Searching for demand
within the ASEAN region
Dr. Chalongphob Sussangkarn
on the global economy and Asia
By Jon Fernquest 
The
current state of the world economy and how it relates to Asia and
Thailand is a topic of great
concern
nowadays. Today's Bangkok Post features an interview with Dr. Chalongphob Sussangkarn of the Thailand Development Research Institute and former finance minister, on this very issue.
The recent collapse of Asian exports to rich western countries is forcing Asian economies to search within for new growth opportunities.
Diversification of Asian economies out of an over-reliance on exports to a greater reliance on regional and domestic sources of demand may be the key.
Building exports to countries within the ASEAN (Southeast Asia) region will be important.
Competitive devaluation of exchange rates among Asian states may, however, be a dangerous idea (Read on calls for devaluation today).
Competitive devaluation could actually undermine the unity needed for regional economic cooperation, just the 1930s in the US:
...the dreaded spectre of competitive devaluation. In the 1930s, one country after another pushed down its exchange rate in a desperate effort to export its way out of depression. But each country's depreciation only aggravated the problems of its trading partners, who saw their own depressions deepen. Eventually even countries that valued currency stability were forced to respond in kind.
In the end competitive devaluation benefited no one, it is said, since all countries can't devalue their exchange rates against each another. The only effects were to fan political tensions, heighten exchange rate uncertainty, and upend the global trading system. Financial protectionism if you will (Source: UC Berkeley economic historian Barry Eichengreen).
a great concern -
something that you are very worried about
Thailand Development Research Institute (TDRI) - think tank established in 1984 to conduct policy research and disseminate results to the public and private sectors, provides technical and policy analysis that supports the formulation of policies with long-term implications for sustaining social and economic development in Thailand (See website)
diversification - increasing variety, to protect against any one type failing, you can always use another type
over-reliance on exports - exports as the major creator of national income and wealth
devaluation of exchange rate - when the central bank of a country acts to make the currency worth less, this makes exports cheaper and more competitive
competitive devaluation of exchange rates - when many exporting countries compete to try to get their exchange rates as low as possible, this usually does not work
undermine - make weak
undermine unity - make people less united, fragment break into parts
cooperation - working together to achieve shared goals
regional economic cooperation - when all the countries in a region such as ASEAN cooperate to achieve shared goals
Thailand Development Research Institute (TDRI) - think tank established in 1984 to conduct policy research and disseminate results to the public and private sectors, provides technical and policy analysis that supports the formulation of policies with long-term implications for sustaining social and economic development in Thailand (See website)
diversification - increasing variety, to protect against any one type failing, you can always use another type
over-reliance on exports - exports as the major creator of national income and wealth
devaluation of exchange rate - when the central bank of a country acts to make the currency worth less, this makes exports cheaper and more competitive
competitive devaluation of exchange rates - when many exporting countries compete to try to get their exchange rates as low as possible, this usually does not work
undermine - make weak
undermine unity - make people less united, fragment break into parts
cooperation - working together to achieve shared goals
regional economic cooperation - when all the countries in a region such as ASEAN cooperate to achieve shared goals
Here is the interview in full:
ECONOMY
Asia needs new growth model
Export-oriented approach criticisedBy PARISTA YUTHAMANOP and CHIRATAS NIVATPUMIN
7/04/09
East Asian countries must move away from the export-oriented growth model of the past few decades towards a more co-ordinated strategy of strengthening regional markets, according to economist Chalongphob Sussangkarn.
‘‘The growth model needs to change,’’ says Dr Chalongphob.
Dr Chalongphob, a finance minister during the Surayud Chulanont government and now a distinguished fellow at the Thailand Development Research Institute, said the turmoil in the US and European financial sectors and the subsequent global slowdown in demand had sharply affected Asian economies in terms of tumbling exports.
"It is clear that no one has been left unaffected by the crisis, and that the impact of the crisis [in Asia] is no less than that felt in the developed countries," Dr Chalongphob told the Bangkok Post.
export-oriented growth model,
export-driven growth model - - wealth from export
earnings has helped many Asian economies grow, especially Japan, South,
Korea, and now China
X-oriented Y - using approach X to deal with problem Y
X-driven Y - Y makes X work, causes X to happen, keeps X going like a motor or engine
co-ordinated - working together to achieve a goal
strategy - a plan to achieve long term goals ('strategy' gives the big picture, 'tactics' the details)
regional markets - markets in the ASEAN or Southeast Asian region
a fellow, a distinguished fellow - a specially elected member of an academic or professional association, elected because of excellent work and achievements
turmoil - disorder, conflict, with high levels of uncertainty
the subsequent X - X happened afterwards
tumbling exports - quickly falling exports
X-oriented Y - using approach X to deal with problem Y
X-driven Y - Y makes X work, causes X to happen, keeps X going like a motor or engine
co-ordinated - working together to achieve a goal
strategy - a plan to achieve long term goals ('strategy' gives the big picture, 'tactics' the details)
regional markets - markets in the ASEAN or Southeast Asian region
a fellow, a distinguished fellow - a specially elected member of an academic or professional association, elected because of excellent work and achievements
turmoil - disorder, conflict, with high levels of uncertainty
the subsequent X - X happened afterwards
tumbling exports - quickly falling exports
Cause of crisis
The current crisis stems from imbalances in the global economy over recent years, where export-led Asian economies shipped products to the West and reinvested the earnings in dollar-denominated securities that, in turn, financed more consumption.Poor risk management and the failure of regulators and ratings agencies tasked with overseeing the stability of global markets eventually led to the crash, Dr Chalongphob said.
"East Asia has essentially been a creditor [to the West]. But we have not used our authority to control the behaviour of [Western borrowers]," he said.
X stems from Y - X
was caused by Y, Y caused X
imbalances - when things are not in balance, when one things gets too big and could cause failure
export-led economies - economies that use the "export-driven growth model" discussed above
dollar-denominated securities - securities whose value is given in US dollars (US dollars must be used to buy and sell them)
regulators - the government agencies that make rules and laws and regulations for different industries (food, drugs, banking, transportation, commerce) and then check to see if they are being followed
a ratings agency, a credit rating agency - a company that estimates how likely a borrower is to default and not pay back the money it has borrowed (default) and assigns a numerical score to measure this (credit rating) (See Wikipedia)
overseeing - managing, checking to see that it operates properly and nothing goes wrong
essentially Y - is the same or very similar to Y, but not exactly the same
a creditor to Y - Y owes them money, Y must pay money back to them
imbalances - when things are not in balance, when one things gets too big and could cause failure
export-led economies - economies that use the "export-driven growth model" discussed above
dollar-denominated securities - securities whose value is given in US dollars (US dollars must be used to buy and sell them)
regulators - the government agencies that make rules and laws and regulations for different industries (food, drugs, banking, transportation, commerce) and then check to see if they are being followed
a ratings agency, a credit rating agency - a company that estimates how likely a borrower is to default and not pay back the money it has borrowed (default) and assigns a numerical score to measure this (credit rating) (See Wikipedia)
overseeing - managing, checking to see that it operates properly and nothing goes wrong
essentially Y - is the same or very similar to Y, but not exactly the same
a creditor to Y - Y owes them money, Y must pay money back to them
Heightened vigilance
Regional finance ministers and central bankers should meet regularly to assess market conditions and co-ordinate policy, Dr Chalongphob said."I don't think any [Asian] country wants to rely on the International Monetary Fund to play this role," he added, touching on the political stigma attached to the fund across the region since the 1997 Asian crisis.
Moves by Asean, China, Korea and Japan to establish a new surveillance body to assess the state of the financial markets is a promising start, as is a plan to expand the bilateral Chiang Mai Initiative swap programme into a multilateral pool to provide emergency funding for the region in times of crisis, he said.
Asean+3 ministers last month agreed to transform the Chiang Mai Initiative to a $120-billion multilateral pool with 80% of the funding coming from China, Korea and Japan. But it remains uncertain what contributions will be made by the three Asian economic powers. Asean+3 officials hope to finalise details of the plan at a meeting in Bali this May.
Dr Chalongphob said regional co-operation would be critical to co-ordinating stimulus programmes and laying the groundwork for changing Asia's export-driven growth models.
"The growth model needs to change. Countries have sought to weaken their currencies to boost exports, but this only raises the cost of investment," he said.
"We need to co-ordinate stimulus policies and build up synergies. If everyone simply looks out for themselves, then [recovery] will be slow."
Dr Chalongphob paused. "Many say that we will have a 'V-shaped' recovery. This is the wrong assumption. It could take five years before we return to pre-crisis levels," he said grimly.
Dr Chalongphob said the US economy would take years to recover, as hundreds of billions of dollars in toxic assets continue to weigh down balance sheets, housing prices continue to decline and companies remain starved of funding from suddenly risk-averse banks.
"If we look long-term, exports now account for over 60% of the Asian economies. It must fall below 50%. We need new industries, we need regional co-operation, for this to happen," he said.
"Looking 10, 20 years ahead, the economic structure of Asean will be different from today."
But reform will depend on vision and policies that can help channel the region's resources towards sustainable, long-term development. Education and technology as well as research and development must be augmented to raise productivity.
"The problem is that we have stuck with the concepts that helped us do well in the past. But we have failed to catch up with the changes in the world," Dr Chalongphob said.
Fiscal spending today needs to consider not only short-term needs, but long-term goals, he said.
Giveaways such as the recent 2,000-baht cheque programme would have little effect on long-term growth, Dr Chalongphob said. "We certainly need to spend money. But we shouldn't waste it."
Instead, more investment is needed on infrastructure and programmes to boost productivity in key sectors such as food or tourism. Research funding and technological development must also be tied with industrial and market needs.
Factors behind Thailand's economic success
And Thailand should consider the factors that have underpinned its economic successes over the last few decades - its broad macroeconomic stability, its policy continuity and its social harmony."Unfortunately, political stability, quality and harmony have all diminished or have vanished altogether," Dr Chalongphob said.
factors - the
different things that affect the outcome of a situation, event, or
decision
X underpinned Y - X supported and strengthened Y and helped it to continue or suceed
continuity - something continues to happen or exist (without interruptions or changes)
policy continuity - policy continues without big changes (not aimlessly jumping around, has a sustained goal)
social harmony, harmony - living together peacefully without fighting or arguing
diminished - decreased in size or importance
vanished - disappeared, go away, no longer exists
X underpinned Y - X supported and strengthened Y and helped it to continue or suceed
continuity - something continues to happen or exist (without interruptions or changes)
policy continuity - policy continues without big changes (not aimlessly jumping around, has a sustained goal)
social harmony, harmony - living together peacefully without fighting or arguing
diminished - decreased in size or importance
vanished - disappeared, go away, no longer exists
Macroeconomic stability and policy credibility vanished with the 1997 crisis, while competitiveness has lost ground to lower-cost competitors quicker to leverage technological innovations for a market edge.
Thailand's long-standing image as a peaceful harbour in Southeast Asia has also been severely tarnished by the political turmoil of the last few years - from the 2006 military coup to the airport closures last December and the "red-shirt" street protests this past month.
stability - when a
situation does change suddenly and unexpectedly, so people can operate
normally and successfully
macroeconomic - stability sustained economic growth at a steady rate, growth does not suddenly jump up and then down into recession or depression
credibility - believability, when many people believe that what you say is true
policy credibility - when the public believes that you actually achieve the policy goals you promised
lost ground - others have taken what was once their's (in a battle each side tries to take ground, physical space or territory)
leverage X for Y - use X as a tool to get or achieve Y
technological innovations - new uses of technology (that others haven't thought of yet)
a market edge - an advantage in competing against other companies in the same market
a peaceful harbour - a peaceful place in a region full of conflict (Vietnam, Cambodia, Burma,...)
tarnished image - people have a lower opinion of them then before
macroeconomic - stability sustained economic growth at a steady rate, growth does not suddenly jump up and then down into recession or depression
credibility - believability, when many people believe that what you say is true
policy credibility - when the public believes that you actually achieve the policy goals you promised
lost ground - others have taken what was once their's (in a battle each side tries to take ground, physical space or territory)
leverage X for Y - use X as a tool to get or achieve Y
technological innovations - new uses of technology (that others haven't thought of yet)
a market edge - an advantage in competing against other companies in the same market
a peaceful harbour - a peaceful place in a region full of conflict (Vietnam, Cambodia, Burma,...)
tarnished image - people have a lower opinion of them then before
"That ideal of friendship, of partnership among Thais, which used to be part of the country's uniqueness, has disappeared," Dr Chalongphob said.
"I am afraid if society fragments, then the economy will fail and development will stop altogether."
partnership- when
people join together and work towards a goal
partnership among Thais - when the Thai people joined together to work towards common goals
uniqueness - unlike anyone else, something that no one else has makes you special
society fragments - a country breaks into different groups that have conflicts with each other
partnership among Thais - when the Thai people joined together to work towards common goals
uniqueness - unlike anyone else, something that no one else has makes you special
society fragments - a country breaks into different groups that have conflicts with each other
