Statement at a Conference sponsored by the Far Eastern Economic Review on
"Weathering the Storm: Hong Kong and the Asian Financial Crisis"
Hong Kong, 11 June 1998

Since ASEAN's founding thirty-one years ago, no disaster has hit the countries of Southeast Asia with such widespread impact as the financial crisis. ASEAN has responded to it at four levels. At the national level, the individual countries directly affected have been undertaking the reforms and other steps that their different circumstances call for, with varying degrees of success thus far. These reforms generally have to do with closer supervision and tighter discipline of the banks, fostering greater transparency in financial and other economic transactions, promoting greater competition and leveling the business playing field. Part of the agenda are bankruptcy laws and stronger commercial codes. The rule of law is expected to be strengthened and the judiciary made more effective. There seems to be a determination to manage the external debt better.

At the bilateral level, ASEAN countries have, separately and in the ASEAN spirit, extended assistance to those in need of it. ASEAN's heads of government have been visiting one another to offer material and financial help and share views and advice. Thailand has shipped rice to Indonesia, and the Philippines has offered medicine. In order to enable Indonesia to continue importing essential commodities, Singapore proposed a multilateral system of guaranteeing letters of credit issued by Indonesian banks. When the developed countries declined to join the system, Singapore decided to go ahead with it on a bilateral basis. Malaysia has extended to Indonesia a standby credit of US$250 million. Singapore has offered a similar facility. Brunei Darussalam has proffered its own assistance.

At the international level, ASEAN has collectively called upon the developed countries -- upon individual governments, in the Group of 7, in APEC, in the Asia-Europe Meeting -- to keep their markets open to Southeast Asian countries and to maintain trade financing for them. ASEAN has urged the developed countries to encourage their banks to honor letters of credit issued by Indonesian banks and to be more accommodating in the re-negotiation of Indonesia's debt. ASEAN has reminded the developed countries and international financial institutions to take into account the need to protect the poor and other vulnerable groups in the affected societies as they prescribe programs of reform. And ASEAN has collectively encouraged China to hold the line on the renminbi.

Within the association itself, ASEAN has, at the highest level, strongly re-affirmed its commitment to regional economic integration and open regionalism, to keeping the ASEAN Free Trade Area on track and on schedule. There has been no backsliding on this beyond some minor adjustments that have little to do with the financial crisis. Indeed, at their informal summit last December, ASEAN's heads of government called for the acceleration of AFTA's implementation. AFTA's completion date remains the first of January 2003 for the original six signatories, with the vast majority of traded products expected to receive full AFTA treatment by the year 2000, or only two years from now. The construction of the ASEAN Investment Area and the work on the liberalization of trade in services continue.

As part of the package of measures embodied in the so-called Manila Framework of November 1997, ASEAN's Finance Ministers have decided to establish an economic monitoring mechanism to keep track of capital flows, the operation of their banking systems, and their macro-economic indicators. This mechanism, initially to be supported by and located in the Asian Development Bank, is intended to serve as an early warning system for any impending problems and thus help avert a recurrence of the crisis. Officials of ASEAN's finance ministries and Central Banks are now working on this in cooperation with the ADB and the ASEAN Secretariat.

The Finance Ministers have also endorsed the use of ASEAN currencies for the settlement of intra-ASEAN trade. The modalities for carrying this out are to be agreed upon between the trading partners concerned. As an offshoot of a private-sector roundtable convened by the ASEAN Secretariat last March, the ASEAN Bankers Association has suggested some measures to encourage ASEAN traders to use ASEAN currencies in trading among themselves. This is not about a single ASEAN currency. It is not a panacea. But it should help relieve the pressure on ASEAN countries to obtain hard currency, encourage them to trade with one another, and stimulate economic activity in general. In any case, some ASEAN countries have already been using local currencies for trade for some time.

Apart from these individual, bilateral, international and regional efforts, ASEAN has thought it best to work within the International Monetary Fund and other, broader international forums in dealing with what is, after all, a global concern.

The Impact on Indonesia

The devastating impact on Indonesia's economy and society of the regional financial crisis and of the remedies prescribed for it triggered the upheaval that is transforming that country's political system and political structure.

I believe that the international community needs urgently to get behind Indonesia in its struggle to strengthen and stabilize its currency, revive its economy, reduce inflation, hold back the rise in unemployment, and cushion the poor, mothers and infants, and the elderly from the brutal ravages of their nation's economic difficulty. Such support would help restore investor confidence in Indonesia's future and encourage that country in the political and economic reforms that it has started to undertake. Those reforms by themselves will not put food on the table or people back to work. They will not put milk in babies' mouths or clothes on people's backs. They will not provide the medicine for Indonesia's sick. Not by themselves and not anytime soon. Not unless generous help comes from outside. I need not emphasize the large stake that the international community has in what happens in Indonesia.

The financial crisis and the political changes in Indonesia graphically demonstrate the kind of challenges facing ASEAN today. The revolutionary nature of those challenges points the way toward the stance that ASEAN ought to take in meeting them.

ASEAN has met momentous challenges in the past.

ASEAN's birth itself was a response to such a challenge. In a region divided by historic suspicions, conflicting interests, political rivalries, territorial disputes and unsettled boundaries, the leaders of five Southeast Asian countries founded ASEAN in August 1967 to ensure that sources of potential conflict were peacefully managed through personal high-level contact, constant consultation and a culture of cooperation. At the same time, ASEAN's founding leaders placed economic and social cooperation at the forefront of the association's stated purposes in order to give material content to Southeast Asian solidarity.

By its 30th year, in 1997, ASEAN could claim fulfillment of its original purposes. Although disputes between member-states persist, none has developed into war between them. The world has recognized ASEAN to be a force for peace and stability in the region as well as some kind of a model in regional economic integration in the developing world. ASEAN has led the international effort, early in the decade and today, to bring about a lasting political settlement of Cambodia's problems and has, in general, represented the voice of reason and moderation in its part of the world. There is no arms race in Southeast Asia, nuclear or otherwise.

The next serious challenge to ASEAN was the end of the Cold War. The dissolution of the accustomed world of political blocs, military alliances and ideological camps led to a sense of heightened uncertainty. At the same time, the end of the Cold War presented ASEAN with the opportunity to help shape the parameters of its own security.

ASEAN's answer was stronger solidarity within itself and the establishment of the ASEAN Regional Forum. In its short four-year life, the ARF has become the principal multilateral body for advancing the security of the region, engaging the major powers in regional security affairs. It is also a prime instrument for the ASEAN nations to have a hand in shaping the destiny of their own region. The ARF serves not only as a forum for valuable consultations on regional security issues but also as a framework for building confidence through cooperation in such practical areas as search and rescue, disaster relief, the promotion of transparency, military education and training, and other forms of defense and military interaction. It is now generally recognized that it is only ASEAN that could have gathered such powers as the United States and China, Japan and India, Russia and Korea, the European Union and Canada, Australia and New Zealand under one roof to consult and cooperate on the region's security.

The Challenge of Globalization

Today's great challenge is that of globalization. In prescient anticipation of this development, ASEAN's leaders and ministers recognized early on that stronger regionalism is the only way to brace countries against the powerful winds of globalization. After experimenting with various preferential trading arrangements and industrial cooperation schemes, ASEAN agreed in 1992 to establish the ASEAN Free Trade Area and is now on the verge of completing it. AFTA's completion will bring to reality a market of half a billion people and thus an even more attractive investment site for serious long-term investors. ASEAN members are now constructing an ASEAN Investment Area, liberalizing trade in services among themselves, and cooperating on intellectual property, which is intimately related to investments. At the same time, they are working together on a broad range of economic areas -- from agriculture to tourism, from transportation and telecommunications to information technology.

Economic integration here means not only free trade and investment areas but also regional networks of highways, railways, telecommunications, power grids, and water and gas pipelines. It means sub-regional growth areas among contiguous parts of neighboring ASEAN countries like the Mekong River Basin, the Singapore-Johor-Riau Growth Triangle, and the East ASEAN Growth Area among Brunei Darussalam, eastern Indonesia, East Malaysia and the southern Philippines. These offer enormous opportunities for long-term investment.

The force of globalization's impact on nations' economies and on people's lives derives partly from the technological revolution in information and communications. The uncontrolled flow at lightning speed of short-term capital around the world, made possible by modern technology, has severely shaken many economies, including those of some developed countries.

Similarly, the technological revolution has made easier the commission of trans-national crimes like drug-trafficking, trafficking in women and children, money laundering, and international financial fraud. Modern means of transportation have facilitated the large-scale movement of people across national boundaries. Communicable diseases are more easily transmitted. The pressures of growth and international commerce, as well as individual and corporate greed, in combination with climatic phenomena, have produced the haze from peat and forest fires that has caused severe damage to the health, education, livelihood, transportation, tourism and economies of some parts of Southeast Asia. The threat to the marine environment is just as grave, if not as visible.

In all these areas, economic and social, as well as financial, Southeast Asia's deepest concerns today have inherent regional dimensions and thus can be met only with regional, as well as national and international, efforts. Clearly, the challenge for ASEAN is how to work together, more closely than ever before, in dealing with these problems in all their unprecedented magnitude. Indeed, the very technologies that have magnified the problems to a regional scale can, if effectively used, make regional solutions easier to find by enabling contacts, communications, data sharing, coordination and cooperation to become more speedy and more efficient in marshalling regional responses.

More than technology is needed, however. New ways of thinking are called for.

Thinking Regional

ASEAN's response to global challenges has to be not greater national assertiveness, as countries might normally have reacted in the past, but greater regional integration and cooperation. Accordingly, in an increasing number of areas, ASEAN's political, business and intellectual leaders and other shapers of public opinion have to give greater priority to regional interests over purely national interests in their ideas, policies and acts. More and more, they have to think -- and act -- regional. In some cases, national prerogatives may, to some extent, have to yield to regional demands. For this, a much greater effort than ever before has to be exerted in developing a sense of community among ASEAN's peoples and awareness of ASEAN's work and purposes within ASEAN itself as well as in the world beyond.

In some areas, more explicit and binding rules, embodied in treaties, may be needed to complement the informal understandings that have served ASEAN so well in the past. ASEAN already has a treaty mandating the peaceful settlement of disputes and one establishing Southeast Asia as a nuclear weapons-free zone. ASEAN has binding agreements pertaining to the ASEAN Free Trade Area and is working on others covering trade in services, investments and intellectual property. Harmonizing tariff nomenclatures, customs procedures and accounting standards and procedures would certainly make doing business in ASEAN easier. Explicit rules on controlling and preventing trans-boundary atmospheric and marine pollution would help. So would formal arrangements in fighting trans-national crime.

More and more, ASEAN has to speak with a unified voice on the great economic issues of our time. The voice of one Southeast Asian country would be almost inaudible, but a collective ASEAN voice would resonate in the councils of the world, as it has done in regional-security matters and in international trade negotiations. As a response to globalization and to the East Asian financial crisis, the financial community has been talking about the need for a new architecture of international finance. ASEAN has to make a collective contribution to the intellectual content of this new architecture. Otherwise, it will once again be left to watch morosely on the sidelines as others decide the fate of its peoples. Similarly, ASEAN has to contribute collectively to the information society that is rapidly taking shape.

Today's global challenges call for integration not only among ASEAN countries but also among areas of ASEAN cooperation. They have made painfully clear that regional economic cooperation encompasses not only trade and industry but also finance and economic planning in one seamless whole. In response to the financial crisis, ASEAN's Finance Ministers and Central Bank Governors and their deputies have been meeting much more frequently and with a greater sense of urgency than before. But, clearly, their efforts have to be more closely integrated with those of the ASEAN Economic Ministers, who are for the most part those in charge of trade and industry.

Similarly, trade, industry, finance and economic planning cannot be pursued independently of the environment, manpower development, science and technology, or health. All of them in turn have a strong impact on political relations and on regional security.

The requirements of such integration, or at least coordination, have serious implications for the familiar concerns with turf -- within national governments and between ASEAN bodies. The traditional divisions of ASEAN activities among political, economic and "functional" areas call for a fresh look. One thing is clear: Questions of bureaucratic turf must not be allowed to get in the way of effective and comprehensive ASEAN responses to the overpowering challenges of today.

Indonesia's Political Storm

The political storm sweeping Indonesia, too, arises from that potent combination of economic globalization and the technological revolution. At the same time, the effectiveness of ASEAN's response to the new challenges facing it depends to a large extent on Indonesia. It took a national upheaval in Indonesia to bring ASEAN into being. Indonesia is by far the largest country in Southeast Asia. Its leadership role in the Non-Aligned Movement, in the Organization of Islamic Conference and in the United Nations gives it more weight in ASEAN than its size alone would warrant. What has given Indonesia great effectiveness in ASEAN is that it has used its weight not to throw it around or to bully the other members but for constructive purposes, such as in the international effort to deal with events in Cambodia and in settling the southern Philippines conflict.

Indonesia's unique political system and mode of governance have served as something of a model for some countries in ASEAN and in other parts of the world. As Indonesia undertakes its political reforms, changing its electoral system, releasing political prisoners, leveling the economic playing field, and expanding economic and political pluralism, it will once again influence other nations as they respond to the sharpened awareness and the changing aspirations of their peoples. Indonesia's key importance as a nation and the information and communications revolution will see to that.

As I have indicated, today's crises and challenges call for tighter integration, closer cooperation and stronger solidarity in ASEAN. It requires a larger measure of regional consciousness than ever before, a deeper appreciation and stronger assertion of the regional interest. It is a delicate and complex enterprise, particularly in the absence in ASEAN of true supranational institutions and elaborate rules for regional behavior. In this, Indonesia's active role is indispensable. The outcome of political change in Indonesia will thus affect the pace and direction of ASEAN's movement to a higher plane of integration and cooperation in response to the crises and challenges facing it today.

I am confident that ASEAN will be up to it, having surmounted other challenges before. After all, the factors that made it possible for most ASEAN countries, including Indonesia, to grow rapidly for thirty years remain in place -- the abiding commitment to economic openness and regional economic integration, the high savings rates, the low debt-service ratios, prudent fiscal management that resulted in budget surpluses, balanced macro-economic policies, and, not least, people who are willing to work long hours and place a high value on education. These qualities brought about not only rapid economic growth but also a higher standard of living for the peoples of ASEAN. James Wolfensohn, the President of the World Bank, cited some statistics last March: "Three decades of more than five-percent growth. A decline in poverty from six in ten to two in ten. Income per capita . . . up four times in Indonesia, Malaysia and Thailand." In the same week, Paul Krugman, the well-known American economist, certainly no wide-eyed optimist on Asia, predicted, "Three years from now, it won't be a surprise to talk about growth of beyond five percent" in East Asia's economies.