The Global Economic Crisis and Its Implications for Asean Economic Cooperation

The economic crisis of 2008-09 is the second major crisis in just over a decade that Asia has endured. Unlike the Asian crisis of 1997-98, however, the current crisis originated mainly in the West. Asia's excessive reliance on net exports as the principal driver of economic growth since the 1997-98 crisis rendered it especially vulnerable to external shocks, and most Asian countries have paid dearly. The more open the economy, the more vulnerable it is to such shocks. The newly industrialized Asian economies (Singapore, Hong Kong, South Korea, and Taiwan), which are among the most open and dynamic in the world, are expected to contract by about 6 percent in 2009. Fortunately, the world economy has showed signs of recovery in the third quarter of 2009 after an extremely difficult first half, when fears of a new Great Depression were widespread. Through aggressive and often unconventional macroeconomic policies adopted by the world's largest economies and most Asian countries, credit markets have been unblocked, bank liquidity has improved, and aggregate demand has picked up or at least stopped falling. Forecasts point to economic recovery in 2010, but expectations are that the region will not revert to its pre-crisis growth trend until 2011. Thus, while the worst of the 2008-09 crisis appears to be over, its effects will likely continue to be felt for at least the next few years. Asian economic cooperation has been an extremely important aspect of the commercial policies of most Asian countries since 2000, and how the economic crisis will affect the trend toward formal bilateral,subregional, and regional economic agreements is a key question for Asian policymakers and the private sector. To address this question, this paper first looks at regional economic cooperation in Asia and the motivations for it, and then postulates how the crisis is likely to affect the economic and political variables that shape the region's movement toward free-trade areas and financial cooperation. To understand regionalism in Asia, one must keep in mind the overriding importance of improving competitiveness, which in turn requires a multifaceted approach to economic cooperation. An outward- oriented development strategy has been adopted by virtually all East Asian economies, and integrating effectively with the global economy requires global market access, reductions in barriers to trade and investment,and best practices in commercial policy, as well as macroeconomic and political stability.download