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The Importance of The Asia Pacific Rim

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    Why has the Pacific Rim (Asia Pacific) already become an important region and will be in the future?


    In the early nineties the Asia-Pacific was considered to be one of the most economically dynamic regions of the world. It accounted for 41% of world trade and half of world output. It was the fastest-growing region in the world: 30 years ago, Asia alone accounted for only 4% of the world's economy; today it accounts for 25%. Some economists predicted that by the year 2000, it would account for 33%. By the end of the century, it was to have one-half of world trade.

    The region was seen to be an increasingly closer, more cohesive, and more integrated region. Forty-two percent of Asia's trade took place within Asia, and intraAsian trade is growing four times more rapidly than trade between the United States and Asia. Direct investment by Asians within Asia was burgeoning. They accounted for 18.4% of the foreign direct investment in major Asian markets between 1986 and 1992. Companies from the rest of Asia – Korea, Taiwan, Hong Kong – accounted for half of all foreign direct investment in the region.

    Pacific Rim countries were investing more than $21 billion annually to modernize and restructure their telecommunications networks. Fiber-optic cables – the "silk roads" of the 21st century – were being laid throughout the Pacific. U.S. business needed to be a part of this explosive economic development. As markets and competitors, the nations of Asia and the Pacific became more important in the future. One-third of the U.S. exports supported nearly 2.7 million American jobs, destined for East Asian markets. There were immense challenges and immense opportunities in the region's dynamism.


    The Pacific Asia regions are treated as the centers of gravity for the global economy, with the power to dictate its future course. With the growing interconnections among Japan, the newly industrialized countries (NICs: Hong Kong, South Korea, Taiwan, and Singapore), the members of the Association for Economic Cooperation and Development (Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Brunei), and China, the geographical scale must be broadened when addressing questions of economic regionalization. It is not yet clear how many of the countries in the eastern part of the Eurasian landmass should be included in such undertakings, but by most reckoning all of the above-mentioned countries are at the core of emerging economic developments in the region.

    In the case of Pacific Asia, strong cultural continuities are less clearly in evidence. The majority of the countries are Buddhist in religious tradition; different forms of Islam predominate in Malaysia, Indonesia, and Brunei; the majority of people in the Philippines are Christian. Because of the active involvement of the so-called overseas Chinese throughout much of Southeast Asia, Confucianism as a religious-ideological system plays a role in the economic sphere beyond the traditional Buddhist areas, but its influence in the political sphere is more ambiguous (Rozman 1991).

    In the modern era communication and transportation networks bring together widely dispersed peoples in unprecedented ways. Nevertheless, demographic patterns and associated networks of connectivity in Pacific Asia cannot be ignored. In Pacific Asia these networks are not organized around a central core and are not characterized by similar levels of interaction among and between the component countries (Ginsburg 1988). Instead, they are heavily biased toward Japan. If region wide integration is to be successful, that bias will need to be overcome, at least to some degree. In the absence of an obvious international demographic-economic core around which a restructured network of interaction can be built, it is unclear how this can easily be done.

    The plethora of regime types is reflected in widely divergent fiscal and trade policies throughout the region. These divergences present obstacles to any effort to achieve a cohesive regional bloc (Schott 1991, 14). The case can be overstated: one of the interesting developments during the past several years has been the willingness of members of Pacific Asian countries to participate in annual conferences on trade and investment sponsored by Japan's Ministry of International Trade and Industry. However, participants include countries from outside the region, and the conferences have not produced any startling breakthroughs.

    The economies of the region may well become more closely intertwined, but they are not likely to do so either at the expense of the rest of the world or through the impetus of a set of formal economic-political institutions. Instead, private and corporate actors may forge the most important economic links, and formal intergovernmental cooperation may be focused on trade-facilitating initiatives to encourage a degree of social and cultural cooperation (Evans 1994). None of this projection is certain, but the matters discussed in this article suggest the importance of questioning whether patterns of integration followed in one region will necessarily be duplicated in another. To answer this question requires that history and geography be taken seriously.

    A review of the overall conditions of the Asia Pacific Rim is for the five regions: China, including Hong Kong and Macau; Australia; Philippines and Malaysia; Vietnam and Cambodia; and South Korea. The impact of Asian economic crisis caused a devastation to the economies and now slowly they are recovering.


    In the quarter century preceding the crisis, East Asia experienced unprecedented economic growth, which both improved the incomes and welfare of millions of Asians, and contributed to regional and international prosperity and peace. The crisis, which began in Thailand in July 1997, rapidly engulfed neighboring Southeast Asian countries and South Korea. It also unsettled emerging markets elsewhere, and threatened to spread to Japan, Europe, and the United States.

    The crisis was caused by a combination of interacting factors – cyclical and structural, internal and external, psychological and material, individual and institutional, proximate and long-term. Based on these major categories of factors various economists around and in Asia have presented their views and opinions regarding the factors, which lead to the collapse of the Asian financial markets and economies. Similarly, not one but many parties bear responsibility for what happened. Lenders, borrowers, credit-rating agencies, stock market speculators, officials, national leaders, and international financial institutions – each played a part. Neither Asian paranoia nor American triumphalism is warranted.

    The region’s rapidly growing economies, weak economic growth in Europe and Japan, and the desire of international investors to diversify their portfolios following the 1995 crisis in Mexico help explain the magnitude. With restrictions on foreign ownership making it more difficult to find productive outlets, foreign capital flooded into speculative ventures. Stock and real estate prices ballooned. Current account deficits grew. Short-term foreign debt was much larger than anyone realized. When investors, domestic and foreign, began to doubt the ability of the borrowers to repay, they panicked and fled. Exchange rates plummeted; so did stock and property prices. What began as a currency crisis quickly became a liquidity and then an economic crisis. What had been a virtuous circle of investment prompting more investment became a vicious circle of disinvestment triggering more disinvestment. The figures are striking. (Evans, G. 1994)

    In 1994, Thailand, Malaysia, Indonesia, the Philippines, and South Korea had net private inflows of $41 billion. In 1996, the figure jumped to $93 billion. Then, in 1997, when the panic hit, flows reversed: Outflows totaled $12 billion. This dramatic swing of $105 billion in the net supply of private capital in just one year constituted a staggering 10 percent of the combined pre-crisis gross domestic product of the five countries.

    Asia is clearly at a critical stage in its economic development as far as its sustainable growth is concerned. The outlook today is better than it was a few weeks ago, with most markets showing signs of recovery. Yet one should not be complacent. The problem is that the loss of confidence can be highly contagious.

    US and Japan -Influence and Concerns

    Before the financial crisis affected the whole of East Asia, China was a strident critic of the alliances on the grounds that they were aimed at encircling and weakening China. But the Chinese government has significantly toned down its opposition. Analysts and officials say that Chinese leaders now see considerable value in the stabilizing influence of the bilateral alliances America has with Japan, South Korea, the Philippines, Thailand and Australia, especially the pact between Washington and Tokyo that effectively limits Japanese military power. On the one hand, they are worried that once Japan develops into a military power by relying on the strengthened Japan-U.S. military alliance, it could threaten regional security. But on the other, due to their concern over Japan and the emerging China, they hope that the U.S. continues to keep its military presence in this region so as to seek peace and security under the condition of big power equilibrium. (Ginsburg, N. 1988)


    America has an interest in a stable East Asia. Understandably, however, it is also keen to see others pull their weight. Japan has agreed to help America a bit more–though not yet enough–in a crisis. Several countries, including Japan and India, will soon be jointly rehearsing their navies in ways to combat piracy. But when it comes to the really difficult problems, such as coping with the ambitions of a rising China, or discouraging missile launches by North Korea, everyone still backs off and leaves it to America. (Rozman, G. 1991.)

    When Japan noticed the American intention of expanding trade with China, Japan attacked the Americans occupying the Philippines during World War II. Unfortunately for the Japanese, the native Filipinos, who just rebelled four decades earlier against the Spaniards after 400 years of repression, sided with the Americans, turning the tide of war against the Japanese. World War II in the Pacific really was never a war between Filipinos and Japanese. Rather, it was between the Japanese and the Americans who were fighting for the spoils that was China. And the tens of thousands of innocent Filipinos who lost their lives and limbs were the collateral damage in the crossfire between the two warring superpowers (Japan and U.S.).

    When the Philippine Senate led by then Senator Joseph E. Estrada revolted against the Philippine government in 1992, by rejecting the U.S. military Bases Agreement, it was a signal that the Philippines has matured into an independent nation and was capable of charting its own destiny in foreign policy.

    During 400 years of colonial rule and a half century of postwar independence, politics in the Philippines has been consistently influenced by foreign intervention – either overt military action of the Spanish and American armies or behind-the-scenes work by the Central Intelligence Agency. As recently as the 1980s, American officials helped decide who would stay in power in the Philippines and for how long. In 1986, Washington gave a final nudge to the dictator, Ferdinand Marcos, after supporting him for more than a decade. The United States then helped his successor, President Corazon Aquino, quash an attempted coup by flying warplanes above the coup plotters' heads.

    Ramos' basic policies of liberalization, privatization, and deregulation were the driving forces of economic development during the 1990s prior to the Asian crisis. Among the key structural reforms:

    Traditionally protected industries like telecoms, transport, and oil were deregulated and opened up (in theory and law and for the most part in practice) to competition. The Foreign Investment Act (FIA) liberalized the entry of foreign investors.

    Sound monetary policies such as decontrol of interest rates, relaxed rules on branch banking, and the lifting of moratoriums on the opening of new commercial banks. The net effect of these and related policies was to insulate the Philippine economy from the worst ravages of the crash. The country weathered the economic storm in much better shape than Thailand, Indonesia, and other ASEAN nations. Although far from rosy, prospects were not all that bad as the smoke cleared in 1998 and 1999. Indeed, many knowledgeable pundits expected the Philippines to recover much more rapidly than its peers and even to [belatedly] join the ranks of the Asian tigers.

    A major transition is now underway, however, involving various sectors that capitalize on the many strengths of the Philippines' first-rate labor force. The country has millions of eager, well-educated, and English speaking workers. There are now an estimated 250,000 engineers and technicians, with the nations' colleges pumping out 30- 40,000 new engineering and technical grads each year. (Bergsten, C. F., and M. Noland, eds. 1993.)


    During the Cold War, the United States provided Japan and Europe with a nuclear umbrella. Today nuclear power itself will not suffice to protect American allies in Asia. China today is not yet a serious economic or military threat. But as we enter the 21st century, it may become so. The challenge to the United States and its allies of the growing power of China could upset the balance of power in the Pacific Rim and Asia. Neo-Realists have argued that a hegemonial power attracts smaller and less secure states and entities who seek protection from the more powerful, a development in international relations known as bandwagoning. China probably would play this role in the Pacific and Asia in the early decades of the 21st century. This behooves a serious American readiness for such a development.

    U.S. business is doing its part by becoming more competitive. For the first time since 1985, the United States displaced Japan as the world's most competitive economy.

    The Pacific Rim is still developing and that is its greatest asset as it allows for a more competitive economy and structure.

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    1. M. Gavin and R. Hausmann, "What we have learned from the Asia Crisis," Latinfinance, Nº. 94, 1998, pgs. 111-112.
    2. Evans, G. 1994. Regionalism and cooperation in the Asia Pacific: the role of Asia Pacific economic cooperation governments. The future of the Pacific Rim: scenarios for regional cooperation, eds. B. K. Bundy, S. D. Burns, and K. V. Wichel, 77-93. Westport, Conn.: Praeger.
    3. Ginsburg, N. 1988. Geography and the Pacific century. Asian Geographer 7:1- 11
    4. Rozman, G. 1991. Comparisons of modern Confucian values in China and Japan. The East Asian region: Confucian heritage and its modern adaptation, ed. G. Rozman, 157-203. Princeton, N.J.: Princeton University Press.
    5. Bergsten, C. F., and M. Noland, eds. 1993. Pacific dynamism and the international economic system. Washington, D.C.: Institute for International Economics.

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