01 Mar 2009
March 1 (Bloomberg) -- Southeast Asian leaders pledged to cut trade barriers and open more service industries as the bloc struggles to overcome a global recession that has eroded export demand and boosted protectionist sentiment."The leaders reaffirmed their determination to ensure free flow of goods, services and investment," the 10-member Association of Southeast Asian Nations said in a statement after meeting in Cha-am, Thailand. "They agreed to stand firm against protectionism and to refrain from introducing and raising new barriers."
Asia is being hit hard by the global economy's worst crisis since the Great Depression as the region is almost twice as reliant on exports as the rest of the world. That's prompted Asian governments to unveil fiscal stimulus packages worth almost $700 billion to kick-start local consumer and business spending.
Growth in Indonesia, Southeast Asia's largest economy, was the least in two years last quarter, and Thailand is expected to enter its first recession in a decade. Singapore is in its deepest downturn ever, while Malaysia's economy grew at the slowest pace in seven years last quarter.
Central banks have responded to weakening growth by slashing interest rates. Bank Negara Malaysia on Feb. 24 reduced its benchmark rate for a third straight meeting to 2 percent, aiming to bolster an economy that policy makers said faces an increasing risk of contracting this year. The economy last posted an annual decline in 1998.
Interest Rate Cuts
Thailand's central bank on Feb. 25 lowered its key policy rate by 50 basis points to 1.5 percent, adding to its most aggressive cuts ever. The Bank of Thailand will probably cut rates further this year to boost growth as the country faces its first recession in 11 years and 1 million job losses, Finance Minister Korn Chatikavanij said in an interview yesterday.
Asean leaders warned of the dangers of measures aimed at shielding domestic industries and goods from overseas competition as the worldwide economic downturn threatens jobs and hurts manufacturing.
"We want to be clear that the Asean countries are firmly committed to free trade, and we'll do whatever we can to make sure no countries resort to protectionist measures to try to ease their way out of the crisis," Thai Prime Minister Abhisit Vejjajiva said at a news briefing today. "If any of that happens, and if all countries begin to join in, then everybody loses."
Asean will "take assertive action" against protectionism and will emphasize the point "to the rest of the world," including the G20 meeting in the U.K. in early April, Abhisit said.
EU-Style Integration
Asean is attempting to create an economic zone modeled after the European Union, without a common currency, by 2015. The group has said it needs to improve its competitiveness as China and India, the world's two fastest-growing major economies, attract an increasing chunk of global investment.
Asia's export-dependent nations are reeling from the global slowdown, which has slashed demand for the region's computer chips, cars and commodities.
"Regional cooperation becomes even more important as we seek to pursue joint approaches and pool our resources to cope with difficulties that we all face," Asian Development Bank President Haruhiko Kuroda told leaders in Cha-am yesterday.
Asean together with Japan, China and South Korea last week agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies to battle fallout from the global financial crisis.
Australia, New Zealand Deal
The grouping on Feb. 27 also signed a free-trade pact with Australia and New Zealand that covers trade in goods, investment and services. It will implement one with India in the next few months after years of negotiations.
"All of this standard Asean procedure amounts to very little in the current context of the global financial crisis and rising protectionism around the world," said Razeen Sally, a director of the European Centre for International Political Economy, a Brussels research group that backs free trade. "These FTAs, bilateral or collective, are not anywhere near strong enough to limit or arrest these protectionist trends."
Amid the free-trade agreements, some countries are putting in place policies to help domestic businesses that may come at the expense of overseas ones.
Indonesia's Trade Ministry issued a decree ordering civil servants to use local products, Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed at boosting domestic demand and helping local industries including food, beverages, footwear, clothing and music, the report said.
Protectionism ‘Normal Reaction'
It is a "normal reaction" for countries to resort to protectionist measures in a slowdown, Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview published Feb. 27.
"If we are not supportive of our own industries, and do not buy our own products and services we will have a serious problem," Abdullah said. "As it is, we are told that countries which have been importing our products before are not going to be importing the same amount anymore. We have to protect our people."
