LOCATION Hochiminh City, Vietnam

SPEAKER Mark Kent, British Ambassador to VietNam

EVENT ASEM business forum

DATE 06/05/2009

The current global economic crisis is the most serious since World War II. The latest figure from IMF World Economic Outlook shows that the world’s GDP would contract by 1.3% this year.  Economic downturn has had contagion effects, first on production and consumption, secondly on investors and populations’ confidence.

Many European economies will shrink sharply this year, as well as Japan and leading industrialized economies in Asia. The UK’s GDP could fall by over 3%. This has posed a high threat to business confidence - we saw a continuous drop in business confidence index since early last year. Rising unemployment happens as a result of business stagnation and declining investments. Unemployment rate in many European countries is expected climb up to over 10% - the highest in over 10 years. In Asia , the development success of recent decades could be threatened with people falling back into the poverty trap. Traditional export markets are shrinking, FDI and remittances more scarce, tourism well down.

The crisis has shown the complex nature of globalization, and the extent of interlinkage of economies across the world. While it all started with US sub-prime mortgages, it has also reflected a bigger problem of global macroeconomic imbalances- in large current account deficits and surpluses. Some of the countries expected to be worst hit were far removed from the financial crisis which began this economic downturn; but are expected to see drops in growth much larger than that in the USA.  To many, this seems unfair, but that’s the way economies work; we’re all intertwined.

It is encouraging that global leaders are showing more willingness than ever to cooperate with each other in fighting the crisis. G20 Summit in London is a proof of this consensus. There has been a real multilateral response. Leaders at the London G20 summit committed not only to solve current problems and strengthen financial stability, but also to support those developing countries most vulnerable to the impacts of economic crisis. And the ASEM meeting in Hanoi later this month will be another good chance for communication and dialogue. The recession can only be tackled by coordinated global action.

Following on from the G20, we need to see through the commitments made on 2 April:

• Delivering on national fiscal expansion programmes as well as the $1.1 trillion promised to support global trade and our International Financial Institutions
• Resisting measures to protect national industries at the expense of global competition. The way out is through free trade – we must guard against misuse of trade instruments like anti-dumping
• And building confidence by strengthening regulation and reforming the global banking system. We need the financial management architecture most effective for the current market – able to respond quickly, credibly and effectively. This goes for all ASEM countries.
• It’s far too early to say that we are emerging from this difficult period. Forecasting at this moment is incredibly difficult and predictions can vary significantly – at the mercy of unknowns elsewhere in the world or insufficient or faulty data. Perhaps the biggest recent unknown is the onset of a swine flu pandemic. SARS cost the world $40 billion. The Brookings Institute estimates that a mild pandemic could cost the world 1% of output or $330 billion. A severe one $4.4 trillion or 12.6% of global GDP. We are already seeing the effects on the Mexican economy. In all pandemic scenarios the developing world would be hit disproportionately hard.

But it’s often at times of crisis that humanity makes advances.  It took the ravages of the Second World War to bring us the United Nations, IMF and World Bank - the last time the international architecture was seriously revamped. So what are my suggestions?

• Firstly, economic recovery must be based on low-carbon growth. The Hanoi ASEM FMM meeting will rightly focus on the challenge of climate change as well as the economy. Vietnam well knows the serious effects of sea level rise, and last week the ADB published (with UK support) a Regional Stern Review on the economic effects of climate change on the South East Asian region, together with suggestions for adaptation and mitigation. We all need to promote greater public awareness, energy efficiency, more use of renewables and nuclear power, smarter electricity grids, low carbon vehicles, greater research in new technologies and upskilling of our workforces.
• ASEM economies may see significant structural change. The UK for example is likely to see a consolidation in financial services, which previously accounted for 11% of GDP. For some economies, including in Asia, it might be opportune to look to develop domestic markets as well as traditional reliance on FDI and export led growth
• At a time of capital shortage for new investments, it is vital for countries to intensify efforts to improve the business climate. This means tackling corruption, cutting down on unnecessary bureaucracy and procedures, addressing skills gaps, renovating infrastructure. Governments have been more willing to listen to and work with businesses on resolving economic problems. Today is a good opportunity for business to set out its views on these issues.
• Fiscal stimuli are aimed at supporting businesses, especially SMEs. These should be carefully targeted, considering that governments are stepping into big budget deficit and public debt to afford stimulus packages. Money spent on simply reinforcing inefficient corporations without structural change is likely to be money wasted.
• Now is the time to promote innovation and creativity. Science and technology will be at the heart of the growth, together with business entrepreneurships and innovations. New technologies will continue to drive consumer and investment demand wherever they present, Europe or Asia, developed or emerging markets.
• There is also a widespread feeling that this crisis will hasten the economic growth and long term importance of Asia. This should be reflected by a greater representation of Asian countries in international institutions.
• A more multilateral approach to meeting global challenges. The concept of responsible sovereignty should be our guide. Nation states must retain their primacy but take shared decisions on the basis of a shared responsibility to manage international risks and buttress the rights of citizens. And international institutions such as the World Bank and IMF will have themselves to adapt to better meet the demands of the new situation.

I would finish by congratulating the organizers of this event – an innovative way to ensure that the voice of business is fed into the discussions at ASEM. I am grateful to our Vietnamese government colleagues for taking this initiative. I hope you find this business forum an excellent platform to exchange ideas and explore ways of cooperation.

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