Jusuf Wanandi
Co-Chair Pacific Economic Cooperation Council
The Asia-Pacific Economic Cooperation (APEC) forum celebrates its 25th anniversary this year. This milestone presents a chance for reflection on achievements as well as the future. Although most think of APEC in terms of the Bogor Goals of free trade and investment, these were the chosen means to an end — that end being “accelerated, balanced and equitable economic growth not only in the Asia-Pacific region, but throughout the world as well”.
Since 1989, the average income in the region has tripled from around US$5,000 to above $15,000. Asia- Pacific is now the world’s strongest growth center. The non-OECD economies of Asia-Pacific, notably China, have evolved into great traders. Asia-Pacific has also caught up very fast in the origination and hosting of the cross-border flows of capital and people. More importantly, the number of people living on less than $2 a day in the region has dropped from close to 1.2 billion to 412 million.
Much of this has come from the tremendous growth in China, but also applies to the rest of East Asia and Latin American economies of APEC. Does APEC have anything to do with this? Looking at another group of non-APEC economies, the number of people living on less than $2 a day has actually increased, from 860 million to close to a billion people.
The region’s achievement is imperfect. Symptoms of unsustainable development are deteriorating in some APEC economies. Inadequacy of infrastructure is increasingly being considered a growth constraint. Environmental stresses such as air pollution, deforestation, soil degradation, water scarcity, loss of biodiversity and depletion of marine resources are on the rise rather than in decline. Rising inequality also afflicts APEC economies. Preparedness of the APEC region for external shocks such as SARS or Ebola does not look as progressive as the economic rise. Indeed, APEC was not well prepared for the financial crisis of 1997–1998. The crisis of 2008– 2009 was also dealt with outside the APEC framework because the financial system has yet to be mainstreamed in APEC mechanism.
The discrepancy between the globalized facts of life and the lack of global governance is a great paradox. Governance at global institutions such as the International Monetary Fund (IMF) and the World Bank is neither reflective of the changed economic geography, nor sufficient in terms of resource support. The G20 is broader in participation but is also not enough.
Here, regionalism can play a critical supporting role. The three-largest individual economies are in our region — the United States, China, and Japan. Relations among them are perceived to be characterized by mistrust if not rivalry. Some of these perceptions are true, some are exaggerated. On some issues they cooperate well, on others they are unable to come together.
APEC has brought them together within a cooperative forward-looking framework. I was fortunate to be at the first APEC Ministerial Meeting as a member of the Indonesian delegation advising the government along with other long-time colleagues in the Pacific Economic Cooperation Council (PECC), including Jesus Estanislao from the Philippines, Lim Chong Yah from Singapore, Brian Talboys from New Zealand, Russell Madigan from Australia and Saburo Okita from Japan.
Back in 1989, the idea of APEC was one whose time had come after failed attempts in the 1970s and 1980s to bring the region’s governments together. The birth of APEC through Australian prime minister Bob Hawke’s initiative was far from easy. It took months of shuttle diplomacy and engagement with skeptics. Even if the idea of a high-level government meeting was accepted — who should host it? What would its objectives be? What would its underlying principles be?
Some argued that the ASEAN Post Ministerial Conference was the best venue; others said that the PECC could convene such a meeting. In the end, a consensus was formulated that led to the holding of that meeting. The key principles include: recognition of the region’s diversity, including differing social and economic systems and current levels of development; non-formal nature of consultative exchanges of views among Asia-Pacific economies; complementarity with rather than detraction from existing organizations, including formal intergovernmental bodies such as ASEAN; and less formal consultative bodies like the PECC.
These were critical ideas that put to rest concerns that APEC would usurp the existing order. Such an approach is once again necessary if this region is to overcome the challenges it faces.
During his visit to Indonesia just before the APEC meetings in Bali last year, Chinese President Xi Jinping announced an initiative for an Asian Infrastructure Investment Bank (AIIB). Reporting on the AIIB suggests that there is a division between China and the US similar to those on the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). In the latter case, those perceptions are misconceived, the RCEP and TPP have different motivations and objectives. They may both yet prove to be pathways to a broader more inclusive Free Trade Area of the Asia-Pacific.
The AIIB, too, has a very specific objective. For many years, people have called on China to take on a bigger burden of responsibility in the international system. Thus far, financial cooperation in Asia has been focused on crisis-related emergency liquidity under the Chiang Mai Initiative, while in development, financing a huge deficit persists despite the works of the Asian Development Bank. The AIIB seeks to address this gap.
Here, APEC can play a useful role over the next 25 years. Having focused largely on trade policy issues in its first 25 years of existence, the time is ripe to set the course for the next quarter of a century. Financial cooperation, including development financing, should be high on APEC’s agenda.
As Saburo Okita wrote exactly 25 years ago, “Given that the Asia-Pacific includes a wide range of countries […] I believe that Asia-Pacific cooperation can serve as a model for dealing with environmental, resource and other issues on a global scale”. Among those other issues should be financial cooperation. The underlying policy and capital market development inadequacies in the region that have necessitated an AIIB would be a good place to start.
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* Article by Jusuf Wanandi, which appeared in the Jakarta Post, Nov. 3 2014, and uploaded here with the express permission of the author.