Publication in Economics, Politics and Public Policy in East Asia and the Pacific

Japan’s political watershed and its economic challenges

Author: Akira Kojima

Last year was a politically exciting but economically depressing year for Japan. It was the first time in 16 years that the government had been led by a party other than the Liberal Democratic Party (LDP), but also a year in which Japan suffered its largest decline in GDP in half a century. The year 2010 is to be another difficult and challenging year, with economic deflation necessitating the adoption of a new growth strategy and a July upper-house election which could create a historical watershed of Japan’s politics.

While Japan was not at the epicenter of the global financial crisis, with Japanese banks having better balance sheets and much less exposure to toxic financial commodities, the ensuing collapse in export demand and financial spillovers have plunged Japan’s economy into its severest recession in many decades. Read more…

New Zealand: domestic disappointment and international success

Author: Gary Hawke, NZIER

New Zealand marked time in 2009, with the government conserving its political capital but achieved little.

Much of the agenda was international rather than domestic. This was most obvious in the area of climate change. New Zealand shares the international policy issue of identifying a suitable response to a risk assessment and choice of appropriate insurance policy, but there was also much emotional nonsense. Read more…

Singapore weathers the crisis and prepares for a stronger year

Author: Siow Yue Chia, Singapore Institute of International Affairs

The story on Singapore in 2009 has been that of a vulnerable small and open economy overcoming the fallout from the global financial crisis with sound economic and financial fundamentals, good governance and a timely stimulus package.

The exposure of Singaporean financial institutions to failed and distressed institutions in the US and Europe was not significant and did not pose any systemic risks to Singapore’s economy, as local financial institutions were well capitalised and remained resilient. Read more…

Predicting the performance of the Chinese economy – Weekly editorial

Author: Peter Drysdale

The Chinese economy is leading the rest of the East Asian, if not the world, economy out of the global financial crisis. The strong performance of Australia and Korea through the crisis, and the recent signs of recovery from the sharpest drop in Japan’s GDP for over half a century, all owe something to how well China has come through the crisis.

In this week’s lead, Yiping Huang chances his arm on what the fortunes of the Chinese economy might be over the coming year. Like Huang, a number of analysts of the Chinese economy who have contributed to the commentary on this site over the past year and a half, foretold the rapid rebound. There were two main reasons for this. The first, which Huang cites, was the Chinese government’s ability to mobilise resources from a strong fiscal base and direct them to a massive stimulus program. Read more…

Five predictions for the Chinese economy in 2010

Author: Yiping Huang, Peking University and ANU

As the year 2009 fades into the distance in the rear view mirror, the Chinese economy has entered into unknown territory in 2010. Investors are universally far more upbeat than one year ago. Policymakers talk busily about adjusting economic structure as the new top policy priority, seeing no risk in achieving above 8 per cent growth.

For some, China’s ability to achieve strong growth amid global recession was the biggest surprise of 2009. To me, it was not. The Chinese government’s abilities in mobilising resources have strengthened, not weakened, significantly during the past decade. If the government really believed that 8 per cent growth was critical, then that would happen. Read more…

A sluggish recovery expected for Malaysia’s economy

Author: Foong Kee Kuan, MIER

In Malaysia the doom and gloom of the global financial crisis was pervasive at the start of this year, but gradually gave way to increasing optimism following the leadership change in April. Currently, various economic indicators forecast continued improvement for Malaysia, albeit subject to occasional pullbacks, and this economic progress is due to the efforts of the Malaysian government’s introduction of policies aimed to stabilise the economy.

Economic activity rebounded in the second quarter of 2009, after bottoming out in the first quarter, with stabilising domestic and external conditions leading to further improvement in the third quarter. Sentiments among businesses and consumers also recovered, leading to more private investment and consumption along the way, with the rate of decline in inflation also slowing in October.

The Malaysia government’s response to the global downturn has been to introduce a raft of national stabilisation measures, to varying degrees of effectiveness. Read more…

Papua New Guinea’s development success depends on learning from its past

Author: Aaron Batten, Ministry of Finance, Malawi

The PNG economy continued to perform well in 2009. Despite declines in the oil and gas sector, lower commodity prices, and reduced international demand because of the global financial crisis, real GDP grew by a solid 4.5 per cent. This growth was also relatively diversified with a 4 per cent increase in formal non-mining sector jobs adding further to the large employment gains made since 2005.

The government’s management of the economic expansion has been mixed, however. The fiscal surpluses of previous years have eroded, with this year’s budget recording a 0.4 per cent of GDP deficit after a 2.2 per cent of GDP deficit in 2008. Read more…

Uncertainty reigns over Thailand’s political and royal power

Author: Nicholas Farrelly, New Mandala, ANU

In Thailand the number ‘nine’ is usually considered the most auspicious. It is associated with the reigning monarch, King Bhumibol Adulyadej, the ninth king of the Chakri dynasty. Spoken in Thai, it also sounds like a word for ‘progress’ (kaew). 9, 99, 999, et cetera, are regarded with special reverence: luck and good fortune are denominated in 9s.

So the year 2009 was, for that simple reason, greeted with a modest degree of optimism by many Thais. Of course, in their Buddhist calendar, it is merely 2552. Indeed, it has, in the final reckoning, proven an inauspicious time. Read more…

Pakistan’s continuing security, economic and political challenges

Author: Ishrat Husain, Institute of Business Administration, Karachi

Pakistan’s critical political and security problems intensified in 2009 as militants captured some of the settled districts of the North West Frontier Province, also known as Swat. The Army launched a successful campaign to oust the militants from their strongholds, restoring peace and normalcy in those areas. The exodus of more than 2 million families from their homes and then their subsequent return created enormous logistical problems but this was managed reasonably well. This success prompted the Army to launch a similar assault on South Waziristan – a no man’s land on the border between Afghanistan and Pakistan which serves as the headquarters of Al-Qaeda and Taliban. Public opinion had turned against the militants after Swat, which helped the Army to neutralise some of the population in the target area.

The early success of the Army in displacing the militants from their training camps, supply routes and command and control structures was retaliated against by fierce suicide bomb attacks on the Army headquarters in Rawalpindi, Police and Intelligence agency offices in Lahore and other sensitive points in Peshawar. Read more…

Singapore economy on the way up again

Author: K. Kesavapany, ISEAS, Singapore

Singapore was the first East Asian casualty of last year’s Global Financial Crisis. Its growth rate plunged from 7.8 per cent in 2007 to 1.1 per cent in 2008. The trade ministry said Singapore’s economy would see a contraction between 2.5 and 2 per cent in 2009 before recovering in 2010.

The manufacturing sector was the worst hit due to fall in global demand for its non-oil exports. Read more…

Indian economy hardly misses a beat

Author: M. Govinda Rao, NIPFP, New Delhi

The Indian economy has emerged relatively unscathed from the impact of global financial meltdown and recession in advanced economies to grow at an impressive 6.7 per cent in 2008-09. Although this was much lower than the 9 per cent registered during the immediately preceding three years, it is impressive in comparison with many other countries and ranks next only to China’s growth rate.

The growth rate of GDP for the current year (2009-10) is estimated at around 6.5 to 7 per cent. In fact, the better than expected growth of 7.9 per cent during the July-September quarter of 2009 has raised expectations of even higher growth during the year. Read more…

South Korean economy bounces back despite the politics

Author: Yoon Young-kwan, Seoul National University, Korea

With the backdrop of global economic crisis, the Korean economy also experienced serious decline. In the fourth quarter of 2008, the economic growth rate fell by 5.1 per cent compared to the previous quarter. However, the economy returned to positive growth in the first quarter of 2009 and recovered to pre-crisis rates of 2.6 percent and 3.2 per cent in the second and third quarters. The Korean economy is recuperating faster than any other OECD country, except Australia, and the IMF expects 4.5 per cent growth in 2010. Though there were some discussions recently inside the government about the exit strategy, President Lee Myung-bak opted for a cautious approach.

In contrast to a positive economic performance, domestic politics in South Korea remained turbulent in 2009 if not more so than in the previous year. Read more…

A year of greater entrenchment for Fiji’s military regime

Author: Sandra Tarte, University of the South Pacific

In 2009, the political realities in Fiji became more clearly defined, but increasingly perplexing for its regional neighbors and development partners.

The moment of truth for the country, and for Commodore Frank Bainimarama’s military-backed government, came on 9 April when Fiji’s Court of Appeal ruled that the December 2006 coup and the interim administration it installed were illegal. This ruling removed the already somewhat tenuous constitutional basis upon which the interim government had previously claimed its political mandate. It was also the catalyst for the abrogation, one day later, of the Constitution by the President, and the declaration of a ‘new legal order’ under which the Bainimarama-led administration was reappointed. This development clearly indicated to all that there would be no turning back to the pre-December 2006 order. It also marked the further consolidation and entrenchment of the military-backed regime – a process that is likely to continue throughout 2010. Read more…

Vietnam sails through the crisis but needs reform to sustain the growth

Author: Suiwah Leung, Crawford School, ANU

Vietnam weathered the global financial crisis surprisingly well. Real GDP growth of 4.6 per cent year-on-year for the period January-September 2009 is below that of China, but well above growth rates in most East Asian economies.

One factor behind this unexpected result is the still early stages of integration into the global economy. This has cushioned Vietnam from the immediate impact of the US financial crisis and from the more devastating effect of reduced manufacturing exports. The turnaround in monetary policy (from monetary tightening in mid-2008 to halving the official interest rate from 14 to 7 per cent per annum by November the same year) and the large program of fiscal stimulus (announced at around US$8 billion) also contributed to maintaining growth. Read more…

Economic and political developments in Malaysia: new players new game?

Author: Mahani Zainal Abidin, ISIS

There were two big game-changing events in Malaysia in 2009. Dato Sri Najib Razak became the country’s sixth prime minister and the economy was hit by the global crisis.

Malaysia avoided financial meltdown in the current crisis because of the financial reforms it made after the 1998 Asian Crisis. But the decrease in export demand drove the economy into recession. Read more…