The Jakarta Post (original link)
Berly Martawardaya , JAKARTA | Sun, 04/26/2009 11:48 AM | Opinion
Truth may be the first casualty of war, but truth can also emerge after a crisis. And in this context, let us talk about “Chindonesia”, a shorthand for China, India and Indonesia, because these three Asian countries could become the backbone of Asia’s economic revival.
Companies have relocated to Chindonesia for obvious reasons; not because we produce high-tech products with sophisticated methods but mainly because we do things cheaper.
The banking and financial sectors are less developed in Chindonesia. There is not too much financial engineering and sophisticated instruments. India and China also still maintain a degree of capital control that shields them from financial volatility. All three countries have based their economies on the real sector. Agriculture and mining in Indonesia, manufacturing goods in China and IT services in India are the backbones of these economies.
Let us use the downturn of foreign companies to build our own industrial capacity and human capital while cutting the red tape. Chindonesia could not have achieved what it has today without the significant expansion of education, R&D and entrepreneurship. Thus we could emerge from the crisis stronger and more prepared than ever.
The global financial crisis has brought down not only old economic institutions but also the old economic mindset. What used to be conventional wisdoms in economic growth have been exposed to have only weak foundations and be ill- suited to explain current circumstances.
The global economy will have negative growth and contract by one half to 1 percent in 2009, before staging a modest recovery in 2010. OECD countries will suffer significantly with minus 2-3 percent growth, Japan being the hardest hit.
But three major economies have escaped this predicament and are predicting positive growth. While 9 percent growth has been the norm for China over the past decade, achieving 6.5-7 percent in 2009 will not be that bad. India also shines with 4-5 percent projected growth.
Overall, developing economic growth projections without China and India is near zero percent. The third is Indonesia, predicting around 3.5 percent expansion in 2009.
On the other hand, our neighbors in the Association of Southeast Asian Nations (ASEAN) are not doing so well. Malaysia, Singapore and Thailand are all predicting negative growth in 2009. The Ministry of Trade and Industry (MTI) of Singapore has revealed that Singapore’s economy contracted by 19.7 percent for the January to March period.
Malaysian exports have declined for five months in a row, but the decline in February 2009 (-15.9 percent) has narrowed from -27.8 percent in January 2009. For Thailand, let’s just say that they are doing better than we did after financial crisis last decade. The mix between political and economic crises has proven to be very a combustible potion and not conducive to growth.
What lessons can we draw from this?
First, the crisis has exposed the vulnerability export-based economies. The virtue of export promotion as a development strategy has been extolled over import substitution. Carving out a market niche in the global market was seen as the surefire recipe to prosperity. But the sword cuts both ways.
As the global demand subsided, the down swing was particularly felt by countries with a high degree of exposure and income from exports. Thailand suffered an extra mile with the loss of tourists, once a major source of income, as they were scared off by political confrontations.
Second, the low side of high-tech exports. Not all exports are equal. The high-tech sector, with a high degree of value added, used to be where countries were aiming to be. Cars, cell phones, computers and microchip technology with other electronic products are the 4Cs said to bring in foreign currency.
But the high-tech products are also the first consumers cut down on in an economic downturn. It may be a less merry and glitzy life, but they realize that that they could live without these things.
Japan, the world’s second-largest economy, posted their sharpest-ever decline in February – down by 49.4 percent – as global demand for Japanese cars and electronics evaporated.
Lastly, finance is no longer king. New York, London, Singapore and Hong Kong used to be the center of the robust financial world. Exotic financial instruments have brought untold wealth to industry leaders.
While there has been no systematic effort to reduce exports, the exports in all three countries’ economies range around one third of the GDP, leaving domestic consumption, investment and government expenditure strong enough to cushion the shock of the crisis and provide a decent rate of growth. Large populations are a plus in this case.
In 2006 PricewaterhouseCoopers (PWC) coined the term the “Emerging Seven” (E-7), namely China, India, Brazil, Russia, Indonesia, Mexico and Turkey – that its says will replace the G-7 (the United States, Japan, Germany, UK, France, Italy and Canada) as the global economic powerhouse and will be around 50 percent larger than the G-7 by 2050.
The writer is a lecturer at FEUI and PhD candidate in Economics at the University of Siena-Italy
and a member of the NU Professional Circle.
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