Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the 1997 Sixth East Asia Economic Summit of the World Economic Forum

[Delivered at the Hong Kong Convention Center, October 14, 1997]

A declaration
of interdependence

THE QUESTION before this summit—as it was before the world’s financial leaders last month—is whether or not the currency turmoil is a turning point on the path of high growth for the East Asian economies.

The short answer is “no.” Of course, the immediate future will depend on how the East Asian economies adapt individually to the turmoil; and that will depend on the quality of their economic management.

A wake-up call for our countries

For two basic reasons, the current financial crisis is likely to be less a psychological turning point than a wake-up call for our countries:

First, the economic fundamentals of the countries of the region still are strong. And there still is a lot of room for opportunity and benefit in their strategic effort to catch up with the more advanced nations.

Second, the security underpinning of regional stability is still in place. And it is increasingly bolstered by the economic interdependence being generated by the market system that nearly all our countries have adopted.

Here in Hong Kong—106 days after it was restored to China—everything is business as usual. China itself is focused on development, and the whole of East Asia is in the same mode.

A pall on our immediate prospects

It is true that, like the smoke and haze from burning forests over parts of Southeast Asia, depreciating currencies and falling stock-equity cast a pall on our immediate prospects. It is also true that adjustments—some of them painful—must be made in some national economies—if the momentum of growth is to be regained. Yet it is obviously unrealistic to pronounce East Asia’s period of high growth as over—and to write it off from your business calculations.

For our part, the Philippine response to the regional currency crisis has been twofold. One is to shore up our economic fundamentals. While the peso downfall cannot be blamed on weak economic fundamentals, what is important is that we ensure that our economic foundations remain sound and strong. Thus, we are adopting measures to further strengthen our fiscal and monetary positions to ensure rice stability.

Also, regulations in the financial sector are being reviewed to adopt more prudent financial policies based on disclosure and transparency. Liberalization in banking and other financial services will be pursued but with proper pacing and sequencing.

As Greg Sheridan, the foreign editor of The Australian has not noted, East Asia has overcome far more serious challenges—such as the oil shock of the 1970s. and he points out that “no reputable forecaster is predicting negative growth even for Thailand this year or next; and most of the Southeast Asian economies have had their growth forecasts for this year shaved by a percentage point or two at the most.”

In fact, the World Bank has just forecast an average GDP growth rate of 7.6 percent of East Asia over 1997-2006. That figure, although lower than those of the early 1990s, will still make East Asia the fastest-growing region over the next 10 years.

Meanwhile, the lesson that globalization is a fact of life—and that global markets punish policy mistakes severely—has been drummed forcefully into our economic policymakers. Growing interdependence means that economic problems in one country could reecho in other economies. And the remedy lies not in turning away from the world but in embracing it even more closely.

On this theme, let me now elaborate.

Turning the crisis into opportunity

Why do I say Asia-Pacific’s economic fundamentals remain strong?

Globalization so far has benefited this region more than any other. Its open economies and orderly societies have attracted more trade and investment. And the currency turmoil has not blunted East Asia’s competitive edge which lies in its high savings rate and its social commitment to shared growth.

I have pointed out that the World Bank remains upbeat on East Asia. It affirms that “the economies of the region are robust and the events over the last few months are going to spur reforms and draw attention to policy measures that should be taken.” Meanwhile, sharp depreciations of currencies the market had judged to be “overvalued” have taken place. And now we all know that if our economies are to ward off further speculative attacks, they must maintain competitive exchange rates and keep tight financial discipline.

As a “self-help,” quick-response program, we of the Philippines and our neighbor-countries have been exploring possible modes of an “Asian monetary facility” to provide supplemental resources to regional economies that may find themselves temporarily distressed. The International Monetary Fund, for its part, has recognized the urgent need for the international community to introduce prudential measures to further strengthen global capital market mechanisms.

Of course, the next year or two will be difficult for some countries. But it is East Asians who invented the idea that even crisis has its uses. The Chinese character for “crisis” combines the ideographs for “danger” and “opportunity.”

East Asia should return to growth after the turmoil

We of the Philippines expect the whole of East Asia to resume its high growth after this turmoil. And we are positioning ourselves to benefit the most from this forthcoming growth period.

We expect investors to be looking more closely at the political and socioeconomic regimes of East Asia from now on. Naturally we want to make the Philippines most attractive in investment terms.

This is why I have persuaded our legislature to set aside its political effort to reexamine the Constitution in favor of intensified economic reform. The enactment by the Philippine Congress of the remaining element of the Comprehensive Tax Reform Program will enable us to exit from 35 years of continuous IMF supervision and discipline.

Some 159 major reform laws have been enacted during the last five years—63 of them in economic reform, 57 in social reform and 38 in political reform—all of which have resulted in a more open market system. And in these eight months that remain of my tenure, I myself will focus on those reforms I can make on my own authority as President and Chief Executive.

How we are dealing with our own wake-up call

What is the state of our economy?

The World Bank has judged the Philippines to be weathering the currency crisis “pretty well.”

Our economy is structurally sound and it has avoided the overheating that has built up in some economies.

Our banking system is well supervised by a completely autonomous central bank whose existence and mandate are provided for in our Constitution. Morgan Stanley rates Philippine banks as “above average”—in the league of Hong Kong and Singapore—and their real-estate lending is much smaller than elsewhere in the region.

Relatively stable food prices have kept inflation below 5 percent until last month, when it hit 5.3 percent. We are damping down vigorously any potential price-wage spiral—so we do not expect inflation to rise much beyond 5.5 percent for the rest of the year.

Our merchandise exports are second only to China’s in their continued expansion. They have been growing by 16-18 percent over the past four years. Over January-August they were up 23 percent over the 1996 levels. And over the same period we reduced our trade deficit by 6.4 percent. As a consequence, our debt-service payments are down to 12 percent of total exports; and our credit ratings are stable.

Do not be distracted by our politics

We have also been experiencing a surge in investments—which have so far multiplied more than five times over last year’s total. As of end September, registered investments have hit P499.6 billion—compared with only P97 billion over the same period last year. Foreign investments account for 30 percent of the total—the biggest ones coming from France, Britain and the United States. These investments are distributed among 65 growth zones outside Metro Manila.

Given the slowdown we expect from the combined effects of the regional currency turmoil, we have scaled down our forecast for GNP growth this year from 7.5 percent down to 5.5 percent to 6.5 percent. This rate—while below last year’s 6.8 percent—should keep us well within the East Asian league.

Do not be distracted by the democratic noise that sometimes arises from the Philippine political system. I assure you we listen carefully when the free market speaks.

Not only are we resolving the weaknesses in the financial system, we are also sharpening our competitive edge—in our continuing effort to bring our country into the mainstream of global competition.

Cultivating our comparative advantage

In this effort we are concentrating on bringing wage policies more in line with labor productivity. Our workers were rated Asia’s most competitive labor pool by senior executives regionwide in a recent survey by the Hong Kong-based Political and Economic Risk Consultancy. We’re also working to reduce the transaction costs of doing business—by deregulation, privatization and trade liberalization; and by modernizing regulatory systems and procedures. Our Bureau of Customs, for instance, is now effectively computerized.

Our effort to modernize our infrastructure is exemplified by our success in ending the power failures that darkened our homes and closed down our factories four years ago. The World Bank estimates our total need in investment infrastructure at $48 billion over the period 1995-2004. There are tremendous business opportunities there for you—under our expanded Build-Operate-Transfer law, which has become a model for other developing countries.

We’re also cultivating our comparative advantage in the knowledge industries. In recent years our country has been a leading destination of investments in information technology. Intel, Motorola, Oracle, Texas Instruments, Seagate, Fujitsu, Amkor-Anam, NEC, Acer, Cypress—all these icons of the IT industry are present in the Philippines. Quality distinguishes the Filipino IT professional, who finds it easy to work on legacy applications as well as on fourth-generation languages.

Next month—on my way to the Asia-Pacific Economic Cooperation (APEC) leaders’ meeting in Vancouver—I shall stop over in San Francisco to address a summit of the information technology industry and meet some of the icons of that industry. I will then proceed to Seattle to visit with Bill Gates.

Together with Microsoft and other leaders of the industry, and with their help, we will seek to develop an IT agenda that will enable us to develop our competitive strength and take advantage of the opportunities that fast-changing technologies are opening up. That we are a latecomer in this field should be no handicap. Because we have no historical baggage of infrastructure and habits, we can adapt to the latest trends relatively quickly.

The future lies in interdependence

My friends, we of the Philippines are bringing down all economic barriers to globalization in the belief that regional security depends primarily on peaceful commerce rather than on military power—and that the future lies in economic interdependence.

This interdependence of which I speak is premised on cooperation—in the first instance, with our neighbors in East Asia, with the United States, with Canada, the European Union, Australia and New Zealand, Russia and the emerging states of Latin America.

The age of protectionism is over. In the global economy and the information age, even the vast Pacific is becoming a mere lake. So we must embrace constructive engagement and interdependence to sustain peace and prosperity. In the spirit of this summit, we must build networks for growth across Asia, Europe and the Americas.

East Asia’s achievements so far have been grounded in economic freedom. Political systems in the region may still vary—but the regionwide emergence of market economies is moving them all to citizen participation.

The most dramatic illustration of what the market system can do is China—whose gross domestic product has multiplied more than four times since Deng Xiaoping’s reforms began 20 years ago—lifting 200 million of its people from poverty.

The market is transforming China

China today still has some way to arrive at the milder mixtures of central control and political participation practiced in some other East Asian countries. But liberalization and deregulation have already transformed its economy beyond the State’s power to manage it.

China’s evolution in an increasingly beneficent direction should continue—unless we of the Asia-Pacific community cut off contact, and deprive China of the foreign markets and investments it needs.

This must not happen. Indeed, let me say that the Philippines looks forward to the benefits that would accrue to the whole region by a successful visit of President Jiang Zemin to Washington. We trust it will lead to ever closer relations between China and the U.S., and to closer—deeper—relations all across the Pacific.

China’s transformation may be the most dramatic in light of its importance to East Asia and the world. But it is not the only example.

Japan, too, is redefining its future course—after leading the way to East Asia’s economic liberalization. We welcome Prime Minister Ryutaro Hashimoto’s efforts to enhance the democratization of Japanese society. And we are pleased with his call for broader and deeper Japanese partnership with ASEAN, and with Japan’s more active role in regional security affairs, in collaboration with the United States.

I recently visited Russia—a great power now focused on building free economic and political institutions, I told President Yeltsin and his brilliant young advisers that we of East Asia admire what they are doing—and that we will welcome a constructive role in our region for a democratic Russia.

Dangers of conflict persist

Which brings us to one of the world’s most potentially dangerous spots. South Korea’s economic miracle is well known—as is its progress toward democracy. But the dangers of conflict with North Korea persist. The tentative dialogue going on there encourages East Asia’s hopes that even the 40 years of permafrost that have formed between the two Koreas can be thawed enough for the seeds of cooperation to germinate.

Taiwan’s economic success story—and its democratic transition—are also well known. There, the missiles of 1996 need to be replaced by the peaceful linkages of commerce.

Events in Cambodia have set back the completion of an ASEAN embracing all of Southeast Asia. But our unanimous compulsion to prevent the region from continuing to be an arena for great-power competition from continuing to be an arena for great-power competition is so strong that Southeast Asia’s integration cannot be stopped.

Some people in the United States and Europe gave criticized ASEAN’s incorporation of Myanmar as legitimizing a military regime. But, to us of ASEAN, that Myanmar is part of Southeast Asia is reason enough for its inclusion. Our strategic aim is a cohesive, one-family Southeast Asia able to maintain its internal peace, stability and economic vigor.

Turning challenges into opportunities

These national agendas reflect, for the most part, Asia’s success stories. But our region’s continuing ability to prosper will depend on its ability to sustain economic cooperation, mutual trust and—most important—regional peace. It is enough to raise some questions to illustrate the immensity of this challenge.

What is China’s future? How will it deal with Taiwan; and how will it settle conflicting claims to the islands of the South China Sea?

What will be Japan’s new role? And how will lasting peace be achieved on the Korean Peninsula? What is Russia’s future in East Asia? And how will leadership transitions play out in Southeast Asia?

Turning these challenges into opportunities is the task of East Asia’s statesmen. To do so, they will need—not magic wands—but creative minds and strategic boldness.

We want no new Cold War in our part of the world.

Our purpose is engagement among Asians—not the building of fences between them. The only construction we seek is the building of economic infrastructure, the modernization of civil society and the reinforcement of democratic political institutions. And these, we are convinced, trade, investment and development cooperation will promote.

So the new century will require steadfastness and determination from those who lead us. It will also demand that we Asians ensure the participation of our American and European partners in maintaining an equitable balance and economic partnership.

The Asia-Europe-America Triangle

The European Union we East Asians have always considered a beneficent presence. It is, as you know, a full member of our regional political grouping—the ASEAN Regional Forum. The Asia-Europe Meeting (ASEM for short) began with a bang in Bangkok in March last year—with 10 Asian and 15 European heads of state or government plus the president of the European Commission attending.

Since then, our ministers have been busy consulting on practical ways of enhancing Asia-Europe cooperation. Just as APEC is building bridges between Asia and America, so should ASEM weave networks of growth between Asia and Europe.

The triangular relationship among Asia, Europe and America can be a decisive influence on global stability and progress. The three regions together generate almost 80 percent of global GNP and some 70 percent of world trade. There are strong synergetic possibilities in their leading industries.

To maximize this synergy we must continue what this forum has begun—expand economic interaction at private-sector level; upgrade the political and administrative environment of trade and investment; and maintain internal economic growth. And this work is most urgent between Asia and Europe—because between us the networks still are at their weakest.

As the country-partner of host Germany in the Hannover Fair in April 1998, the Philippines can do a lot to bring to Europe’s consciousness the fact that even the emerging economies of East Asia have much to offer.

The role of the United States

The role of the United States has been decisive for our security and progress these past two generations. It will be just as decisive over the next 15-20 years.

We of East Asia need the continuing vitality of American markets, capital and technology—and America’s continuing commitment to free and fair trade. We also need a breathing spell to develop a new security architecture across the Pacific. The U.S. military presence will afford time for some countries to mature, and for East Asia to develop its own institutions for cooperative security.

America’s steadfast engagement in our region lies at the heart of Asia-Pacific peace and of Asia-Pacific interdependence—just as much as it does for the Euro-Atlantic system. The United States will remain essential in the times ahead—not just as a military presence but as a political example and as a powerhouse of the regional economy.

The period ahead must be one of transpacific interdependence or it will fall short of what we can become—on both sides of the Pacific. As we Asians take pride in what we have achieved, I call on our neighbors—and our friends beyond the Pacific Rim—to begin building a bridge of transpacific interdependence for the 21st century.

We need to consult and debate among us—and with our American and Canadian partners across the Pacific Lake—on how to develop this interdependence. If we are to make interdependence work, each of us will have to make some hard commitments. The Philippines is prepared to do its part.

Together, we can build a safer, more prosperous and more equitable Pacific community. If we use our time well, we will have much to celebrate when the new millennium comes just 38 months from now.

Declaration of interdependence

Now to sum up and conclude. I have tried to show why I believe East Asia’s economic prospects will continue to be bright—and how we of the Philippines are responding to our wake-up call from the global market for smarter economic management, tighter financial discipline and greater openness to competition and technology.

Beyond these adjustments and innovations in national policy, I believe it is time we together—East Asians, Europeans and Americans—made a declaration of interdependence.

Only by recognizing the common bonds of humanity that link us can we mitigate the hatreds generated by narrow nationalism, petty partisan politics, tribal rivalries and religious extremism.

Only by building networks of friendships among us can we mitigate the downside of globalization—the relentless economic integration of the planet, which some see as threatening jobs and incomes in the rich countries, and reviving forms of human exploitation in the poor ones.

Only by linking our three great regions into a global community of compassion and shared responsibility can we create a decent and moral global society—for ourselves and for those who will come after us.