The global financial crisis and the consequent economic slowdown serve as an opportunity to review not only the current status of Western and emerging economies, but also their future. This assumes importance in the regional context because of the attempt of the Gulf Cooperation Council (GCC) countries to adopt a ‘Look East’ policy since the beginning of this century.
Asia serves as a destination and source for more than half of the Gulf exports and a third of its imports, respectively. Together, the Gulf-Asia trade bill was about $300 billion in 2006 — tripling between 2000 and 2005 — and increasing even more following high oil prices thereafter.
With Asian economies appearing to be better positioned to absorb the shocks of the economic crisis and recover faster than the West, it is important for the energy- and capital-rich Gulf countries as well as the energy- and capital-hungry Asia to further consolidate their ties.
In attempting to do so, it is worth analyzing some of the economic dynamics of the East and West.
One of the most glaring double standards of the West is its turnaround on sovereign wealth funds (SWFs). After a series of high-value investments in the West by SWFs — including some from the GCC countries — during the last few years, some of the Western governments failed to see them as merely commercial. Instead, they expressed concerns that major shifts in international finance could involve power politics.
However, after feeling the initial tremors of the financial jolt, the West’s ‘politics’ on SWFs changed swiftly. British Prime Minister Gordon Brown was among the first Western leaders to visit the region, seeking financial assistance for British companies in a bid to rev up the country’s economy.
Second, after preaching against bailing out failing companies and institutions during the 1997-98 Asian financial crisis, the Western governments lined up to do just that by doling out assistance as the crisis unfolded this time.
Third, after advocating against protectionism in a globalized era, a World Bank study now points to 17 of the G20 countries undertaking new protectionist measures, most notably the United States, which has included the “buy American” clause in its stimulus package.
Finally, leaders agreed at the G20 summit to publish a blacklist of tax havens that could lead to sanctions, a demand that was made by many emerging economies in the past to combat tax evasion and corruption, but rebuffed by the West.
Looking ahead, while the West’s financial system was attractive for the GCC countries because of the much-touted characteristics of transparency, accountability and good governance, in reality, the crisis has exposed the contrary. Former US Federal Reserve Chairman Alan Greenspan finally acknowledged this by saying that lending institutions had failed to regulate themselves, leading to the turmoil.
In contrast, Asian banks have emerged stronger and boast of very high foreign exchange reserves, which are not only the result of being cautious in their capitalist drive and prudent policies, but also due to the widespread practice of saving over reckless spending, both among the people and governments. This is reflected in the Western ‘consumer loans to GDP’ ratio being 10 times more than that in Asia; and the Chinese and Indian foreign reserves increasing from $145 billion to almost $2 trillion and $28 billion to $315 billion, respectively, between 1998 and 2008.
At a time when the Western economies are struggling, the World Bank forecasts China’s growth to only slow from double digits to 7.5 percent in 2009. Besides, India has revised its GDP growth to 7-7.5 percent, down from nine percent last year. This makes Asia a highly profitable environment in the future for all capital-rich and investment-oriented countries, including those in the Gulf.
Further, according to a report, the top 10 performing stock markets in the world are currently in non-Western countries. While China’s index has gained about 40 percent during the last four months, and Russian and Brazilian stock markets are up nearly 30 percent, the top 100 companies on the London Stock Exchange have lost ground by about 10 percent, as has the US’s Dow Jones, during the same period.
Yet, rather than praising the resilience of Asian economies, the West is pointing to their “weakness,” especially China’s, for not being able to prop up the global economy.
In defense, consider the following irony — while the West’s unwise policies made many rich poor during the last few decades, the Asian brand of economic development made millions of poor rich.
According to World Bank statistics, about 600 million people in China were lifted out of poverty between 1981 and 2005, while the poverty rate reduced from 60 to 42 percent during the same period in India.
It is also ironical that while Conservative Party leader David Cameron and billionaire investor George Soros have warned that Britain could be forced to borrow from the International Monetary Fund to keep the economy afloat, Asia is raising to the occasion by digging into its own reserves to ease the pressure of the continent.
For example, the Chiang Mia Initiative of 13 East and Southeast Asian countries has agreed to establish an emergency $120 billion regional fund to provide liquidity, while Japan has unveiled a scheme to supply more than $60 billion to overcome the crisis and China has announced a $10 billion Asian infrastructure investment fund.
All these factors make Asia a master of its own destiny. The current crisis is bound to start correcting the unequal relationship between the West and Asia. This was evident in the leaders of G20, not just G7, meeting to discuss crisis management a few months ago. It is also partly in this context that China is questioning the reliance on the US dollar as the main international currency.
There is still a perceptible gap between Asian and developed economies. However, while fatalism has replaced optimism in the West, the latter is still thriving in Asia. All these could combine to influence investor-thinking in favor of Asia in the future.
In particular, the cash-rich countries, like those in the Gulf, may be better off seeking the best possible gains in an otherwise slow world economy by avoiding flirting with the West and consolidating their 21st century shift toward the East.
(N. Janardhan is a UAE-based analyst on Gulf-Asia affairs)
