ASIAN AFFAIRS INTERVIEW WITH RODOLFO SEVERINO JR. Secretary-General of the ASEAN ASEAN AND THE ASIAN CRISIS Serge Berthier- Last year, the President of Asian Development Bank (ADB), Mr. Sato mentioned to me that ADB will provide the logistic to set up the so-called "surveillance mechanism" that will track the hot money going in and out of ASEAN countries and believed to be the main cause of the current financial turmoil. Is it still at the blue-print stage or is it now a reality? Rodolfo C. Severino- The Finance Ministers of ASEAN have approved the scheme. There is indeed a unit in the ADB and there is another one here, in the ASEAN Secretariat. That unit is the core of the mechanism and we have already appointed its head who is a Thai with long experience in investment banking and government regulation, but there will have to be a lot of training to undertake as this thing is moving. We consider this a top priority for the year 1999. SB.- A common complaint about ASEAN is that the decision process is slow, too slow to make it an efficient tool. It looks like the monitoring mechanism we are mentioning will only be able to deliver any meaningful data well after the crisis. Do you find that is a fair criticism? RS.- People do not see the real picture. In fact, what is remarkable is that the Finance Ministers of the ASEAN countries got together formally under the ASEAN format for the first time only in 1997. Previously, ASEAN cooperation was focused on trade, investment and, to some extent, agriculture, but finance matters were not part of the scope of discussion. The Finance Ministers would only meet on the fringes of the IMF, the World Bank or the ADB meetings. Until then, they didn't find it necessary to organize themselves further until the deluge of financial problems hit us. SB.- Maybe it would not have been a bad idea to exchange views before the crisis, rather than to do it under pressure at a time where no one had a clear understanding of what was going on? RS.- Actually, a few months before the problems came to the surface, the Finance Ministers saw the necessity of regional cooperation on financial matters. There are reasons why the monitoring mechanism unit has been slow to emerge. One reason is that the Finance Ministers have begun meeting formally only recently. A second one is that they were all wrapped up in their own problems and busy talking with the IMF, the financial institutions, the Governments of Japan and the United States, and there also were other forums, like the Manila Framework, the G22, etc. And also, the process is slow because such undertaking is new to us. SB.- The administrative structure is taking shape but today, is ASEAN really able to monitor the capital flows of the region? Are there for example agreed terms of reference between everybody and common tools to feed data to the monitoring unit? RS.- I hope it will be working well before the end of the year. The Finance Ministers are meeting in March, and I hope they will agree on the final approvals then. The question is also one of funding. Since this has taken shape outside of the ASEAN traditional framework of activities, new funding has to be levied. We are working on that, but that is not the main problem. The main problem is to get things organized, and I think that we are now well on the way. SB.- What will be the input of the ADB? Is it to assign some staff, or to provide technical support, or do the job and deliver it as a consultant would do? RS.- The information will be brought to our Jakarta secretariat. The ADB will provide support by way of technical expertise. It is actually a rather small operation to run. I don't foresee technical support to be on a large scale. SB.- The IMF has outlined that the crisis could have been dealt with differently if accurate and meaningful data had been available throughout the region when decision were made. Their officers say, for example, that they misjudged the situation in Indonesia because their data was unreliable. Whether we are talking about financial data or physical data, are ASEAN countries getting together to harmonize their statistics? RS.- Yes, actually I went recently to a meeting (in Bali) of ASEAN statisticians. Of course, one of the main topics they focus on is the reasons that brought on the crisis, so that they can help prevent future crises in the region. The social impact and the recovery measures are also being studied. There is a need to accurately track the economic recovery, to see how real and how enduring it will be and the indicator must be the same for everyone. SB.- Are the ASEAN statisticians trying to devise new indicators that will have more meaning than the over-used and over-rated GDP? RS.- Well, they are not trying to devise really new indicators, but they are trying to determine which indicators are actually useful on a regional basis, and therefore should be given priority. ASEAN countries already submit the usual statistics to the IMF, the ADB and all kinds of international organizations, but at the regional level, we need to harmonize concepts, definitions and standards, so that we can have the same reading. SB.- As you know, the latest ASEAN meeting in Hanoi (in December 1998), where member states discussed the admission of Cambodia, got quite negative press. The image that came out was one of disarray, but might it just be another delusion of the media? RS.- Well, the media seemed to be expecting ASEAN countries to agree on everything. You know, there are big battles going on within the European Union, so why should ASEAN be held to a standard that demands total agreement on everything all the time? SB.- Maybe because ASEAN works on consensus. In Europe, you don't expect everyone to agree. The Brussels commission rarely does reach consensus and there always are dissenting votes. RS.- In Hanoi, the disagreement you mentioned was basically on the timing, because from the beginning, it has been settled that Cambodia would become an ASEAN member. In December 1997, the leaders reiterated their desire to see Cambodia get in. Actually, Cambodia would have got in, in 1998, except for the turmoil occasioned by the rejection of Prince Ranaridh from the coalition. Even then, there was a disagreement: some members said they should not meddle in Cambodia's affairs, but the others prevailed saying, "let's see how it plays out". In fact, we never stopped discussing it. The foreign Ministers talked about it in New York in September 98, and seven of the leaders talked about it at the APEC forum in Kuala Lumpur in November 98. Then the question was raised again in Hanoi in December 98. Now, we have this new development about the genocide trial (1). At the present stage, I don't know how the ASEAN members are reacting to this situation. The Secretariat is just waiting for instructions.The procedural and administrative elements of the admission are all there, ready. What needs to be agreed on is the date and it is a political decision that has to be made. SB.- So the only thing that came out from the Hanoi meeting about the admission was that Cambodia would be admitted, which is not new, but no date came out? RS.- There was also the implication that it should be done soon. Now the question is how soon. Some were talking about January, some were saying later. You can see that it is not yet done. SB.- We saw you at the beginning of the crisis, when everyone had yet to admit that it was a global crisis rather than an Asian one. In what way has the unfolding of the situation affected the ASEAN thinking, if it had? RS.- Well, obviously, the crisis goes far beyond the ASEAN, and so the solution to it must be handled at the IMF level. In ASEAN, there is the realization that it is bigger than the region, and the G22, which comprises the Group of Seven plus fifteen developing countries, is a more appropriate area in which to tackle it. In the G22, ASEAN members are represented, so ASEAN does not abdicate its role. Remember also that we had the Manila Framework, consisting basically of APEC minus the Latin American countries (2). So the solutions are studied at that level, a higher level than just ASEAN. We know that some critics are saying that ASEAN has not done anything. But if you ask them: "what should ASEAN have done?", they have no answer. SB.- The crisis is a lesson for all, at different levels. What is the lesson for ASEAN as a regional grouping? RS.- There are several dimensions to this. One is the national dimension, where each country has to work its own way. Indonesia, for example, is basically working directly with the IMF, and also with Japan, Singapore, the United States and so on. Thailand is working out a legislation on bankruptcy, the disposal of State assets, finance companies etc, and is also working with the IMF. Malaysia is going its own way, some of which, I think, is blown out of proportions by the media. The Philippines went through its time of trouble earlier, so it has a group of reforms in place, and it looks like it is regaining the investors' confidence. Singapore has been affected, but it is basically a small, strong and service oriented economy. The other member States of ASEAN are relatively closed to outside influence, in a sense that their currencies are not convertible and they are just beginning to emerge into the market system, so in a financial sense, they are not too much affected. Nevertheless, their economy is affected because their trade has suffered as their main trading partners and investors are in East Asia. So each country has to deal with the problem its own way. That is one dimension. The other dimension is the global one. ASEAN agrees that something has to be done about the global system, but like the rest of the World, doesn't come to a concrete agreement. So the position is basically to leave it to the G22, where Malaysia, Thailand, Indonesia and Singapore represent ASEAN's interests. The third dimension is the regional one. That is where ASEAN could do something and did something, that is the setting up of a surveillance mechanism. SB.- What you define is the field of competence, but as regards the common goals of ASEAN, in what way has the crisis affected the thinking… RS.- I think the most important response was to move the Asian Free Trade Area (AFTA) forward. Earlier on, people were saying that because of the crisis, AFTA was dead, that protectionism would win the day, but the facts are different. AFTA is on track and in fact will be accelerating, because it is logical. AFTA is the only way to bring back investments in the region. SB.- Somehow AFTA is unavoidable as it is the only way to reduce the gap between ASEAN members and harmonize their economies, which vary from the very rich to the very poor. RS.- That is a secondary effect, but the main reason for AFTA is to make production more efficient within the area, for both domestic companies and foreign investors. If you have a bigger market, then you have economy of scale. Your production costs will go down. But it is not the only reason for pushing AFTA. Another consequence is that by plugging into the ASEAN trade area, the newer members become inevitably exposed to a real market economy. They have no choice but to align their economy on the basis of the operation of the market. And not only do you have a so-called training process taking place for those economies, but they also derive a real benefit since their production costs tend to lower. As foreign companies that aim for the ASEAN market could then locate in Vietnam, Laos or Myanmar, the net effect is to tighten the bonds on the newer members. SB.- Although it is not visible to the public eye, the present crisis is, it seems, giving a new impetus to ASEAN. Now the secretariat will have some responsibilities supervising financial flows, which was not the case before, then it has to coordinate the statistics of the countries, a thing countries were reluctant to discuss in the past (3)… RS.- Yes, and the other thing is the information technology (IT). We have to strengthen that part of our operation, because in order to handle statistics, macro economic data, economic indicators, we need the latest tools in information technology. So IT and communications have to be strengthened, because information is useless unless it is communicated. SB.- All this means that the very nature of your office is changing as more and more actions supervised by the secretariat are implemented… RS.- The Hanoi plan of action that was adopted in December 1998 is rather ambitious. It is a list of tasks that did not interest the media since it is a very long list. You can't blame the correspondents who go to Hanoi and have only a few hours to sort the whole thing. So we leave it to the people who make solid decisions to realize the implications of the decisions such as the acceleration of AFTA, the special investment incentives, or things like the reform of customs administrations. We place very high importance on customs, because no matter what you do about bringing down tariffs and so on, if customs are inefficient or corrupt, then it doesn't work. Again, statistics, a very dull subject, but it is actually very important. So the ASEAN Universities Network sound like something for the long term, but ASEAN needs intellectual synergy in order to have solid grounding. However you can't rely on governments to achieve that. SB.- Is a common curriculum something workable in countries so different? RS.- The first aim, although it is not the only one, is to establish an ASEAN University, but there has to be some flexibility. Of course, learning from one another, establishing cross accreditation, and recognizing professional standards is very positive. SB.- Why do we have this misperception that not much is going on? RS.- Journalists are always expecting dramatic things to happen, and people lose interest in things that have been going on for a long time. One example of that mentality is the lack of interest about the results of what has been done about the haze problem. When the haze was with us, the media converged on the disaster and wrote all about it. Now we have established two arrangements, one in the Sumatra area and another one in Borneo, so that fire fighting could be organized in a hurry, also a training centre in Kalimantan has been set up. We have strengthened the ASEAN Special Meteorological Centre in Singapore, that keeps track with satellite photos of what is happening by way of fires, hot spots, haze etc. Last year, we set up a new unit here in the ASEAN Secretariat, with the Asian Development Bank support, to consolidate and coordinate different agencies, because many different entities, including governments and the UN Environmental Program, are involved in what is a cross-border problem. So now we are in a position to work on this problem and hopefully reduce its impact. But nobody pays any attention to the work that has been done. At one point, the ASEAN Ministers were meeting once a month. They were very frank with one another. But it did not hit the headlines. It's all right, as long as we prevent the haze. SB.- You mention the role of the secretariat in coordinating the work of others. Is the secretariat involved in technical assistance to ASEAN members, which would add a new dimension to its role and certainly strengthen ASEAN itself as a group with common methods? RS.- That is being done. The Secretariat is involved in it. Last year we had a meeting of customs Directors here. Now they meet every year, and we have set up working groups and training workshops. The secretariat cannot fund these activities, but we receive technical assistance from the ADB and the World Trade Organization. SB.- Is ASEAN at some sort of stage one of an Asian Economic Community like the EEC in the fifties and sixties? RS.- Right now, what we are working on are the practical aspects: learning from one another, helping each other and so on, developing a sense of community within ASEAN. A Free Trade Area, an investment area is actually there, but the idea of a supranational entity like the European Commission is for the European Parliament is not an option being considered. We are at a much more rudimentary level of cooperation, compared to the EU, but we have come a long way since 1967, and we believe that a lot could be done faster the way we do it than was done in the EU formation process. Maybe to go one step further, we would need some visionary intellectual approach, but don't forget that in Europe, there were already some common institutions and fewer religious or cultural differences. In the past centuries, Europe was at the centre of an important development of civilization. European empires were instrumental in propagating a common culture. There was always a lot of interaction. Southeast Asia is very different. We have two archipelagos, the Philippines and Indonesia, apart from the mainland. We never had in our history the experience of having the whole of Southeast Asia socially or culturally interacting. Of course, on the mainland, there have been comings and goings, but even there, Vietnam was in a way isolated. It was more influenced by other mainland countries than by the Buddhist-Hindu types of civilizations you find in the East of Asia. We do not have a common mould, and not even a common heartland. SB.- With the coming of the euro, Japan is trying to push the idea that the yen must gain importance. This is not new, but the euro is giving new impetus to the question: does it make sense in the long term to have two blocks with their own currency and a third block in the middle, with no currency of its own? Are there talks to try to find out a first step mechanism, like the monetary snake that was used in Europe at the beginning? RS.- Yes indeed. One of the decisions made in Hanoi was for ASEAN to study a currency and an exchange rate mechanism, of a "snake in a tunnel" kind. Another decision was for the financial authorities of ASEAN members plus three (China, Japan and Korea) to get together. They will probably do so in the next two or three months. At the same time, at the ministerial and so-called working level, ASEAN will undertake consultations on the impact of the Euro and how to manage its arrival. There will be consultations between ASEAN ministerial levels and the Vice-Presidency of the EU Commission. There will also be working level seminars and workshops. At some point, I think that China, Japan and Korea will be working on it. SB.- Is then an Asian monetary snake mechanism in the offing? RS.- No. What I am saying is we are studying that for ASEAN, but as to how the others fit in, we are not touching on that. Obviously, even for ASEAN, there will be many complications, but the obvious lesson from the current financial turmoil is that a move towards economic integration is the only way to withstand forces such as the global financial market, especially since other areas are moving in that direction, like Latin America with Mercosur. The only way for ASEAN to be able to compete is to get moving together. Notes: 1.- Two senior Khmer Rouge leaders, Khieu Samphan and Nuon Chea, believed to be architects of the genocide that caused the death of around 1.7 million Cambodians during the 1975-1979 Khmer Rouge terror regime, were allowed to defect to the Government in December 1998. After they defected, Mr Hun Sen, the First Prime Minister of Cambodia, suggested that his country “bury the past” and do not put them on trial in the interests of national reconciliation. Then, under pressure from the international community and unanimous condemnation from the world press, he declared he was fully backing an international tribunal for Khmer Rouge leaders, at the condition that the UN war crimes probe include the period covering 1970 to 1998, during which the United States, China and Great Britain played a direct or indirect role in the Khmer Rouge movement history. Despite Mr Hun Sen’s demand, the UN refused to change the scope of its investigations and to consider any implication of these countries in a trial. 2.- The so-called Manila Framework was drafted in November 1997 by APEC members. It aims to promote financial stability in the region. A that time, it somehow shot down Tokyo’s earlier proposal to set up a so-called Asian Fund to bail out battered economies in the region. It called for the establishment of an early warning system, financial cooperation, and emphasized the enhancement of the IMF’s role in defusing the economic crisis in the region. Eighteen leaders of APEC forum endorsed the principles, while ASEAN finance ministers endorsed that any assistance for their troubled economies would be supplemental to the IMF. The ASEAN statement on the financial crisis was the first to implement a regional surveillance mechanism to coordinate macroeconomic policies, monitor and identify possible risks or crisis in a particular country so that preventive measures could be taken in time. The Second Manila Framework Meeting took place in Tokyo on 26-27 March 1998. Finance and Central Bank Deputies representing Australia, Brunei Darussalam, Canada, People’s Republic of China, Hong Kong SAR of China, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and the United States met to review progress in addressing the crisis, and preparing the ground for sustainable growth in the future. High-level representatives from the International Monetary Fund, the World Bank and the Asian Development Bank also attended the meeting. Again, they emphasized the centrality of the IMF in defining the proper responses to the economic problems and financial dislocations occurring in Asia. 3.- As Mr. Severino outlined in a previous interview with Asian Affairs, ASEAN members are competing on many aspects of their economies, especially regarding the attraction of foreign investments. This competition always hindered moves towards a closer economic integration within the Association, and members remained reluctant to share sensitive data on their real economy. Winter 1999 | |||
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