Asia should look within for economic solutions

By Tom Plate

The region has some of the world's highest individual savings rates. So why are its entrepreneurs, governments and corporations so hooked on foreign investment money?

What, for this New Year, is the best game plan for Asia and the Pacific? It's to regionalize common efforts more than ever and appreciate how an improving economy can ease seemingly intractable political problems. For example:

With the memory of past financial collapse still fresh in everyone's mind, the sense of survive-together-or-die-together in Asia must become stronger than ever. Almost everyone recalls how obviously the West failed to rush to the region's assistance in 1997 — and how quickly it pointed a finger at Asia's shortcomings.

But rather than curse the darkness, better to light indigenous financial candles. The region should be harvesting domestic capital more aggressively rather than depending, like an addict, on outside injections of capital. Asia, after all, sports some of the highest individual savings rates anywhere. So why are its entrepreneurs, governments and corporations so hooked on foreign investment money?

A year-end study by the Asian Policy Forum of the Asian Development Bank Institute suggests the need for better banking systems to underpin a sprawling, cash-deep regional bond market. Such a vast new upsurge of local capital for local investment could stanch the region's dependency on foreign inflows. Recall that it was the blitzkrieg-like withdrawal of Western cash that helped shove various Asian economies off the rails. A more efficient preventive for the dangerous recurrence of this now-dormant but ever-present economic malady may lie in the creation of regional cash sources rather than in the technically difficult erection of capital flow barriers.

Bet on Asia's recovery and watch the regional magic return. Yes, the economy last year was dreadful. But many economies are predicted to recover this year not so much because of outside help — whether foreign aid, incoming capital or surging exports — but because of rising domestic consumption. Throw in, it is hoped, a U.S. recovery, which would add to export demand, and we might have a spanking good year after all. "It is the Asian consumer who will lead the recovery," forecasts the Hong Kong and Shanghai Banking Corp., a regional banking power. So let's take the lead from HSBC and start thinking positively: Optimism is not only better for your health, it's good for the economy.

Let the evolving regional economy take the edge off some perennial geopolitical problems: One silver lining in the regional recession cloud is that the enervating downturn has compelled Taiwan to lift its ban on direct business deals with China.

Though chafing at being sucked into Beijing's orbit, Taiwan, which was proud to become the 144th member of the World Trade Organization recently, is quietly accepting the truth of an inescapable law of physics: Small bodies can't escape the gravitational pull of much larger masses hovering nearby.

Reflecting on the grinding effect of economic interdependency on political tensions, Beijing, for its part, should accept that too much would be lost by an unprovoked military attack on Taiwan.

America, for its part, could help by accepting the wisdom of the past policy of benign ambiguity. Don't embolden Taiwan to taunt the mainland tiger by offering a guarantee that a macho United States would come to the island's defense were it invaded.

And don't taunt you-know-who by trying to play big brother in a local dispute.

Indeed, if emboldened Taiwan declared independence from Beijing, the next day you might have World War III on your hands. That's the judgment of a superlative study of Taiwan's security needs by policy analysts Michael D. Swaine and James C. Mulvenon, both of the Center for Asia-Pacific Policy at Southern California-based RAND. They conclude:

"American support for Taiwan's democratic development should not equate with support for independence."

Nor should American support for any Asian nation depend on the singular litmus test of democratization. Imagine if that standard had been applied implacably on Pakistan, which has begun rounding up its worst terrorists and putting these fanatical religious criminals behind bars, where they obviously belong. Now Gen. Pervez Musharraf's Pakistan sees foreign debt quickly sliced and its foreign exchange cash reserves dramatically higher.

That's good for the region as well — even, eventually, for India.

Syndicated columnist Tom Plate is published regularly in The Advertiser. Contact him at tplate@ucla.edu.