia and the Philippines are approaching its level within the next ten years.
The East Asia Regional Comprehensive Economic Partnership (RCEP) will be an important framework for Asean economic development. It is not the Trans-Pacific Partnership (TPP) that the United States leaves and excludes China. China, India, and all Asean countries participate in RCEP, which is far more effective than TPP.
In the high growth period that the World Bank dubbed in its 1993 report as "East Asia Miracle," Asean played a part in the international division of labor, which began with Japan. The United States supported the export and foreign currency markets, which were the largest beneficiary of the US-led free trade system.
Asean is not depended on external demand anymore. When sudden halt of growth occurred during the Asian currency crisis, we found an active way toward regional integration and we succeeded in establishing the Asean Economic Community (AEC) in 15 years. Economic integration with wide regional disparities is unparalleled in the world.
Ginandjar Kartasasmita is former Indonesian economic minister. This article first appeared in Nikkei Shimbun and is republished here with permission.