Cooperation in the Wake of the Current Global Financial Crisis

Both the Asia and Pacific region and Latin America and the Caribbean are projected to experience economic decline as a result of the global financial crisis. In the Asia and Pacific region, the impact of the crisis was already felt in 2008, with the region experiencing a drop in GDP and an economic slump in 2009. Japan and the NIEs (Singapore, Korea, Hong Kong, China, and Taipei,China) are projected to experience a GDP decline of -6.2% and -5.6% respectively. As a whole, however, emerging Asian economies are projected to survive the global crisis, albeit with a drop in the growth rate to 3.3% in 2009 from 6.2% in 2008. These economies are expected to regain their growth momentum in 2010 with a growth rate of 5.3%. On the other hand, Latin America and the Caribbean's GDP growth rate is projected to fall to -1.5% in 2009, much lower than the projected -1.3% decline in global GDP growth rate, and poised to return to positive growth in 2010 (Table 17 [ PDF 31.9KB | 1 page ] and Figure 3 [ PDF 40.5KB | 1 page ]).

The picture becomes more dismal for the Asia and Pacific region if trade figures are factored in. Trade in both goods and services are projected to decline sharply in 2009. Exports are projected to fall sharply for NIEs, developing Asia, and ASEAN 5 at -11.9%, -9.1%, and -10.1% respectively. Imports are also expected to decline sharply at -13.9% for NIEs, -11.1% for developing Asia, and -8.8% for ASEAN 5. The year 2009 is projected to be one of the worst years for the Asia and Pacific region's economy. On the other hand, trade in Latin America and the Caribbean is also expected to decline in 2009, since export volume is expected to drop to -3.5% and imports to -6.7% (Table 18 [ PDF 31.4KB | 1 page ]).

With the dismal economic projections ahead in 2009, greater cooperation would be needed in trade and finance, as well as in macroeconomic management, to deal with the global financial crisis. Domestic and regulatory reforms have to be introduced, as well as better financial standards, good governance, and better safety nets to the vulnerable sectors.

The Asia and Pacific region and Latin America have a lot to learn from each other in terms of managing the impact of the crisis. The Asian financial crisis experience instilled in Asia the lesson of regional cooperation as an important factor for overcoming the crisis. Cooperation is necessary in setting regional standards on regulatory measures and in providing a complementary framework for financial reforms. Regional cooperation is also important in further integrating financial markets, especially where market-based processes have failed. Institutionalizing dialogue among the key players in the domestic financial markets is important to strengthen supervision and surveillance, coordinate regulatory frameworks, and create minimum common standards (ADB 2008).

While Latin America's economic success may not match the Asia and Pacific region, it is significant to note that most of the bigger economies in the region have greatly improved their economic policies and strengthened their institutions over the past years. This could partly explain why the bigger economies of Latin America remain relatively unharmed by the global financial crisis. The major economies of the region have been lauded for their conservative and well-regulated banks and good fiscal management. Chile has currently gained recognition as one of the best-managed economies in the world, with Mexico and Brazil not far behind (The Economist 2009).

There are studies that showed that regulatory and institutional factors within economies create bigger constraints to doing business than border measures (international barriers). Internal factors such as national policies and institutions pose a bigger challenge in pushing for reforms to harmonize regulations and standards across economies (ADB 2008, Drysdale 2005). By addressing “behind the border” issues through individual initiatives to reform domestic policies and institutions, Latin America is slowly reviving its economy. This is one lesson that the Asia and Pacific region could learn from Latin America—how to push domestic reforms and strengthen institutions domestically to ease the constraints in doing business, while maintaining hard-won reputation in the international market.

The two regions can share models for best practices in pushing for domestic reforms and supporting policies that would mitigate the impacts of the crisis. It is also expedient that the regions create policies that help stimulate regional demands by reducing barriers to trade and investment and reducing costs of doing trans-regional business. The next section discusses some of the constraints to a better business environment between the Asia and Pacific region and Latin America and the Caribbean.

4.1 Impediments to Economic Cooperation

UNECLAC's 2008 report provided an excellent account of the state of economic cooperation between the Asia Pacific and Latin America and the Caribbean. The report identified tariffs, transport costs, logistics, quality control measures, and research and education gaps as leading impediments to closer economic cooperation between the two regions.

4.1.1 High Effective Tariffs in Agriculture and Natural Resource Based in the Asia and Pacific Region

Agriculture is a sensitive sector in the Asia and Pacific region. The Asia and Pacific region countries continue to impose high applied tariffs on its agricultural sector, making market access to agriculture difficult for Latin America. The Asia and Pacific region's tariff on agriculture is higher than Latin America's and has even shown itself to be on an increasing trend. Natural resource products are also subject to high ad valorem and tariff quotas. The challenge for Latin America is to engage the Asia and Pacific region in negotiations that would allow Latin America to gain market access to heavily protected Asian sectors.

4.1.2 High Transport Costs in Latin America and the Caribbean

High freight costs put Latin America at a disadvantage for increasing its economic partnership with the Asia and Pacific region. Lack of maritime transport connections is one of the major trading barriers between the two regions and could limit potential growth. The maritime connections between the two regions are not yet adequately developed, unlike other maritime routes in several regions. Direct lines between Latin America and the Asia and Pacific region are available only to and from Chilean ports, while in the rest of the region several stops must be made in South Africa or other South American countries before setting course to Asia.

4.1.3 Weak Trade Logistics in Latin America and the Caribbean

Latin American countries performed weakly in the Logistics Performance Index developed by the World Bank, given the high logistics costs in the region and the weak port capacities. The two areas in which Latin America underperformed are customs and port infrastructure facilities. Nonetheless, Chile and Argentina, the top performers in Latin America in customs and port infrastructure facilities, ranked higher than some countries in Southeast Asia for trade logistics.

4.1.4 Quality Control Measures in Latin America and the Caribbean

The PRC and Japan account for 70% of all the quality control measures (ISO) issued in the two regions in 2006. Latin America, on the other hand, only issued a very small portion of ISO certifications between the two regions at 5.5%. Most ISO certification comes from Brazil and Argentina. While quality control measures are not necessarily obligatory, ISO certification is influential in determining competitiveness and influencing buying decisions of consumers (Table 19 [ PDF 28.9KB | 2 pages ]).

4.1.5 Research and Development Spending

Compared to research and development (R&D) spending in Japan and the NIEs, Latin America falls far behind. East Asia and the Pacific, as a whole has more than 722 researchers engaged in R&D per million people, when including Australia and New Zealand, while Latin America only has 256. However, for some aspects of R&D, Latin America fares better than ASEAN countries For instance, Argentina fared better than ASEAN in terms of patents granted to residents, and Argentina, Chile, Uruguay, Mexico, and Brazil have more researchers engaged in R&D compared to ASEAN-member countries (Table 20 [ PDF 26.2KB | 2 pages ]).

4.1.6 Education Gap Between the Two Regions

Asian countries, with the exception of Thailand and Indonesia, consistently rank high in the Programme for International Student Assessment (PISA) Survey of student skills in science, mathematics, and reading. PISA survey covers almost 90% of the world economy in assessing the knowledge and skills of students in three areas. In contrast, Latin America falls far behind, ranking along with Middle East and Eastern Europe (Table 21 [ PDF 26.6KB | 1 page ]).

Download this Paper [ PDF 601.1KB| 48 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.