Asia Pacific Business Reflective marker
8Asia Pacific Business Reflective Marker
ASIA PACIFIC BUSINESS REFLECTIVE MARKER
Asia Pacific Business Reflective Marker
Policy reforms are among the crucial determinants of a country’s economic growth. The fact that every country exists within a community of nations means that it has to adapt its economic policies constantly to rhyme with the beat of the global economy. Asia is one continent where countries have had a rough time adapting their policy to the global economy. Almost every country on this continent has a unique history of its own as far as economic, political, and social development is concerned. Interestingly, these factors have always been intertwined for the Asian nations. However, the formation of economic blocks has emerged as a major strength for the region, where countries thrive on the basis of the economic benefits derived from such zones. The Association of Southeast Asian Nations (ASEAN), the Asia-Pacific Region (APR), and the Asian Newly Industrialized Countries (ANICs) are the main formidable trading blocs prominent in the Asian continent.
This paper analyzes the role of government direction and policy in the economic development and export success of the countries within the Asia Pacific Region.
Understanding the Asia Pacific Region
The place of Asia in the global economic climate is very different today from what it was several decades ago. Hence, the fastest-growing economies in the world come from the continent. In particular, countries from the Asia Pacific Region, which include China, Japan, and others from the southeast and northeast Asia, have recorded the most growth in their economies. It is important to note that in the period between 1970 and 1980, the economic region posted impressive annual growth rates of between six and seven percent, while that of the rest of the world was static at between two and three percent (Hill, 2013, p. 110). Notably, Asian Newly Industrialized Countries (ANICs), which included Taiwan, Singapore, South Korea, and Hong Kong, and those forming the Association of Southeast Asian Nations (ASEAN), including Indonesia, Malaysia, Thailand, and Philippines among others, grew their economies at rates three times that of the global economy (Hill, 2013, p. 110). For example, according to Berger and Beeson (1998, p. 492), the productivity of the Asia Pacific Region in 1965 stood 75 percent below the combined productivity of Canada and the United States. However, by the close of 1983, this productivity level grew eightfold to 50 percent that of combined productivity of the two American giants (Berger and Beeson, 1998, p. 492).
Just like the economy of the Asia-Pacific Region was booming, the volume of trade was also increasing. During the same period that the economies of countries in the region experienced exponential growth, intra-regional trade in the same region grew at a rate twice that of the rest of the world. Several factors led to this impressive growth. Firstly, the region was witnessing a growing population of an educated workforce who could easily adapt to the technological advancements of the age (Hill, 2013, p. 110). Secondly, and the most important, the economy of the region was stimulated by policy reforms that aimed at making it favorable for Foreign Direct Investment (FDI) (Hill, 2013, p. 110). Some of the reforms included lowering inflation rates by reducing budget deficits, liberalizing trade, and the privatization of state-owned enterprises (SOEs) among others. Undoubtedly, these policy measures are singled out as the main reason for the emergence of Asian Tigers, including Singapore, Malaysia, Indonesia, Philippines, Vietnam, and so on.
The Nature of Policy Reforms
Policy reforms come in a variety of formations, from large to piecemeal. In literature, the ‘big bang’ reforms are those that constitute major policy changes and direction and which turn out to be ‘turning points’ in the long-term. In other words, they eventually lead to accelerated economic growth and improved quality of life. In the Asian continent, examples of policy reforms include those carried by the People’s Republic of China in 1978 (Pomfret, 2002, p. 3), Indonesia in 1966 (Aswicahyono, Bird, and Hill, 2009, p. 355; Pangestu, 2012, p. 2), India in 1991 (Pomfret, 2002, p. 3), and Vietnam in the 1980s (Pham and Riedel, 2012, p. 34). In the ASEAN region, examples include Singapore, Thailand, Philippines (Nye, 2011, p. 4), and Malaysia economic reforms (Pomfret, 2002, p. 3). In all these countries, however, the nature of reforms undertaken by governments and the complexity of bureaucracy has characteristically been different from one nation to another.
While some governments have undertaken some policy measures through a stroke of the pen, others have to overcome political bureaucracy to implement them (Pomfret, 2002, p. 4). Examples of straightforward policy measures include introducing a floating exchange rate, the elimination of regulatory requirements, and opening industries to competition (Pomfret, 2002, p. 4). Others include replacing nontariff barriers with tariffs and rendering corrupt agencies redundant. Those requiring bureaucratic implementation include, for example, preconditions placed for successful reforms of tax administration. This included reforms designed to limit the scope of discretionary interventions, such as implementing a value-added tax policy that exists as an incentive for simpler tax rates, regulation, and compliance (Pomfret, 2002, p. 4). Other reforms demand the elimination of bureaucratic interventions, such as financial liberalization.
In Vietnam, major policy reforms began taking place in the mid-1980s, a period when the country was probably facing the darkest period in its history (Pham and Riedel, 2012, p. 34). Indeed, during the period, the country was on the verge of being a pariah state as its relations with the United States were in a frozen state, and it was at loggerheads with the surrounding nations, specifically China to the north and the ASEAN countries to the south (Pham and Riedel, 2012, p. 35). Consequently, the support of its principal benefactor, the Soviet Union, was nearly collapsing, and its contact with the international financial institutions was minimal at best (Pham and Riedel, 2012, p. 35). To make it worse, the country had a very limited number of knowledgeable technocrats who could help the nation manage its transition during the precarious times and at the same time run a market economy. However, at the Sixth Party Congress held in December 1988, Vietnam came up with what was referred to as Doi Moi (renovation), a term that connotes gradual economic reformation (Pham and Riedel, 2012, p. 36). The 1986-1988 hyper-inflation threatened to derail the new policy initiative, and this led to the creation of a stabilization program in 1989 (Pham and Riedel, 2012, p. 36). The central elements of this program included legalizing gold holdings, devaluing and unifying the exchange rate, raising interest rates, and reducing deficits in the public sector (Pham and Riedel, 2012, p. 36). The lowering of public sector deficits was implemented through a reduction of the ratio of government expenditure to the gross domestic product by a six percentage point. Furthermore, the Vietnamese government eliminated subsidies for state-owned enterprises (SOEs), demobilized about half a million soldiers, and drastically cut major state investment programs. Moreover, in 1989, the government made a decision to liberalize prices and eliminate a culture of state procurement (Pham and Riedel, 2012, p. 36).
Subsequently, the government made further reforms targeting the SOEs, which had been deeply entrenched in the Vietnamese corporate environment. The measures included hardening the SOEs budget constraints, weaning them off central bank credits, and forcing them to buy inputs from the domestic market (Pham and Riedel, 2012, p. 38). Courtesy of the stabilization program, many SOEs were shut down, and others brought under the control of the Ministry of Finance. To stabilize the market economy, the government adopted several laws meant to clarify the rights of business entities. As a result of the vibrant policy reforms, Vietnam enjoyed impressive fiscal growth until 2008, when a combination of domestic policy mistakes and the global financial meltdown slowed the economy (Pham and Riedel, 2012, p. 38). Nonetheless, the success of policy reforms deeply entrenched a culture of productivity and efficiency, and Vietnam faces a bright future in terms of economic growth.
Another country that has performed extremely well in undertaking far-reaching policy reforms is China. The rural economic reforms that the country undertook in the late 1970s and early 1980s were responsible for the dramatic increase in rural labor productivity (Breznitz and Murphree, 2011, p. 6). In fact, most of the labor found its way into the rapidly growing manufacturing and service sectors. Most importantly, the new open economic policy made the flow of FDI to the manufacturing sector possible (Breznitz and Murphree, 2011, p. 6). However, to stimulate and catalyze the growing economy, the government made it a priority to invest heavily in the country’s infrastructural network. The fiscal and functional decentralization policy associated with the tax administration reform of 1994 increased incentives to the provincial governments for infrastructural development (Breznitz and Murphree, 2011, p. 6). In addition, a series of institutional reforms by both the central and provincial governments helped to transform the bureaucratic regime to one that was responsive to business. There is no doubt that this policy reforms contributed to China’s present status as the fastest growing world economy.
Policy reforms constitute the most effective action the government can do to improve the country’s economy as it acts as a stabilizer, stimulator, and catalyst of fiscal growth. There is no doubt that the place of Asia in today’s global economy is widely recognized. The implementation of far-reaching economic policy reforms has greatly contributed to the emergence of Asian countries, led by China, which is among the fastest growing economies in the world. Despite a history of retrogressive economic, political, social decisions, Asian countries have emerged as formidable economic entities in a globalizing society. Partly, the formation of regional blocs, specifically ASEAN, APR, and ANICs, has contributed to the changing fortunes and face of Asian nations. However, the most significant ones that have created a conducive environment for economic revival and growth are the far-reaching reforms of market liberalization, the introduction of floating exchange rates, the elimination of tariff barriers, the privatization of state-run enterprises, and the eradication of corrupt agencies.
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