Australia's Role in Asia
The Hon Peter Costello, Treasurer of the Commonwealth of Australia
October 16, 2002
"Australia's Role in Asia"
AustralAsia Center of the Asia Society Annual Dinner
The Hon Peter Costello
Treasurer of the Commonwealth of Australia
I flew up here this evening from the Parliamentary sitting in Canberra, and as I was walking through the terminal at Sydney Airport, a man came up to me and said: "My name's David. I've got a son who is missing in Bali." And I said to him: "What news have you had?" And he said: "Only that he hasn't been back to his motel." He was standing there, with a friend who had his arm around him, and I said: "Who is this?" He said: "It is the Godfather. We're flying to Bali tonight to bring our boy home. "The events of last weekend in Bali have reminded us again all too clearly, and all too painfully, how Asia and Australia are inextricably linked. Asia's security problems are our security problems. Asia's future will influence our future. And Australia has a vital interest in the way the countries of the region deal with the immense challenges before them.
Leave aside the geographic question about where Asia starts and finishes. The point here is that Australians are part of Asia. They are found working, travelling, and living throughout the Asian region. In all of the economic centres there are Australian citizens using their skills and adding investment to the countries of the region. And these are many of our best and brightest. These Australians, thoroughly engaged in the local communities, are on a person to person, business to business basis drawing our countries together with overlapping ties and ongoing interests.
Security problems in Asia are security problems for Australians and for Australia. This evil attack, this senseless carnage has wasted young and precious Australian lives. And Singaporean, Japanese, Korean and, of course, Indonesian lives, as well as citizens from many other countries.
Perhaps these twisted perpetrators thought they were punishing Westerners like Australians. Or perhaps they thought they were punishing Balinese business interests. Perhaps they think that killing people will somehow lead to a change in the Indonesian Government. At this stage it is too early to say how the criminal mind was thinking.
But the withdrawal of tourism, and the withdrawal of investment as a result, will harm Indonesia. It will damage the Indonesian economy. It will cause additional hardship to the Indonesian people.
What we must be careful about is that it does not lead to a withdrawal of Australian engagement with Indonesia. We must not withdraw. We must increase our engagement. In the first place we must increase our engagement on law enforcement.
We should work from our strengths as an advanced country in the region to stand shoulder to shoulder with our neighbours in the fight against terrorism.
Already we have sent experienced investigators and forensic experts to assist with the immediate aftermath of the attack.
Australia now has close to 50 personnel on the ground in Bali, comprising police and intelligence officers, experts in victim identification, crime scene examiners, fingerprint and bomb examiners and search and rescue personnel.
We will explore all options with Indonesian authorities for the pursuit and prosecution of suspects.
The perpetrators must be brought to justice. And we must heighten our engagement in the security sense. We have a common interest in improving the capacity to intercept warnings of terrorist activity. We have a common interest in working against terrorist cells in disrupting their organisation and freezing their finances. The terrorists should be under no illusion that they can gain from their actions. And Australia will not be deterred from deeper regional engagement and cooperation. Indeed, the events in Bali will only serve as a spur for strengthened cooperation on all fronts.
THE STRATEGIC IMPORTANCE OF ASIA
Asia is economically and strategically important in world terms. Asia contains the world's second largest economy, Japan, and the world's two largest emerging markets, China and India. Notwithstanding the difficulties Japan has faced over recent years, on a purchasing power parity basis it continues to account for almost 7 per cent of world GDP. Asia as a whole accounts for a third of world output; East Asia accounts for the bulk (85 per cent) of this. Fifty-five per cent of the world's population lives in Asia (60 per cent of whom are in East Asia).
Of course East Asia is our main regional trading partner.
Around 58 per cent of our exports of goods and services go to East Asia (including NZ and PNG). The Menzies Government negotiated the Commerce Agreement in 1957 which opened the
Australia - Japan trading relationship. Japan is our largest export market by far and seven of our ten largest merchandise export markets are in East Asia. By the same token, our major source of imports is the East Asian group of economies (47 per cent of our imports).
East Asia is also an important investment market, accounting for 21 per cent of our inward accumulated investment and 15 per cent of our outward accumulated investment. Australia's investment relationship with the United States and Europe is much larger. But further economic growth, stability and development in Asia will, I think, stimulate broader Australian investment in the region, and greater Asian investment in Australia.
These figures highlight the importance of Asia to Australia. Our regional partners also recognise that Australia brings substantial commercial value to Asia. China's recent decision to award a 25 year LNG contract worth $20 to $25 billion to Australia is a powerful demonstration of this.
Our many interactions with the region have also changed who we are. More than 1.3 million Australians claim Asian ancestry. According to the 2001 Census, more Australians now describe themselves as of Asian background than of Greek, Italian and Maltese background combined.
Australia has its own unique culture. We are a people who confidently enjoy the cultures of Asia and the rest of the world. Seven of our top 10 overseas travel destinations are in the region.
When I first became Treasurer in 1996, East Asia, which had seen decades of stellar economic performance, was considered the blueprint for emerging market economies. Countries in the region with high savings rates, a strong work ethic, rapid industrialisation, and strong Government economic intervention had rapidly lifted growth rates and improved living standards. The Asian `economic miracle' was in full swing. Some commentators pointed to it as a model for the advanced economies of the developed world.
By comparison with other emerging markets, in Europe, Africa, Latin America, and the new republics of Central Asia, East Asia countries are still the stellar performers. But the `economic miracle' was savagely interupted in 1997. The financial crisis first in Thailand, then in Indonesia and Korea, engulfed the whole region.
The exchange rate instability and the flight of capital eventually led to significant recession. Only China and Australia withstood the crisis. And it focussed attention on structural weaknesses in many economies of the region. In Indonesia the financial and economic crisis contributed to the end of President Suharto's government.
But our response in 1997 was to increase our engagement with the region. We stood shoulder to shoulder with countries affected. We knew that the financial instability in Asia represented a very direct threat to our economic prospects. We want a strong and prosperous Asia. For Asia's sake and for our own.
In the midst of the 1997-98 crisis, Australia committed to financial assistance in the form of $US 1 billion loans for each of Thailand, Indonesia and Korea. Japan was the only other country to commit itself to assistance for all three of these countries. This commitment of bilateral finance was made in support of financial stabilisation packages led by the IMF, the World Bank and the Asian Development Bank.
Australia was a founding member of the Asian Development Bank in 1966 and continues to play an active role as the region's second largest shareholder. We have worked hard in forums such as the Executives' Meeting of East Asia Pacific (EMEAP) Central Banks to foster an effective regional policy dialogue and financial cooperation in support of stability. In the mid-1990s, the Reserve Bank of Australia entered into repurchase agreements with many of its central bank counterparts in the region.
In 1997, as part of a collaborative response to the financial crisis facing the region, Australia worked with others to establish the Manila Framework Group to facilitate bilateral financing between countries in the region. We continue to play an active role in this forum.
We have also been a strong voice in support of Asian interests and representation in the various multilateral forums in which we participate. Australia was a key player in the formation of the Bretton Woods Institutions: the IMF and World Bank. We have constantly strived to make these institutions work as effectively as possible and to represent the interests of our region. We were strong and independent advocates for better assistance and revision of inappropriate IMF programs during the financial crisis of 1997. We continue to argue for more appropriate representation of Asia in the IMF and World Bank.
We have also been active in the Financial Stability Forum in pressing for improved accountability and openness of both governments and private financial entities, like hedge funds - a matter of concern to many of our regional partners. In the WTO, together with our partners, we have pursued a more open and fairer international trade and investment system. And we strongly supported an outstanding Thai candidate to lead the WTO.
Australia has also steadfastly supported the G-20, a grouping that brings together the G-8 with Australia and the world's other systemically important economies. As a group which includes both the key industrialised economies and major emerging markets such as China, Brazil, India and Indonesia, the G-20 provides an unparalleled opportunity for the region's systemically important economies to have an effective voice in the global policy debate.
Australia's commitment to the region has been tried, tested, and proven.
THE FUTURE OF ASIAN ECONOMIC INTEGRATION
The significant increase in interest over the past five years in exploring regional responses, in particular in East Asia, to shared economic and financial challenges is clearly a development of great significance.
East Asia is seeking to deal constructively and cooperatively with changes in the strategic position and power of key countries in the region. And, after the turmoil of the past five years it is looking closely at regional cooperation and promoting greater integration.
In the 1980s, Australia worked with Japan to establish APEC, and has continued to provide leadership in that grouping. My own experience with the APEC Finance Ministers process highlights the useful exchanges between Ministers on fiscal and financial sector reform. Over the last seven APEC Finance Ministers meetings I have valued the unique opportunity to meet with colleagues from around the region. APEC has proven of great value in areas such as capacity building and the strengthening of financial systems and improving corporate governance frameworks.
One of the great lessons of the 1997-98 financial crisis is the importance of an economic framework supported by strong institutions. This framework must include financial supervision, prudential standards, judicial independence, focussed corporate regulation and arms length lending, all of which are important for a well functioning economy and the ability to withstand external shocks. Developing institutions capable of performing these roles in all the countries of the region is crucial to regional stability.
Some officials and commentators in the region have argued that regional economic cooperation should aim for an exchange rate mechanism and, ultimately, a common currency along the line of the European Monetary Union. This is an ambitious objective. Our region encompasses some of the world's largest economies and some of its smallest. It includes countries at widely different stages of economic development, from very rich developed economies to rapidly growing emerging industrial economies to poor, subsistence-based economies. It embraces dramatically different cultural, legal and commercial traditions. Virtually all of the world's great religions are to be found here. We are a region of unparalleled diversity.
This dramatic diversity suggests our ambitions for greater economic integration need to be realistic.
We believe those ambitions should start with trade. Here NAFTA could provide a more realistic model for Asia than the European Union. And the region has already set itself the goal of free trade in the Bogor declaration. Delivering the Bogor commitment would be an enormous advance toward closer integration.
The creation of new regional forums, such as ASEAN+3, is bringing leaders, ministers, and officials together to discuss issues and policy in a constructive and open manner. It enables collaboration in identifying and managing shared risks. And, more generally, it gives countries in the region the ability to more effectively project East Asian interests, and provide an East Asian perspective, in global institutions and policy forums.
The Chiang Mai Initiative, complemented by further evolution of the Manila Framework Group, may provide the basis for another important area of regional cooperation - enhanced financial cooperation. It is possible that such developments will eventually also result in new mechanisms for crisis funding complementary to existing global mechanisms and institutions.
Some appear concerned that these developments signal the rise of insularity in East Asia. This interpretation fails to recognise that East Asia's economic and strategic interests are fundamentally global. The region depends heavily on markets in, and investment from, Europe and the Americas. For this reason, I think that East Asia is highly unlikely to turn in on itself.
But this is not a foregone conclusion. The more other regions turn inward and engage less with the world, the harder it is for Asia to remain oriented outward. It is therefore very much in Australia's interests to use what influence we have at both the global and regional level to strengthen the multilateral trading and investment system and resist protectionism and insularity in all its forms. Let me also say that countries outside the region need to remain engaged, and to engage constructively.
While the economies of Asia are at different stages of development, their performance has so far been largely driven by their integration into global production chains focused on meeting external demand. It may be some time before the economies of the region, collectively, can begin to look to domestic drivers of growth. However, the presence of giants such as China and India underscores the potential for this, if structural reforms aimed at improving the allocation of abundant domestic savings, enhancing productivity, and increasing the ability of local populations to participate in the benefits of growth are sustained.
The resilience of our own economy in the face of the severe decline in many of our trading partners during the 1997-98 crisis is powerful testament to the importance of structural reform and a sound policy framework.
Structural reform - ranging from a floating exchange rate and lower tariffs, to implementing an effective competition and corporate regulatory system, introducing a new tax system, and freeing up the labour market - positioned our economy to be able to respond flexibly to rapidly changing circumstances. A sound medium-term macroeconomic framework, and the repayment of Commonwealth debt preserved our credibility with investors and consumers and reduces the risks of policy mistakes.
This has made Australia more relevant than ever before as a partner in commerce and economic development to the rest of the region.
CONCLUSIONOur links to date with Asia have been deep and complex in economic terms. I have no doubt these will continue to deepen to our mutual benefit. Given our geography and the intensity of our economic relationships with East Asia, we see ourselves as an integral member of the East Asia region, and we stand ready to participate further in regional dialogue and mechanisms for financial stability and cooperation.
The events of the past few days in Bali have brought home the reality that when it comes to terrorism, national borders are irrelevant. Asia's security problem is Australia's and vice versa. At one time terrorism was local. It is no longer. Terrorism is international and the response to it must be international.
The economic impacts of terrorist attacks are very widespread and fall most heavily on the vulnerable members of society.
To counter this threat, cooperative and forceful action is required. For our part, we have taken active steps, particularly since September 11, to bolster regional cooperation to combat the threat of terrorism.
Indonesia and Australia signed a Memorandum of Understanding in February of this year to enhance counter-terrorism cooperation between our officials. This foresight in entering into the MOU will be very useful in the days and weeks ahead enabling officials from the Australian Federal Police and ASIO to work cooperatively with their Indonesian counterparts in tracking down the perpetrators of these terrible acts.
Australia has also strengthened its counter-terrorism cooperation with other countries in the region. We have signed Memoranda of Understanding on cooperation to combat international terrorism with Malaysia and Thailand. These MOUs are umbrella agreements that set out a framework for bilateral cooperation in law enforcement, defence, intelligence, customs and immigration. We are looking forward to concluding similar arrangements with other countries in the region.
We have been engaged in intelligence sharing with other countries in the region. And through our involvement in the United Nations, IMF, the Asia Pacific Group on Money Laundering and the Financial Action Task Force, we have been working actively to counter the financing of terrorism, regionally and globally.
Australians are enmeshed in the rich tapestry of Asia, as Asia is an increasingly important influence on Australia. Moments of crisis highlight our common destiny. In 1997 it was a financial crisis. Today it is a human tragedy. At these points of crisis we must not withdraw. We must heighten our engagement and our cooperation. We must work together. Australia stands ready to do so.