Planning for success in Cambodia


October 14, 2017

Planning for success in Cambodia

by Jayant Menon

https://blogs.adb.org/blog/planning-success-cambodia

Weak human capital is arguably the biggest challenge for Cambodia to reach middle-income status.
Weak human capital is arguably the biggest challenge for Cambodia to reach middle-income status.

Cambodia recently made the transition from a low income to a lower middle-income country, according to the World Bank’s rankings.

This is good news, but it poses a question: Does Cambodia need to rethink its model of export-driven economic growth, as preferential access for its exports to developed countries is gradually reduced or as aid flows diminish? Not necessarily, at least for now. But it should start preparing immediately.

Cambodia still has least developed country or LDC status as defined by the United Nations, and will likely retain its trade privileges for a while yet. But it will likely transition out of LDC status by around 2030 if it maintains current growth rates. With adequate advance planning, Cambodia can avoid being a victim of its own success when it does so.

That means stronger efforts to improve the tax collection mechanism, and curbing tax avoidance and evasion. Strengthening institutions to improve tax collection, and creating a culture where businesses and citizenry feel an obligation to contribute towards the provision of public goods and services, can take years, so it needs to start now.

Weak human capital is top challenge for Cambodia to reach middle-income status

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Cambodia also needs to expand the tax base, and hasten the move from direct to indirect sources of tax collection, while reducing its reliance on trade taxes. These initiatives are essential to mobilize domestic resources to fund development, given that overseas development aid and concessional financing will wane as the country gets more prosperous.

Cambodia also has several domestic obstacles to overcome, not only to prepare for a transition to upper middle income status, but to speed up that journey.

Arguably the most important challenge is weak human capital, as well as a skills mismatch. To fix this requires a much greater investment in education – not only in vocational or higher education but also at primary and secondary school. The enormity of the task that lies ahead is underscored by the World Economic Forum’s Global Human Capital Report 2017, that placed Cambodia at the bottom of the list in ASEAN.

The goal is making sure all Cambodians have at least 10 years of schooling, forming the basic building block for a much more productive workforce. Then we can talk about specialized vocational or tertiary education, and matching employee skills to employer needs.

At this stage, and based on interviews with Japanese firms operating in the Phnom Penh Special Economic Zone (PPSEZ), what employers are seeking is not necessarily “trained” labor, but “trainable” labor, as skills required are quite job-specific and usually provided on-site.

Agriculture to remain backbone of Cambodia’s economy

Other challenges include the elevated cost of electricity, one of the highest in Asia. Apart from the skills constraint, the cost and unreliable supply of power is the other key factor limiting industry’s progression up the value chain from simple assembly to production of parts and components. If the former is labor intensive, the latter is energy-intensive, and remains uneconomical at current tariffs.

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Agriculture, however, will remain the backbone of the country’s economy for years to come, and during the transition to the next income bracket. Most Cambodians continue to be employed in this sector – either directly or indirectly.

To further reduce poverty and inequality, the agriculture sector must become more productive. To do this requires better irrigation systems, more fertilizer usage, and easier access to high-yielding varieties of crops. The size of farms and variety of their produce should also be enhanced to exploit economies of scale and scope, respectively. Land reform will be essential here.

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Another option is to pursue agro-processing to raise value-addition. Agro-processing combines agriculture and manufacturing. We can see this in products like pepper, cassava or coffee, which add value along the supply chain and boost economic returns.

Cambodia is making good progress towards upper middle-income status by diversifying its economy. There is a lot of new investment from Japanese firms in the PPSEZ that is plugging it into regional supply chains for the first time.  This trend will only continue to grow in the future, creating good jobs for more of the workforce.

Cambodia must plan carefully to preserve economic gains for next generation

While agriculture will remain important for some time yet, there is no denying the long-term trend decline in its share of economic output, and the increasing shares of services and manufacturing. These structural transformations will require reskilling of the labor force to reduce adjustment costs and unemployment.

The challenges in the labor market extend further, however, and involve demographic transitions in a young population seeking productive employment; the much-vaunted demographic dividend will only be realized if the jobs are there to be filled.

These structural changes will also result in rising urbanization as rural-urban migration increases. This must be managed by better town planning to prevent urban slums and create livable cities. One only needs to look at how Phnom Penh’s infrastructure has been stretched over recent years to appreciate the magnitude and importance of this challenge.

Cambodia’s socio-economic achievements since the early 1990s peace settlement have been remarkable. But success brings with it new challenges.If Cambodia plans carefully for graduation from LDC status, it would ensure that the hard-won economic gains are preserved for the next generation.

ADB Predicts Stronger 2018 for Developing Economies


September 28, 2017

ADB Predicts Stronger 2018 for Developing Economies

by  http://www.asiasentinel.com

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Asia’s developing economics have performed better than forecast earlier, according to the latest assessment by the Asian Development Bank in its mid-term review of the 2017 Asian Development Outlook. Some further slight improvement is forecast for 2018. However, much depends on external circumstances which have largely driven better-than-forecast 2017 performance.

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Among Southeast Asian countries, Malaysia’s public finances look less healthy than most of its peers.

 

Most notable has been a strong pickup in electronics exports after a weak 2016. This has been the main driver of the sharpest growth pick, Malaysia, where the forecast for GDP growth for the full year has been raised by a full percentage point to 5.4 percent, with electronics and palm oil exports as drivers plus consumption growth driven by higher wages.

Malaysia’s economy had appeared to shrug off negative effects of the sharp fall in the ringgit in 2015-16, though there was an inflation spike. Now stable, the currency seems unlikely to rebound much further unless the current account surplus surges. The ADB’s one and rather understated caveat looking ahead is the government deficit, which has surged to over 5 percent of GDP against an official target of 3 percent. Much of the government debt is foreign owned. A tax increase is necessary before long, the outlook warns.

Among Southeast Asian countries, Malaysia’s public finances look less healthy than most of its peers. Government deficits in the Philippines, Indonesia and Thailand are all around 2 percent of GDP as revenues have been rising almost fast enough to accommodate increased infrastructure spending. Progress in the Philippines in particular has brought investment up to 25 percent of GDP. This is not the result of a particularly strong 2017 but of a continuing surge since 2012. However, ambitious further spending on infrastructure will be dependent on revenues, and on progress in implementing public/private partnerships (PPPs).

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In theory, according to the development outlook, the Philippines has an advanced framework for such projects, but few have been realized. Much too will depend on the progress of proposed tax reforms and whether the reforms have a positive net impact on revenues and investment. Private sector credit growth will also have to slow down after an 18 percent leap this year.

The development outlook is silent on the costs of rebuilding Marawi City after the recent battle but will inevitably set back other spending. It also avoids mentioning foreign investor disquiet over President Rodrigo Duterte’s drug war and threats of martial law. Meanwhile a continuing rise in remittances up 8.7 percent in the first half of 2017 is underpinning consumption and feeding through to the food processing and building materials sectors of manufacturing.

While manufacturing in the Philippines is performing adequately by its own modest standards, Indonesia’s manufacturing sector is a drag on an economy continuing to jog along at 5 percent growth. The development outlook’s 2017 forecast is unchanged at 5.1 percent despite a fall in the current account deficit and increased government spending on infrastructure which could push the budget deficit close to its 3 percent of GDP ceiling. Inflation remains low by local standards at 4 percent. Foreign investment has been flowing strongly but its impact on manufacturing remains modest and investment in mining is restrained by policy uncertainties.

The ADB outlook warns of the need to maintain flexible exchange rate policy to absorb possible shocks from international markets, be they commodity prices or interest rates.

Slightly higher GDP growth is forecast for 2018 partly to a spending boost from the Asian Games to be held in Jakarta and Palembang but there is not much sign of the 6.5-7.0 percent growth which Indonesia should be able to achieve.

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Thailand should in principle be able to do a lot better than its 3.5 percent growth. Tourism, agricultural prices and other exports have done well and created a massive current account surplus of 8.5 percent of GDP this year and probably over 6 percent in 2018. The surplus has underpinned a strong currency and inflation below 1 percent. But private investment remains very weak, reflecting political and other uncertainties.

Although Thailand’s own population increase is now almost static, workers from Cambodia and Myanmar continue to undergird the labor force and Bangkok’s service industries to benefit from growth in Myanmar and Vietnam. But capital is leaving for better or safer projects elsewhere. Government infrastructure spending will continue to rise. The budget deficit, now 2.8 percent of GDP, has room to rise as government debt is only 32 percent of GDP. But, though the development outlook doesn’t say so,  the traditionally conservative finance ministry is likely to keep a  rein on spending regardless of the pronouncements of the political leaders.

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Fiscal conservatism can also go too far in Singapore, suggests the ADB’s outlook in one of its rare critiques of government. It states: “policy makers should consider placing a high priority on reining in persistent current account surpluses, which are primarily the product of an unusually high savings rate. Even a modest adjustment to this perennial macroeconomic imbalance would boost domestic demand and raise the economy’s potential growth rate. To this end, the government has ample resources for fiscal expansion.”

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Fiscal austerity remains a necessity in Vietnam.

Fiscal austerity however remains a necessity in Vietnam. This year the government deficit will be about 4 percent of GDP but with total debt over 65 percent there is scant room for a surge in public spending and a repeat of past cycles of inflation and devaluation.

There is pressure for more spending to offset what has been a slightly disappointing year so far, with GDP growth likely to be 6.3 percent against an earlier 6.5 percent projection with a small pickup in 2018. Vietnam has been hit by declining coal and oil output and prices partly offsetting strong manufacturing growth driven by foreign investment, and tourism. However both may ease off in 2018. The currency has been firm despite a small deterioration in the current account, and inflation is only around 4.5 percent.

Failure to resolve old non-performing loans remains a drag on the financial sector. There has been no consolidation in the banking sector and sale of equity by state firms has been slow despite a buoyant stock market driven in part by foreign portfolio flows.

Najib’s RM43bil Boeing purchase that wasn’t


September 26, 2017

Najib’s RM43bil Boeing purchase that wasn’t

by P. Gunasegaram@www.malaysiakini.com

For Najib to use this process and to further even offer to persuade AirAsia to buy General Electric engines from the US is rather disingenuous to say the least and puts these two Malaysian airlines in a needlessly uncomfortable position, constraining their full range of options.–P. Gunasegaram

Image result for Najib at thr White House with Donald TrumpDid Donald Trump buy Najib’s Value Proposition–Gua Tolong Ekonomi Amerika? Say what you like about President Trump, he is no fool. He could recognise a con artiste 12,000 miles away. One could speculate that State Department and Secretary of State Rex Tillerson would have advised the US President not to take the Malaysian Prime Minister too seriously. –Din Merican

 

A QUESTION OF BUSINESS | Prime Minister Najib Razak had to dig deep to offer US President Donald Trump something tangible but even the much-touted US$10 billion, or RM43 billion, Boeing jet purchases turn out to be less than what they seem.

In his meeting with Trump earlier this month, Najib offered three things to help the US economy, including what Trump said was US$10-20 billion to buy Boeing jets and General Electric engines. Najib thanked Trump for the meeting and said that he came with a value proposition to “strengthen” the US economy.

“I come with three specific proposals,” he said. They were: 1. Increase the number of Boeing planes committed from 25 B-737s and eight 787 Dreamliners with the “strong probability not possibility that 25 more 737 Max10” will be bought in the near future. Within five years, these would be worth “beyond RM10 billion”. Also, Najib said he will try and persuade AirAsia to buy GE engines.

2. The Employees Provident Fund (EPF) has so far invested over US$7 billion in equity in the US and intends to invest a further US$3 billion to US$4 billion “to support your infrastructure re-development in the US”.

3. Malaysian sovereign fund Khazanah Nasional has investments of US$400 million in Silicon Valley in high-tech investments. It intends to increase investment here.

Enough has been said about his proposals to “strengthen” the US economy and the US$10 billion plus purchases of Boeing jets taken together with EPF’s and Khazanah’s investments will be a mere drop in the ocean of an economy in 2016 of nearly US$19 trillion (over RM80 trillion). Even US$20 billion is just 0.0001 percent of US$19 trillion, showing how little Najib’s offers will help the US economy!

The EPF already has a policy of overseas equity investments and the US, which has the largest equity market in the world, must be a major target market for the EPF already to diversify its portfolio and increase its returns – nothing new there. Ditto for Khazanah Nasional’s US$400 million investment in Silicon Valley which may increase in the future.

But even the RM43 billion that Malaysia is offering in terms of jet purchases may well not turn out to be the full sum that Malaysia Airlines will spend on Boeing jets.

After confusion over its future fleet policy and purchases, with talk of reopening European routes closed during the rationalisation and flying again to the US west coast and seeming contradiction with its earlier fleet programme, Malaysia Airlines issued a statement to clarify the proposed purchases.

The airline said it has a firm order of 25 Boeing 737 aircraft “with everything else being optional”.

“The options, as well as a variety of other arrangements including the recent MoU with Boeing, will allow us to have some flexibility in deciding which aircraft suits our operational environment best,” it said.

Disingenuous offer

In 2016, Malaysia Airlines made 25 firm orders for the 737-MAX8 aircraft and 25 options. The statement said. “The aircraft were ordered as pure replacements for existing planes, due for replacement beginning 2019.”

“In June 2017, we entered into a new agreement with Boeing to allow us to choose their new larger 737-MAX10 aircraft for 10 out of the previous firm order of 25 737-MAX8. With this agreement, Malaysia Airlines can decide to take either the MAX8 or MAX10. The MAX10 aircraft are expected to commence delivery in early 2021.”

That means the only firm order is for the 25 Boeing 737-MAX8 and MAX10 aircraft. While the statement did not give the cost, at a price of around US$100 million a plane, 25 will cost around US$2.5 billion or RM10.8 billion, about a quarter of the RM43 billion of Boeing purchases bandied about.

But the addition of the eight Boeing 787 Dreamliners is something new, although it remains an option for now as well as the additional option to purchase a further 25 Boeing 737s. However, Najib’s statement at the meeting with Trump implied the Dreamliner purchase was already committed while there was “probability not possibility” of the extra 25 Boeing purchases.

Malaysia Airlines said in its statements that it has been exploring various options for wide-body  aircraft, for possible delivery in 2018 and 2019, “to address the rapid growth in international sales which requires additional wide-body aircraft”.

 

While it has been talking about replacing the Airbus 380 on the KL-London route with the lower capacity Airbus 350, there was no previous discussion of using the Dreamliner for any of the routes it has been planning to reopen or initiate.

Malaysia Airlines said the list price for the eight Boeing 787-9 Dreamliner aircraft is some US$2.5 billion and it “will negotiate extensively to ensure the best value on confirmation of order”.

It added that if the order is confirmed, the initial 787-9 Dreamliner deliveries are planned for operating Asian services. “The growth of the Malaysian economy and the increasing globalisation will allow these aircraft to commence new long-haul services from 2020 onwards if sufficient profitable demand exists,” Malaysia Airlines said.

Clearly, Malaysia Airlines is still rethinking its options for its fleet. For Najib to use this process and to further even offer to persuade AirAsia to buy General Electric engines from the US is rather disingenuous to say the least and puts these two Malaysian airlines in a needlessly uncomfortable position, constraining their full range of options.

That has all the hallmarks of not just political expediency but desperation to show publicly that the US, despite the extensive investigations of 1MDB by its Department of Justice which has unearthed at least US$4.5 billion in theft, still endorses him as a leader.

But it looks like that Boeing deal and the other announcements have boomeranged on him, putting him on even more a slippery slope than before. It will be pretty hard for Najib to spin that the Trump meeting was a triumph although attempts are being made to do just that.


P GUNASEGARAM says suppressing truth is much like holding a ball under water – it has a way of surfacing and resurfacing despite attempts at keeping it submerged. E-mail: t.p.guna@gmail.com.
Read more at https://www.malaysiakini.com/columns/396288#x4aDtSofJBgqsH4q.99

 

Rethinking Southeast Asian Economic Diplomacy


September 18,2017

Rethinking Southeast Asian Economic Diplomacy

by Henry Wai-chung Yeung, NUS

http://www.eastasiaforum.org
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In today’s global economy of cross-border production networks, the need to understand the changing ways in which the state and firms work together has become even more pressing. While the state plays an important role in supporting these production networks, it is firms and other private organisations — industry associations and standards organisations, for example — which coordinate and organise these networks.

UNCTAD’s World Investment Report 2013 estimated that some 80 per cent of today’s world trade is conducted through firms in these production networks — they are the backbone and central nervous system of the global economy.

 

In Southeast Asia, many economies are heavily involved in production networks, some of which are highly regional in nature. The ASEAN Investment Report 2016 suggests that regional production networks will be critical in realising the ASEAN Economic Community’s goals, which include building a single market of over US$2.5 trillion and a single production base of over 620 million people. As Escaith et al argue in East Asia Forum Quarterly ‘Strategic Diplomacy in Asia‘, ‘understanding the nature and dynamics of these production networks will be more important to securing stable and fair growth throughout the region’.

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Donald Trump has abandoned TPP and opened the door to China in favour of America First. Now ASEAN must get on with RCEP. Towards a more calibrated approach to strategic economic diplomacy

We need to rethink the strategic diplomacy of economic development — it can no longer be entirely state-driven in an era of global production networks. I use the concept ‘strategic coupling’ to describe the mechanism of strategic economic diplomacy through which domestic firms couple their specific initiatives and advantages with those of global lead firms. Through this process, firms coordinate diverse production networks spanning across national and regional territories.

The Apple–Foxconn case is one example of strategic coupling at work. Taiwan’s Foxconn is instrumental not only in ‘manufacturing’ Apple’s iPhone success but also in integrating Taiwan and mainland China into the iPhone’s global production networks.

But this well told story has a critical and often missed dimension — the even more crucial role played by South Korea’s Samsung. Apple’s major competitor in the global mobile handsets market, Samsung has also supplied critical components to successive generations of iPhones assembled by Foxconn.

While serving as the iPhone’s largest supplier by value of components, Samsung has kept busy building its own production networks throughout East and Southeast Asia, including a giant industrial park in the Bac Ninh province of North Vietnam. Opened in 2009, Samsung’s smartphone production there has transformed a province of rice fields into Vietnam’s second-largest export centre after Ho Chi Minh City.

While the state and its policy initiatives in Taiwan, mainland China, South Korea and Vietnam facilitated this Foxconn–Apple–Samsung strategic coupling, they are not the only domain through which this new mechanism of economic development can be effective and successful.

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My recent work Strategic Coupling shows that equally if not more important than state policies are the organisational and technological innovations developed by national firms, such as Samsung and Hon Hai (Foxconn’s parent). These firms seize opportunities embedded in the cross-border production networks spearheaded by global lead firms from advanced industrial economies in North America, Western Europe and Japan.

The state’s capacity to steer national economic development and ‘govern the market’ has become more constrained since the 1990s. The transformation of state roles has led to the weakening of the state’s embedded autonomy in countries like South Korea and Taiwan. State institutions began to facilitate the redistribution of state power towards more horizontal and functional policy in support of domestic firms and industries that take advantage of growing global opportunities.

As Southeast Asian states move from active economic intervention to facilitating strategic coupling between firms and global production networks, developmental partnerships start to broaden from top-down state–firm relations to include inter-firm networks. This new mechanism of strategic economic diplomacy recommends a dynamic conception of state-firm relations that goes beyond the debilitating market–state dichotomy.

The integration of Vietnam into Samsung’s global production network is a good example of this rethinking of strategic economic diplomacy. Samsung’s US$15 billion investment in Vietnam represents a strategic imperative to diversify away from mainland China, where Foxconn is dominant. It allows Samsung to tap into strong existing industrial clusters in Singapore, Malaysia and Thailand.

What does the strategic coupling story suggest in terms of public policy? While it is now much harder for almost any Southeast Asian economy to develop internationally competitive vertically integrated industries, there remains significant room for a new kind of strategic economic diplomacy — one that encourages domestic firms to tap into the developmental opportunities inherent in most global industries.

The call for a more calibrated approach to strategic economic diplomacy brings with it the possibility of focusing on more niche policies that nudge strategic coupling. As industrial production becomes ever more fragmented and globalised, state planners in Southeast Asian economies will find it harder to identify which products and technologies should be developed in their domestic industries.

Today’s obstacles to economic development are less about large capital outlays and scale of investment, and more about developing specialised niches within different global industries. In most global industries characterised by vertical specialisation and modularisation (transport equipment, ICT, agro-food and so on), a niche approach to industrial policy is likely to yield stronger coupling networks than a ‘big spurt’ approach to state-led industrialisation.

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The politics of industrial and sectoral choice is confounded by the growing uncertainties of today’s global economy. Value creation and capture tends to be much greater in new innovation-based industries in the manufacturing and service sectors, such as nanotechnology, biomedicine, green tech and digital media. Here, catching up is not just a matter of capital investment led by state-controlled financial institutions and elite industrial development agencies. The sheer complexity and wide range of actors and interests with specialised knowledge in these industries makes it rather unruly for bureaucratic targeting, even for a state with well-coordinated industrial policy.

Looking forward, the post-developmental state should focus on creating broad-based capabilities in new technologies, product and process innovations, and market development, rather than choosing specific winning firms, industries or sectors.

Henry Wai-chung Yeung is Provost’s Chair and Professor of Economic Geography at the Department of Geography and Co-Director of the Global Production Networks Centre, National University of Singapore.

This article appeared in the East Asia Forum Quarterly, ‘Strategic diplomacy in Asia’.

Trade Strategy: RCEP offers ASEAN and Asia a critical line of defence


September 14, 2017

Trade Strategy: RCEP offers ASEAN and Asia a critical line of defence with the Trump Induced Collapse of TPP

by Dr Peter Drysdale, ANU

http://www.eastasiaforum.org

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It might seem strange in this time of global crisis to turn to ASEAN, dogged as it is by perceptions of weakness and vulnerability and distracted by the political and security problems in the South China Sea. But ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives, an experiment in open regionalism that has succeeded. ASEAN’s economic cooperation strategy has persisted despite its perceived weaknesses and slow pace. It is still the crucible for action on regional cooperation within Asia and across the Pacific.–Dr. Peter Drysdale

Some may think that the Trump shock is a passing moment and US leadership in international trade and economic policy can be quickly restored. But there is little doubt that the postwar trade regime and the primacy the multilateral order delivered are now vastly less certain. That was clear for all to see at the Hamburg G20 summit.

The question is how Asia — that has benefited so much from the certainties of economic openness that the WTO and other global institutions have provided — can protect its strategic economic and political interests in the face of the retreat of leadership by the world’s largest economy. Even if Trump and his White House advisers do not embrace all of the policies that they’ve foreshadowed in trade policy, policy uncertainty will undermine global economic and political security as well as damage US standing in the world.

Trump’s withdrawal from the Trans-Pacific Partnership forewent the potential lift to US incomes which that deal would have delivered mainly through the opening of the Japanese markets to US farm and services trade. The threats to impose trade barriers against US trading partners will actually reduce US incomes. The costs of imposing punitive tariffs on China and Mexico, or slapping tariffs on US imports such as steel are calculable. Now he threatens to tear up the US–Korea free trade agreement. All these actions would damage trade and incomes in US trading partners, but they’ll also reduce American incomes substantially. On one scenario US income will be cut by 1 per cent for every year putative higher US tariffs stay in place — paring close to half a year’s growth from US incomes annually.

US protectionism empowers protectionists globally. But other countries would only aggravate the costs to themselves and others if they retaliated in kind. A better strategy is to maintain open trade in the face of the United States’ self-inflicted harm and, a better strategy still, in coalition with other countries, is to protect the open global trade regime by maintaining the momentum of global liberalisation and economic reform.

The rest of the world has a continuing and strategic interest in new commitments to openness however Trump’s United States might choose to damage itself.

No one country — even China which is the second biggest economy and largest trader in the world —can make the difference alone in holding the line as the United States turns inwards. But there is a powerful interest in pushing collective leadership on trade openness from Asia.

Asia has its problems but it remains the most dynamic part of the global economy. There is intense focus on Asia’s response in the unfolding uncertainty about global trade policy because of its size and importance to future global growth and because of what it can deliver to the world through further opening up.

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Asia’s economic dynamism depends, in turn, upon success with its own programs of economic reform, programs that will be made more difficult in a hostile international policy environment. Confidence in the global trading system is important to Asia. It has underpinned the growth of Asian interdependence, economic prosperity as well as its political security.

In guarding these strategic global interests ASEAN has a critical role to play, through the ASEAN-led Regional Comprehensive Economic Partnership (RCEP). RCEP includes not only the ten ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand. It is a coalition of countries with considerable economic weight, able to deliver a powerful message to the world. But without movement in ASEAN, RCEP is likely to go nowhere.

RCEP trade ministers and officials are now meeting in Manila to meet their deadline to deliver East Asian trade reform this year or wimp it.

 

It might seem strange in this time of global crisis to turn to ASEAN, dogged as it is by perceptions of weakness and vulnerability and distracted by the political and security problems in the South China Sea. But ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives, an experiment in open regionalism that has succeeded. ASEAN’s economic cooperation strategy has persisted despite its perceived weaknesses and slow pace. It is still the crucible for action on regional cooperation within Asia and across the Pacific.

RCEP was designed by ASEAN policy strategists to buttress regional trade reform and lift Asia’s growth potential in the global economy. It is now the only active, credible multilateral endeavour anywhere in the world positioned to deliver significant push-back on the retreat from globalisation, soon.

RCEP is not simply another free trade and investment arrangement. It is structured to be open to easy sign-on by other partners. Importantly it incorporates a cooperation agenda, an essential element in building capacity for economic reform and mutually reinforcing regional development over time. That agenda has an important political and security dimension. That will assist in ameliorating regional tensions and managing relations with the bigger powers, like China, Japan and India (on geo-economic issues such the Belt and Road Initiative for investment in connectivity and geo-strategic territorial issues), and those outside it, like the United States and Europe (in staking out Asia’s interest and claims to ownership in the global public good of an open economy).

RCEP offers ASEAN and the Asian region a critical line of defence against fragility in the global political economy. There is too much at stake strategically at this turning point in global economic history for Asia’s leaders to fail to step up and deploy it.

Dr. Peter Drysdale is Emeritus Professor in the Crawford School of Public Policy at The Australian National University and Head of the East Asian Bureau on Economic Research.

 

Malaysian Prime Minister’s White House Visit raises ethical questions for President Trump


September 14, 2017

 

When President Trump welcomed Malaysia’s Prime Minister, Najib Razak, to the White House on Tuesday, he thanked him for “all the investment you’ve made in the United States.”

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Trump International Hotel in Washington DC which housed Malaysian Prime Minister Najib Razak and his Delegation during the visit to The White House created an ethical problem. The Malaysians knew how to play the game. In doing so, they have created a problem for President Trump.

Mr. Trump did not single out Mr. Najib’s patronage of his hotel two blocks from the White House, but he could have: the Malaysian leader was spotted entering and exiting the Trump International Hotel, with his entourage, on Monday and Tuesday.

The White House denied that Mr. Najib had picked the hotel at Mr. Trump’s behest. “We certainly don’t book their hotel accommodations,” the press secretary, Sarah Huckabee Sanders, said, “so I couldn’t speak to the personal decision they made about where to stay here in D.C.”

Whatever the motivation, the choice of lodgings added to the awkwardness of a meeting already replete with ethical questions. Mr. Najib is under investigation by the Justice Department, part of a corruption scandal that critics said he has fended off by firing investigators and dismissing negative news reports about him as “fake news.”

In these respects, he is not unlike Mr. Trump. So it was perhaps not a surprise that the two leaders skipped a news conference, kept their public remarks brief, and stayed on the safe ground of trade and counter-terrorism.

“We’re talking about trade – very large trade deals,” Mr. Trump said to Mr. Najib, during a photo opportunity before they met in the Cabinet Room. “Malaysia is a massive investor in the United States in the form of stocks and bonds.”

A grateful Mr. Najib replied, “We come here with a strong value proposition to put on the table.” He talked about buying Boeing planes and General Electric jet engines but did not mention that he had just come from the Trump hotel.

Behind closed doors, the Prime Minister urged the United States to put pressure on neighboring Myanmar — including Daw Aung San Suu Kyi, the de facto leader of the elected civilian government — to stop the systematic persecution of the Rohingya, its minority Muslim population.

Mr. Trump, a senior administration official said, expressed anger over the military crackdown and discussed ways to pressure authorities in Myanmar. There are no current plans for Mr. Trump to call Ms. Aung San Suu Kyi, this official said, but he did not rule out a future conversation.

American Presidents have long done an awkward dance with the leaders of Malaysia, a Southeast Asian country that is a valuable trading partner and dependable counter-terrorism ally of the United States but is ruled by a corrupt, entrenched (racist) Malay elite.

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Malaysian Ambassador to the US, Tan Sri Zulhasnan Rafique said Trump’s invitation to Najib in his first year as President was a recognition of Malaysia’s importance for the world’s leading superpower.

 

That tension is even more acute with Mr. Najib, who is under investigation by the United States and others for an estimated $3.5 billion that investigators believe he and his associates diverted from a Malaysian government sovereign fund that he headed. Among other things, the money was used to buy jewelry, real estate and the rights to Hollywood films.

The White House insisted that the Justice Department inquiry had no relevance to the meeting and would not figure in the conversation. “That investigation is apolitical and certainly independent of anything taking place tomorrow,” Ms. Sanders said on Monday.

But the White House did move a picture-taking session from the Oval Office, denying Mr. Najib the customary photo with the President before the fireplace, under George Washington’s portrait.

Before their meeting, Mr. Trump credited Mr. Najib with cutting off business ties between Malaysia and North Korea. The Malaysian capital, Kuala Lumpur, has served as one of the hubs for North Koreans seeking to buy or sell nuclear-related technology or trade weapons.

Relations between the two countries ruptured after Malaysia accused the North Korean government of assassinating Kim Jong-nam, the half brother of Kim Jong-un, in a bizarre attack at Kuala Lumpur’s international airport. Each country temporarily barred the other’s nationals from leaving.

“He does not do business with North Korea any longer, and we find that to be very important,” Mr. Trump said.

Mr. Najib presented a detailed list of purchases and investments – with dollar signs attached – that seemed tailored to Mr. Trump’s balance-sheet emphasis in dealing with other nations. Malaysia, he said, had committed to buying 25 Boeing 737’s and eight 787 Dreamliners for its national airline.

In addition, Mr. Najib said, one of Malaysia’s largest pension funds planned to invest between $3 billion and $4 billion in the Trump administration’s effort to rebuild American infrastructure. And another sovereign wealth fund planned to increase its existing $400 million investment in Silicon Valley. “Great,” Mr. Trump interjected, each time Mr. Najib reeled off a figure.

For Mr. Najib, who faces an election and has been under unrelenting pressure at home, the meeting qualified as a major victory. It demonstrated to critics that he could travel to the United States without fear of being detained.

Image result for Trump welcomes Najib to The White House

“Great Honour” to welcome you, Mr Prime Minister, to The White House, so said President Donald Trump. Mr. Najib is expected to return on September 15 evening to a hero’s welcome for having won the US President to his side.

For Mr. Trump, the payoff was less obvious. Administration officials view Malaysia as a counterweight to China and say it has been steadfast in the fight against the Islamic State. But the President broke arguably the strongest bond between the two countries when he pulled the United States out of the Trans-Pacific Partnership, a regional trade pact that includes Malaysia.

Mr. Trump’s predecessor, President Barack Obama, once praised Mr. Najib as a reformer and played golf with him in Hawaii in 2014. But after the cloud of corruption allegations took hold, Mr. Obama only met the Malaysian leader at regional conferences. Last year, when the two were together at a summit meeting at the Sunnylands estate in Rancho Mirage, Calif., Mr. Najib did not earn a repeat invitation for golf with Mr. Obama.

Mr. Trump, however, seems comfortable with Mr. Najib, a suave figure who speaks impeccable English. In 2014, they played golf at Mr. Trump’s club in Bedminster, N.J. Mr. Trump gave his guest a photo of the two of them, inscribed, “To my favorite prime minister.”

Mr. Trump has not hesitated to meet with autocratic leaders — or leaders with legal problems. He invited the Philippine President, Rodrigo Duterte, to the White House, despite what critics said was his record of ordering extrajudicial killings of drug dealers.

Still, human-rights advocates criticized this meeting because of the signal they said it would send. “It’s a strange meeting,” said John Sifton, the Asia advocacy director at Human Rights Watch. “Clearly, President Trump has repeatedly shown that he is willing to host authoritarian leaders. But this meeting, in some respects, marks a new low. Najib has been engaged in a broad crackdown against journalists, civil society, even cartoonists.”

Richard C. Paddock contributed reporting from Kuala Lumpur, Malaysia.

A version of this article appears in print on September 13, 2017, on Page A8 of the New York edition with the headline: Trump Welcomes Malaysian Leader as President, and Owner of a Fine Hotel