Latest economic crisis forces Asia to seek new economic paradigm

In the wake of the 1997 crisis, which left several Asian governments bankrupt with their financial institutions and currencies in tatters, the region had to rely heavily on exports to rebuild their economies.

As a result, exports grew from less than 40 percent of Asian GDP before the 1997 crisis to more than half in the post-crisis period. This also led to Asian central banks accumulating massive foreign exchange reserves of US$5 trillion in 2009 (US$2.3 trillion in China alone) of the world's total reserves of US$8.8 trillion.

Those reserves are a bitter memory of the IMF's bailouts of 1997, which included fiscal constraints and other tough conditions that arguably deepened the regional recession.

“Why have we become the guardians of such a huge reserve?” said Supachai Panitchpakdi, current secretary-general of the United Nations Conference on Trade and Development (UNCTAD) who was Thailand's deputy prime minister in charge of the economy in 1998-2000.

“It's mainly because Asians have learned the painful lesson that when you need an umbrella because its hurricaning outside, nobody will give you anything to cover yourself,” he explains.

Now the West would like Asia to use those massive reserves to bolster their domestic economies to encourage Asian consumerism as a new engine for global growth.

“The United States needs to consume less and produce and export more, while many of our APEC members with surpluses should seriously consider the need to increase their consumption and imports,” Ron Kirk, U.S. Trade Representative told a gathering at the Asia Pacific Economic Cooperation (APEC) summit in Singapore in early November.

At the APEC summit there was indeed a consensus reached that Asia needs to find a new paradigm for growth, since the era of global growth led by excessive American consumerism is dead and buried.

Newly-elected Japanese Prime Minister Yukio Hatoyama, who came to power on a “change” platform, has become an eloquent proponent of the new economic paradigm, starting at home.

“We're saying we have to shift from concrete to human beings,” Hatoyama told APEC. “We need to create an economy based on local economies — nursing care, welfare and the environment.”

Building better social safety nets is part of the paradigm, especially in China where a lack of medical and old age security has made the Chinese avid savers and poor consumers. Consumption accounts for only some 30 percent of China's GDP, compared with 50-60 percent in the rest of Asia and the industrialized counties.

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