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WINTER 1 9 9 8 t EAST-WESYC NTER The Need for Leadership A Watershed for Politics from U.S., Japan in the Region l he United States and Japan, the two leading econo- The financial turmoil in Asia has been aggravated mies in Asia and the Pacific, must provide leadership and by domestic political developments, raising questions cooperation to help the region through the tumultuous not just about the Asian economic model but also the Financial crisis and back onto political model, observes a path of stable, solid / ^Su Muthiah Alagappa, a growth, advises Charles ^^ ^^iliuu4^• specialist on security and Morrison, an Asian analyst ' politics in the region at at the East-West Center. _ -W the East-West Center. In "The currency/ Indonesia, he adds, the financial crisis should be r volatility of the economic recognized by the United ^^ ^, '" and political situation Stares and Japan as a very ^ r., demonstrates that with- serious regional crisis, one "'% r , ^} out political development which threatens their own .• even dramatic economic and world economic ` ij;; . t growth can be rapidly health," says Morrison. , undermined. "The two countries need ' '%/j "Many Asian states to share analyses of the are relatively weak as Inside: problem and work as . modern nation-states and cooperatively as possible 1 y r f this crisis has demon- North Korean in addressing it." strated that," he says. Officials at "The crisis is an impor- Telecommunications Crisis Underestimated tant watershed in the domestic politics of several Asian Conference Governmental and mainstream views in the West states and the international politics of the Asia-Pacific Page 2 and Asia have consistently underestimated the crisis. region. A fundamental point is the various political " While signs of an economic downturn were in the air and economic models people had in their minds are Gcrasimov from late 1996," he says, "no one anticipated the full- now in question, so they'll have to think of new ways on Russia blown economic meltdown and crisis of confidence of doing things. Page 3 that have swept the region since the Thai baht was allowed to float on July 2." Growth Should Resume Talbott, Bereuter He says some observers believe that in the long- " Many leaders now accept the need For greater Receive EWC Briefings term, the current crisis will wake up countries to the transparency and the need for greater democratic Page 5 need to strengthen poorly regulated financial systems elements in governance, although they have become and root out corruption, cronyism, insider relation- more cautious about internationalization." .Alagappa Pacific Islands ships or other practices that weaken efficiency. But, he cautions against depicting the Asian model as dead. Form Consortium says, the volatility of the markets makes stabilization "The Asian states still have many strengths," he says. Page 7 the immediate priority. "Once they have instituted the necessary political and "The financial/currency turmoil is a security issue, economic reforms, they can be expected to resume affecting individual well-being, national prosperity, growth." regime and system stability, and, more indirectly, The recent bailout of Thailand, South Korea and international relations," he explains. "The U.S. alliance Indonesia, did not come from a regional institution or system is not less important; indeed it is even more an Asian country. "It really came from global institutions, i mportant as an element of stability in a region that with the United States playing a crucial role," he says. suddenly seems much less stable." This has dashed the belief in the region that The region is being tested in three areas, he notes, America was in decline and Asia ascendant, that the its economic strategies, domestic and international next century will be the Asian century. The crisis has governance, and regional leadership. undermined the pride and confidence of Asian leaders continued an page 2 I continued on page 4 2 ive officials from North Korea were among pa'tic- general of the Ministry of Communications. The i a a January workshop at the East-West Center Committee is responsible For the establishment and o . ooperatinri in telecommunications in Northeast development of the Rajin-Sonbong Free Economic Asia. Co-sponsored b y the Center and the Northeast and Free Trade Zone in North Korea. Asia Economic Forum, the meeting of the Consultative The Honolulu session was co-chaired by Dr. Lee- Working Group on Telecommunications Cooperation Jay Cho, chairman of the Northeast Asia Economic also included participants from Australia. China, Japan, Forum and executive vice-president of the Center, and Mongolia, Russia, South Korea and the United. States. Dr. Me.heroo Jussawall.r, emerita senior fellow at the Center. The Northeast Asia Economic Forum, a non- governmental organization was established in 1990 North Korea Officials Attend and is based at the East-West Center, Participants discussed such topics as cooperative development strategies for Northeast Asia's informa- Telecommunications Session tion infrastructure, prospects for linking telecommuni- cations networks in Northeast Asia and suitable Held on January 10-11, the workshop was in information technology for the `lumen River project. response to a recommendation of the regional group's The session also recognized that the Working Eighth Annual Session in Ulaanbaatar, Mongolia last Group could .m.ake significant contributions to the Au.gust. process of confidence-building and economic co- The North Korean delegation was ]ed by Rim operation in three Tumen River states and the broader Thae Toole, executive vice-chairman of North Korea's Northeast Asia region. It was suggested the second The East-West Committee for the Promotion of External Economic meeting of the Working Group be held in the Turners Center Observer Cooperation, and included Ho Deng Guk, director River Economic Development Area in May or ]tune. is a quarterly newsletter published by the East-West Center, a private non-profit The Need for Leadership from U.S., Japan institution established continued from page 1 in 1960 to foster mutual While ,sonic critics say it is clear the Japanese or substantially to every bailout, but its policy role was understanding and weakened to the point of virtually disappearance." r .Asian models of economic strategy have failed, Asian coope ation among growth strategies worked quite successfully for many In addition. Japan has been slow to address its the governments and years, Morrison says. "Some would argue that the crisis own economic problems. Among the failures Morrison peoples of the itself comes as much from Western strategies of rapid enumerates werc Japan's inability to address its domes- Asia-Pacific region, liberalization, which allowed amounts of mobile tic bad loan problem in a reasonable time, the weak- including the capital in the global marketplace to flood into East ness of its stock market, its comparatively low and flat United States. Asian developing countries, beyond their capacities to consumer spending and its continuing trade surplus. Volume 1, Number 4 effectively absorb or regulate." At the same tithe, the United States has been slow Winter 1998 "The region will be sorting out the lessons of the to react, Morrison notes. Since October and the effects current crisis for years to cone. Which features of the of a ricocheting I-long Kong stock market on Will Kenji Sumida, President 'Asian' experiences, such as high savings and spirit of Street, the Executive Branch has awakened to the need Karen Knudsen, Director entrepreneurship were positive, and which others, such to provide policy leadership. In January, President Office of Public Affairs as weak governance or overly rigid industrial policies Clinton made repeated calls to leaders in the region on and labor markets, were not?" the crisis and dispatched Deputy Secretary of Treasury For more information, Nationally, governments hit hardest by the crisis Larry Summers in a form of shuttle diplomacy. Coin act: Thailand, Indonesia and South Korea — face tough Morrison recommends the United States and economic and social adjustments under International Japan take several important steps to stabilize the region. East-West Center Monetary Fund austerity programs. Pressures on Japan must apply remedies to sriniuIare its sluggish 1601 East-West Road governments will be accelerated by rising wzeniploy- economy, including stronger fiscal stimulus to Honolulu, Hawaii nlent and social tensions, particularly as the middle and strengthen consumption and reduce Japan's budget 96848-1601 professional classes encounter economic fallout. "It surplus. Congress needs to replenish stretched IMF' Telephone: seems likely that established governments or leaders, resources and, in the short-term, the United States will 808-944-7111 such as Suharto's New Order' government in Indonesia, need to cope with a larger trade deficit. Fax: 808.944-7376 will have the most difficulty in shifting policy gears or Lastly, he says the United States and Japan must work together to discourage China from an early E-mail: placing the blame on others," Morrison says. devaluation of its currency, encourage China to [email protected] As a result, leadership is critical. "By economic size, Japan and the United States are the natural leaders," he strengthen its banking system, and continue efforts CO World Wide Web: says. ' At the Vancouver APEC Economic Leaders meet- bring China into the World Trade Organization. http:Ifwww.ewc.hawaii edit ing, the United States was encouraging Japan to step in Front, although in support of the IMF role rather than (Charles Morrison is director of the Asia Pacific .Economic t'd7ri Sss,,i ' to Do4isc I by Kennedy & I'li,, an alternative financial arrangement. Japan, however, Cooperation Study Center at the Last-West Center; and has flunked the test of leadership. It has contributed chair o f'the United States APEC Study Center Consortium.) T Russia .suffers from a crisis of power, "For example, Yeltsin as president receives a salary observes Gen.nadi Ge.rasimov.