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How Australia can use economic diplomacy to get closer to Asia

How Australia can use economic diplomacy to get closer to Asia

There is more to be said about Martin Parkinson's speech on US economic diplomacy, and in particular how Australian attention has been diverted from the challenge of developing our relationship with Asia through region-based arrangements.

Parkinson says that 'what is striking about post-war Asia was the absence until the 1980s of virtually any regional institutions to support economic growth and strategic stability.' This is not really true; both ASEAN and the Asian Development Bank date from the 1960s and, from 1967, the Inter-Governmental Group on Indonesia helped foster that country's post-Sukarno growth path.

What is true is that Western-oriented economic institutions paid little regard to Asia. Toyoo Gyohten, one of the prominent figures in Japan's post-WWII economic global integration, recalled in a 2006 speech that when Japan was admitted to the OECD in 1964, it was the only non-Caucasian nation among the 24 members. Gyohten said:

I still remember vividly the day when I went to a meeting at the Bank for International Settlements as an observer. It was the year the Cultural Revolution was sweeping China...But at the BIS meeting, central bankers from all the European countries were gathered, had cocktails, lunches and dinners and talked endlessly about gold, the dollar and the pound sterling, switching among English, French and German. There was absolutely no interest in the upheavals that were going on at that moment in China. The Vietnam War was at a critical stage but, apparently, the bankers had little interest in such events. I thought uneasily that, for these bankers, the world still seemed to end somewhere around the Dardanelles.

As Parkinson notes, there was some progress in the 1980s and early 1990s. APEC was formed in 1989. In the early 1990s Japan made efforts to link Asian finance ministries, mainly focused on ASEAN but sometime including others, even Australia. In 1991 the Bank of Japan sponsored the formation of EMEAP, bringing together Asian central bankers (including Australia).

In its regional initiatives, Japan was keen to form arrangements that excluded the US. The US, for its part, worked assiduously to avoid such exclusion. Sometimes it could veto the initiative (as it did with the Asian Monetary Fund in 1997) or disband it (as it did, much later, with the Manila Framework Group). If the arrangements looked like going ahead, it could insist on joining or create a similar group. When Japan formed the Four Markets Group in 1992 to foster communication with financial markets in Hong Kong, Singapore and Australia, for example, the US expanded this to become the Six Markets Group, adding itself and China in 1997.

Japan’s motivation was clear enough: it wanted to establish leadership in the region, become the region's channel into the G7 and, perhaps, act as its champion in multilateral forums. The US position was more ambiguous. Its participation in APEC was sparked by a fear of being left out of a Japanese-Australian-Korean initiative, rather than any heartfelt desire to build regional groupings. Perhaps its preference was to foster multilateral arrangements. Whatever the motivation, the manifestation was a lack of enthusiasm for Asian regional arrangements, but a strong desire to participate when they existed. [fold]

One initiative from this time deserves mention because it originated with Australia and was influential in pro-Asian changes to global governance. In 1995 the then RBA Governor Bernie Fraser proposed an Asian version of the BIS. His motivation was to encourage greater Asian participation in the global debate. The BIS response the following year — to admit four Asian countries (and five others) — was a satisfactory outcome: integrating Asia into the global dialogue was the objective, and regional matters could be handled within EMEAP. Further, it was Fraser's talk that spurred Japan to develop its proposal for an Asian Monetary Fund that pre-dated the Asian Crisis.

With these arrangements still in the embryonic stage, global knowledge of Asian economic affairs remained thin until the Asian Crisis. I can recall the then US Fed Chairman Alan Greenspan at a BIS meeting in 1997, assessing the unfolding crisis as a problem of excessive budget deficits (in his ignorance, he was confusing this crisis with the crisis in Latin America in the 1980s; budget deficits were not an issue in Asia in 1997).

Since 1998, Asia (and especially Southeast Asia) had developed a comprehensive web of discussion at all ministerial and bureaucratic levels, mainly built around ASEAN. The most ambitious macro-economic initiative was the Chiang Mai Initiative (it gained the suffix Multilateralization in 2010). So far this has been ineffectual in practice. CMI could have provided helpful support to Korea and Indonesia during tense moments of the 2008 crisis, but was not yet ready to do so. More generally, the ASEAN Economic Community (starting next year) provides the basis of closer integration. 

Sceptics see all this — especially the 'ASEAN way' of non-confrontation and snail-pace progress — as lacking the dynamism needed for effective cooperation. But ASEAN has eliminated almost all its tariffs and smoothed import procedures, as demonstrated by ubiquitous regional supply chains.

Overall, evaluation of ASEAN should not be too harsh. As recently as the mid-1960s, its members were in military conflict (actually the 1980s if you count Cambodia-Vietnam). Europe took 50 years to integrate, with many failed promises, empty communiques and false starts along the way. Asia is also not going to make Europe's mistakes of a single currency and a huge central rule-making bureaucracy (contrast ASEAN's tiny secretariat in Jakarta with the Brussels monolith).

The US is not in the inner circle of these ASEAN-based groupings (and not a member of EMEAP). In part this may reflect the long-standing Japanese idea that if Washington was kept out, it would mean a bigger role for Japan. Or it may reflect the more widely held view that the US would be the 'elephant in the canoe'; it bulks too large, and wants to run things.

If Australia is to find a larger role in Asia, it will have to make its own way, rather than tailgate the US. We should recognise that many Asian countries want some groupings that don't include the US (but could include a less assertive Australia). This attitude doesn't ignore the huge contribution North America makes to Asian security. It just says that Asia needs softer, less assertive forums to sort out its own ideas, which can then be taken to the global forums.

It's understandable that our starting position is often a desire to make APEC the centre of our plurilateral interaction with Asia. We were one of its parents. But we will make no progress in getting closer to the core group of ASEAN unless we accept the centrality of ASEAN. See here for a well argued case for our eventual membership of ASEAN. Why not start by offering $20million-$30 million of untied funding for the ASEAN secretariat?

We have made much progress with lower-profile bilateral relations between our politicians, businesspeople and bureaucrats. Australian police, our Treasury and others should be given credit for establishing close ties with their Indonesian counterparts. Much more could be done. We could, for instance, build relationships with SEACEN, AMRO, ERIA and CMIM. It ought to be part of an Australian economic bureaucrat's optimal career path to spend a few years at one of these institutions. We need to accept the glacial pace of progress on operational issues and recognise this is not the only purpose of these groupings.

When it comes to the multilateral links and the regional groupings, the first step is to establish a degree of independent thinking rather than ask 'what would America do?'

Image courtesy of Flickr user Fushimi Inari-taisha

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