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Australia's Role in a Region in Crisis: Leading by Example
Address by the Hon Alexander Downer, MP, Minister for Foreign Affairs to The Economist's Sixth Foreign Investor Roundtable,
Hyatt Hotel, Canberra, 30 March 1999
(Check Against Delivery)
Thank you Christopher Nailer, Carlton Jennings the managing director of Iridium South Pacific, ladies and gentlemen.
It is a great pleasure to attend this, the Sixth Foreign Investor Roundtable with the Australian Government to be organised by The Economist. I would also like to take this opportunity to thank the contribution of Iridium in sponsoring this event. It is particularly appropriate that this global communications network be sponsoring a roundtable on Australia's role in the region.
Today and tomorrow you will be hearing from many speakers on developments inside Australia. It is my task today to say something about what Australia is doing abroad - in particular, about the role we are playing in our own region. At times though, as foreign minister I often sympathise with Disraeli when he said that "The very phrase "foreign affairs" makes an Englishmen convinced that I am about to treat of subjects with which he has no concern"
But they should be, particularly to the business community. And of course how Australia acts in its region, and how its actions are perceived by its neighbours, are inextricably bound up with how we pursue our domestic reform agenda. This is an issue to which I will return at the end of my remarks.
I want first to talk briefly about the outlook for the region's crisis, before outlining the practical steps Australia has taken in response. I will then turn to the political and strategic consequences of the crisis. Finally, I want to look at some of the philosophical issues raised by the crisis - what I have termed "the crisis of ideas" - to show how other countries might benefit from studying Australia's performance in the face of the region's downturn.
I've subtitled today's speech Leading by Example, because after I've outlined some of the steps Australia has taken in response to the Asian crisis I think you will agree with me that it is leadership which has distinguished Australia's role. In fact, one of the world's leading economists, Professor Paul Krugman, was so moved by our economic performance that he labelled Australia "the miracle economy of the world financial crisis". We were amongst the first nations to realise the full implications of the region's crisis, have led the international efforts to achieve early economic recovery, and have been active also in addressing the political and strategic consequences of the crisis. Finally, but perhaps most importantly, we have through our own strong performance shown the region - and the world - what commitment to openness and transparency in economic and political affairs can achieve.
A long wait for the dawn
The economic health of the East Asia region, as well as its confidence and dynamism, has suffered a real body blow over the past 18 months. The region's worst economic crisis since World War II has seen growth plummet. The problems facing crisis-hit countries - including substantial overcapacity in sectors like manufacturing and property development, the high cost of financial sector restructuring, and the general weakness of the corporate sector - are quite fundamental, and not amenable to quick fixes.
The region has experienced significant declines in welfare. In Indonesia, Thailand, the Philippines and Malaysia, GDP per capita has fallen by around 10 percent since 1997. Urban areas have been hit hardest, especially by unemployment and the impact of inflation. In Indonesia, for example, unemployment last year tripled to 15 percent of the labour force and inflation rose to 60 percent. Rural areas have fared better - and have been able to relieve some of the pressures on urban areas. But rural hardship has also increased and may worsen, and the economic shocks have come on top of natural disasters, like droughts and forest fires, in many countries.
There have also been some encouraging signs. For example, both the Korean and Thai Governments appear to be making good progress in the implementation of structural adjustment programs. Contractions have slowed and all but Indonesia are expected to see some level of growth this year. But the prospects for an early recovery in the region as a whole remain subdued.
But while we may see a return to positive growth in 1999 in some economies, any such growth will be off a very low post-crisis base. If the historical record for such episodes in other parts of the globe is anything to go by, we may have to wait for up to five years before the region can return to pre-crisis levels of economic output.
There are other reasons why we may have to wait some time for a substantial pick-up in East Asia. The Japanese economy is still rather directionless, and Japan needs to do more to embrace reform and pull itself out of its slump. And as Premier Zhu Rongji recently acknowledged, China's economy is still under pressure. The US economy continues to enjoy healthy growth, but many analysts expect moderation in US and also European growth this year.
The conclusion to be drawn from all this is that the road to recovery is likely to be long and rather bumpy. The process of stabilisation and reconstruction will be drawn out, especially as the benefits of recovery are likely to take time to translate from national accounts to the pockets of the worst-affected. Australia must set its responses accordingly, and prepare itself for the long haul.
Australia - meeting the crisis head-on
Once the extent of the Asian economic crisis became clear, Australia committed itself to meeting the challenges it presented head-on. We have been at the forefront of international efforts to overcome economic and social impacts of the crisis.
Australia was one of only two countries to participate in the IMF second tier support arrangements for Indonesia, Thailand and Korea. We took decisive action to persuade the IMF to ameliorate the conditions of its package for Indonesia when it became apparent that it did not fully suit that country's circumstances.
Australia has been actively participating in a Paris Club rescheduling of Indonesia's sovereign debt as part of a US$6 billion international effort to relieve Indonesia's payments burden. We also extended trade insurance cover on the national interest account to help maintain the capacity of Indonesia and Korea to import essential commodities.
Australia has also provided substantial assistance for crisis-hit countries through bilateral aid programs. Our most significant contributions have been for Indonesia and Thailand. Aid for Indonesia has been expanded by over 25 percent to $127 million in 1998-99, including over $50 million humanitarian aid and up to $70 million to promote economic management and reform over the next three years. Aid flows to Thailand for 1998-99 will be over $25 million, 16 per cent higher than last year.
In reorienting our aid programs to meet the needs created by the crisis, we have increased emphasis on programs to advance good governance and financial sector reform. This is demonstrated by the $50 million, three-year Economic and Financial Management Package announced by the Prime Minister at the 1998 APEC Leaders Meeting, as well as our $6 million Asia Crisis Fund established in 1998. We have established major governance and capacity building facilities in our aid programs for China, Philippines and Indonesia as part of these efforts.
But if our region is to return to the path of sustainable recovery there will need to be an enduring international effort. Australia, for that reason, has taken an active role in promoting enhanced and coordinated engagement by the wider international community in the task of economic reconstruction in East Asia.
Since the early stages of the crisis, we have shown leadership in helping to mobilise an effective international response and ensuring this response takes full account of the social, as well as economic, impacts of the crisis. That is why I have been using my travels outside the region to keep Asia's troubles at the centre of world thinking, as I did in Europe last month when I again urged the EU to play an active part in the region's recovery. That is also why I took the initiative to convene in Sydney at the beginning of this month a major international meeting on development cooperation responses to the Asian crisis.
The Sydney meeting involved ministers and senior officials from 27 countries and senior representatives from 9 major international institutions. It was the first meeting at this level to consider the full range of economic and social aspects of the crisis. Our objective was to galvanise the international community to maintain support for East Asia in its lengthy process of recovery, and to map out strategies for overcoming the continuing impact of the crisis.
The result was a strong commitment from donors to see this process through. We also saw some frank assessments by countries receiving assistance of their progress to date, as well as welcome declarations of resolve to stick with required reforms.
An important outcome of the meeting was agreement on priorities for activities to alleviate the effects of the crisis, especially:
Countries represented at the meeting also agreed to enhance the coordination of their aid efforts. In this context, participants accepted Australia's proposal to establish an Asian Recovery Information Centre. This centre will address the pressing need for better access to information on the impact of the crisis and responses to it. The Centre will draw together all official sources of data and analysis and will identify any information gaps.
May I say, I am pleased to have been able to make this further contribution towards effective global cooperation in response to the crisis. I hope the meeting will provide a further fillip to international investor confidence by demonstrating national and international commitment to restore sustainable growth in our region.
As meeting participants highlighted, most East Asian countries have a solid foundation of institutional capacity, and human and economic resources on which a strong recovery can be built. For its part, Australia will continue to do all it can to ensure this foundation is not eroded further and that East Asia can emerge successfully from this period of unprecedented reversal of fortunes.
Additionally Australia has been assisting with the issue of international financial reform which has come out of the crisis. The Prime Minister's Taskforce report on International Financial Reform, released in December 1998, has been widely commended. Most recently the Government has helped push the reform process forward in our chairing of the Manila Framework group held in Melbourne on the 26-27 March. The release of the Treasury's Transparency report and our highlighting of the need to make the necessary reforms to the international financial architecture at this meeting will provide a spur to the processes taking place in G7 and the IMF.
Political and strategic implications of the crisis
Of course, the tumult brought on by the Asian crisis has not just been economic, but political and strategic as well. The region's political scene has undergone some historic changes, such as the end of the Suharto era. But in many other countries, the political fallout from the economic downturn has been significant, and will continue.
Australia has no role to play in the internal politics of any other country, but we have, at the request of some of our neighbours, acted to encourage the development of democracy and democratic institutions in our region. So it is that we will provide the Indonesian Government with between $10-15 million of assistance towards the holding of the general elections in June. Indonesia today is experiencing greater political openness and freedom than perhaps ever before, and Australia will do all it can to help the Indonesian people reap the benefits of that freedom.
Our assistance with the process of self-determination for the people of East Timor springs from similar considerations. We saw the opportunity, in the change in policy of the Indonesian Government, to bring an end to a sad chapter in East Timorese - and Indonesian - history, and have been happy to assist the two sides, and the international community, in their efforts to do so. We will be unstinting in efforts to bring lasting peace to that troubled island.
The implications of the economic crisis for regional security will take some time to become fully apparent, and will in any case depend on how long the crisis lasts and how heavy an impact it has on different countries. The least we can say is that our strategic environment is now less certain and much more complex.
We don't see any immediate threat of military conflict in our region as a result of the crisis, and don't think it will have a significant impact on strategic relativities between the major regional powers (the United States, China and Japan). But there may be some impact on the relative power of middle and smaller powers, and changed economic relativities might undermine the cohesiveness the region had been able to achieve.
With this in mind, Australia has been an enthusiastic supporter of the development of a new security architecture for the region, incorporating mutually-reinforcing security linkages at the bilateral and - through processes like the ASEAN Regional Forum - multilateral levels. These arrangements will provide the region with a range of flexible approaches to cope with the ever-changing challenges to our security environment.
We have sought to maintain the relevance of our bilateral alliances and security relationships which, of course, remain the basic building blocks of regional security and stability. This is particularly the case for the Five Power Defence Arrangements, which continues to make a valuable contribution to regional stability. Australia is also doing all it can to sustain cooperative defence activities, currently under budgetary pressure in many regional countries. We believe such activities are even more important in uncertain times such as now, when there is a need to ensure transparency, and we will be active in refocusing defence cooperation programs to meet the needs of all involved.
Conclusion - Australia shows the way forward
I have spoken so far about the measures Australia has taken in leading the international response to the Asian crisis. But just as important as those activities in demonstrating Australian leadership in our troubled region has been how we have handled our own economic performance.
The impact of the Asian crisis has been felt in the Australian economy, as it has in most economies of the world. The most striking manifestation of that impact has, not surprisingly, come in our trade figures. Before the crisis, almost two-thirds of all our exports went to the countries of East Asia - now that figure is around 50 per cent.
But even so, we have managed to maintain modest growth in our trade figures, primarily through a successful strategy of expanding into other markets. And our economy continues to demonstrate remarkable resilience: one of the highest growth rates in the developed world, with low inflation and low interest rates, a budget in surplus, unemployment at an eight year low and days lost to industrial disputes at an eight decade low.
That Australia could turn in such an outstanding performance in a region gripped in its worst crisis in half a century says much for the value of our Government's commitment to economic reform and liberalisation. We have been determined since day one in office to make the Australian economy more productive, more competitive and more responsive to global change. In the next two days my Ministerial colleagues will outline to you our strategy to press ahead with reform, to maintain the advantage that our economic openness and liberalisation has won for us.
Our determination to stick with liberalisation extends also the international trade front, where Australia will continue the fight to ensure a more level playing field for our traders. The temptation always during times of international trouble is to try and erect barriers to the world, to become inward-looking. That temptation must be resolutely opposed. In the new millennium, the economies that will prosper, the economies that will be able to adapt to change and ride out the shocks that will inevitably arise, will be those that are outward-looking and open, not those that are insular and stagnant.
But I believe also that our performance over the past 18 months has demonstrated something more fundamental about our country. It has highlighted our basic strengths: our open and mature political and economic institutions, our diversified and highly productive economy (in particular, our growing services and high technology sectors), and our tolerant multicultural society.
Above all, this period has been a test of fire in which Australia has been able to demonstrate its true mettle. We have shown the genuine nature of our relationship with Asia, our true worth to the countries of that region. We have led in our deeds, and by our own example. Many years hence, when historians come to write the story of the Asian crisis, we can be confident that Australia will rank as one of the heroes of the piece.
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