Helping Asian economies adds to profits in Michigan

(Commentary, Detroit Free Press, February 23, 1998)

Recent economic trouble in East Asia reaches close to home: East Asia and the Pacific is a major trading region for Michigan, with some $3.2 billion in exports going there in 1996, accounting for thousands of jobs in the state. Developing countries in East Asia represent one of the fastest growing markets for Michigan, with exports increasing 247 percent – or $760 million – between 1990 and 1996.

The Asian economic crisis risks undermining one of the most remarkable economic and social achievements of modern history. The effects of this crisis could also undermine hard-earned gains in trade-related growth for the state of Michigan.

Over the past 20 years, economies in East Asia, including China, have grown at 8 percent each year. The region's share of global output, trade and capital flows place it on a par with the major developed regions of the world. Poverty in East Asia has been reduced from 60 percent to 20 percent within those years – largely due to investment in people and dazzling economic growth. That statistic translates into 370 million fewer poor people in East Asia.

A lot has been written so far about the immediate response to the financial crisis. The World Bank and the International Monetary Fund are working closely with countries in the region and with non-regional authorities, such as the U.S. Treasury Department, to address the root causes of the crisis and restore investor confidence. However, what began as a financial crisis has spilled over into the rest of the economy, severely affecting the extraordinary progress the region has made in poverty reduction.

The long-term challenge is clear: to address the broader issues arising from the crisis, such as reform of the financial sector, strengthening social protection for the poor, and improving the transparency of government institutions. If the causes of the crisis are addressed effectively, we can ensure that millions of people in Asia do not return to lives of poverty. At the same time, we can ensure that some of Michigan’s most important trading partners restore the foundation for a prosperous and sustainable pattern of economic growth.

The World Bank is deeply involved in the restructuring of the East Asia financial sector and the management of the crisis. The World Bank has indicated it will provide up to $16 billion, in addition to technical assistance, to support East Asian governments in carrying out three principal objectives: helping restore growth and raise incomes through wide-ranging reforms; strengthening social protection for the poor and other vulnerable groups to help cushion the impact of the crisis; and improving the quality and transparency of key government institutions, including helping governments address problems of corruption and accountability.

In times of crisis, it is tempting to overlook the fact that the most important elements of East Asia’s past development achievements remain largely in place. Sound fiscal policies, high savings, a commitment to education and technological progress, a relatively egalitarian distribution of income, and an outward orientation provide a solid foundation for economic recovery.

These suggest that East Asia’s long-term prospects continue to be bright if governments can move swiftly to reform their financial sectors, remove barriers to competition, and establish sustainable integration with global financial markets. Along the way, they will have to maintain a focus on adopting social policies that cushion the impact on poor people and provide for their participation when economic recovery resumes.

From 1990 to 1996, Michigan exports to some East Asian countries have risen dramatically, with gains of 158 percent to Thailand and 260 percent to Malaysia in those years. South Korea was the state’s seventh largest market in 1996, with a total of $480 million in exports.

Today, even if you have no direct stake in Asia, the success or failure of efforts to deal with the region’s crisis will affect you. Failure to restore stability and confidence to these economies would have far-reaching consequences for all of us in an increasingly interdependent global marketplace. The World Bank is committed to supporting East Asia in this effort.

Tim Cullen is senior adviser for external affairs at the World Bank. He was with Ford Motor Company from 1969-1975. He is in Detroit today to address the Detroit Council for World Affairs.

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