Academic journal article Journal of Southeast Asian Economies

Back to Basics: Post-Crisis Macroeconomic Rebalancing in ASEAN

Academic journal article Journal of Southeast Asian Economies

Back to Basics: Post-Crisis Macroeconomic Rebalancing in ASEAN

Article excerpt

I. Introduction

As the harmful effects of the global economic crisis of 2008-09 begin to subside, policy-makers in the ASEAN region are taking stock. On the whole, the crisis did not decimate the region to the same extent that the 1997-98 Asian crisis did; the literature suggests that the negative impacts of external shocks, even if severe, tend to be less pervasive than in domestically generated banking crises. But it is still surprising that the region was so adversely affected by a crisis that did not originate within its borders, which raises a number of questions concerning strategies for economic development.

Policy-makers are seeking to devise economic reforms to address vulnerabilities exposed by the crisis and put in place policies to sustain future growth. This is a challenging task; in fact, since the Asian crisis, ASEAN economic growth has generally shifted to a lower trajectory and, in many ways, this may be the result of incomplete reforms undertaken in the wake of the Asian crisis.

The time is propitious to revisit underlying problems that have persisted in ASEAN, as well as anticipate new ones, via forward-looking economic reform.

The more open ASEAN economies suffered the most during the global economic crisis, at least in the initial phase. But the lesson to be drawn is not that openness per se is a detrimental development strategy, but rather that domestic and regional sources of demand have, perhaps, been neglected. Therefore, policy-makers should explore how best to facilitate structural changes conducive to fostering domestic and regional demand as complementary sources of growth, without detracting from an outward-oriented development strategy, which has been at the core of the ASEAN success. We argue that such an approach will help promote productivity and competitiveness, as well as intra-regional trade, key goals of the ASEAN Economic Community (AEC). Such diversification will also help insulate the region from spillovers due to external shocks.

Indeed, as the ASEAN region moves away from policies to combat the effects of the global economic crisis, rebalancing growth has risen to the top of policy-makers' agendas. Policy declarations, the media, and academic articles abound with references to the need for the global economy to reduce "excessive" imbalances. But what does finding "balance" actually entail? Rebalancing can be interpreted in many ways, but the approach taken in this paper is to assess the degree to which ASEAN economies are "balanced" in terms of internal- and external-demand sources of growth. Approaches to internal rebalancing via changes in domestic absorption, such as shifts in current patterns of consumption and investment, as well as external rebalancing strategies through expenditure-switching, including exchange rate adjustments and reducing trade costs, are explored as ways to diversify sources of growth.

We consider policies as a means to facilitate regional rebalancing to promote competitiveness and stable growth over the long run and discuss how regional economic cooperation can help in the process. Section II analyses the impact of the global economic crisis on the ASEAN economies. Sections III and IV focus on how internal and external rebalancing, respectively, might be pursued at the national level. Finally, section V offers some concluding comments and highlights how ASEAN regional economic cooperation, in particular via the AEC, can contribute meaningfully to balanced future growth.

II. The Global Economic Crisis and Economic Recovery in Southeast Asia

Prior to the 2008-09 global economic crisis, the ASEAN region was growing impressively compared to the rest of the world. The region's rebound from the 1997-98 Asian crisis had been somewhat erratic until the end of the 2001 global economic slowdown, but beginning in 2002 it registered strong growth that continued until the 2008-09 crisis. …

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