It is not only Singapore that is thinking about nuclear energy in South-east Asia. Vietnam, Indonesia, Thailand and Malaysia are looking at nuclear energy and indeed the first three are further ahead on the path.

Indonesia has cleared most legal and administrative hurdles and has been identifying sites for their first plant, despite considerable controversy and protests by local communities.

Why are Singapore and others in South-east Asia now looking at nuclear energy? What are the constraints and concerns? How should a decision be reached in the country, and across the region?

The motives for looking at nuclear energy are apparent. As a compact, industrialised and densely populated city state, Singapore needs energy and energy sources that are readily available, reliable and reasonably priced. Other countries are also keen, despite the fact that some like Indonesia and Vietnam have more options in conventional energy resources and renewables, and could take the lead in new technologies like geo-thermal energy.

Yet, even as governments want to move ahead, many questions remain to be answered. This is especially as South-east Asians are new to the nuclear energy industry – unlike their cousins in North-east Asia.

Singapore’s leadership has promised to look at the technical, economic and safety aspects of nuclear energy.

The issues are manifold, complex and open to debate. Security measures to prevent weaponisation and a “dirty” bomb were the focus of the recent US-led summit and bear consideration in Asia. Safety in design, construction and operation are also real concerns, especially if the site is exposed to earthquakes, as in Indonesia.

The industry is quick to say that a nuclear energy plant is safe and that new designs mean a Chernobyl-type blowout will not happen. But different problems can develop, especially where there is no culture of safety in handling everyday operations and maintaining the plant over the long haul.

Even the economics of the decision is also more complex than proponents would have us believe. The common claim is that the energy is cheaper than conventional fossil fuels and, even more, renewable energy. But the typical nuclear energy plant has such a massive upfront cost and long construction period that only states with deep pockets to offer cheap capital and subsidies can proceed.

Construction cost overruns are also typical. The Olkiluoto plant being built in Finland has already seen costs balloon by more than 50 per cent, adding billions to the original estimate. Frequently, the cost estimates also fail to take into account the cost and time for decommissioning the plants at the end of their life. This process could take around 50 to 80 years , and costs anywhere from US$300 million ($403 million) to more than US$1 billion.

Another major concern is the environment. This was not specifically mentioned in PM Lee’s description of the feasibility study that Singapore will undertake and needs to be explicitly integrated into the frame for decision making.

With climate change concerns, proponents tout nuclear energy proponents to be a “green” alternative, saying no carbon dioxide (CO2) is emitted. But when we look at the full life-cycle of nuclear energy including mining, construction and transport, there is a CO2 footprint, which may not necessarily be lighter than fossil fuels.

The larger environmental issues about nuclear energy relate to waste, for which remains hazardous for thousands of years, without a real solution. Storage facilities are controversial and illegal dumping, inside or outside the country, will always be a danger.

These are but some examples of the issues at hand. They cannot be answered categorically, simply or immediately. Those concerned for the environment and safety should not respond with an ideological “No” to nuclear power. But neither can the debate be reduced to dollars and kilowatts for the short term.

There is no technological silver bullet. This is something that nuclear experts should recognise even as they promote the safety and viability of so-called new generation reactors, or talk up “small” reactors, as Michael Richardson of the Institute of South-east Asian Studies did in a Straits Times article on Monday.

It is important, therefore, to look at the decision-making process itself. Often times, Singapore prides itself on decisiveness and speed, relying on technology and experts to deliver the answers. But in this case, such qualities may not be assets.

Frameworks for feasibility have to be broadened. The public must be consulted and participate in the decision-making. Yes, there are difficult technical and technological issues at play that are difficult to grasp. But experts in this field should not believe they have all the answers and accuse the public of failing to understand.

Every effort must be made to broaden understanding and participation as this is an issue of basic safety that will affect very many people. The perspective of sustainable development and environmental protection should also be brought into play.

With the idea of sustainability and of future generations, the question of the nuclear waste must be considered even before we begin, as such waste materials have a half life measured in thousands of years.

Moreover, there is also a responsibility for transboundary pollution and all countries in the region should consult with each other to reassure their neighbours that their plans meet the highest standards of safety in design, construction and operation.

A rational and transparent process for decision-making is needed both at the national and regional levels. This should not be a rushed decision, shrouded in secrecy or dressed up in technical jargon, or shielded by excuses of sovereignty or national security.

The writer is chairman of the Singapore Institute of International Affairs, which has held or participated in panels and workshops on this issue in Indonesia, Malaysia and Singapore.

The decision not to allow iconic Opposition leader Aung San Suu Kyi to participate in elections in Myanmar was bad enough. But the latest news that her party, the National League for Democracy (NLD), will also not participate leads many to worry that the vote later this year will be a farce.

Hopes had been raised for an end to the country’s near pariah status. First, Myanmar decided to move ahead with the long delayed Constitutional reform and elections on their self-proclaimed road to democracy. Then, the USA changed policy to engage the regime, although maintaining sanctions. Third, members of the regional group, ASEAN, called persistently for free and fair elections.

Hopes have now dimmed that elections will bring in a new and credible government, whether formed by Aung San Suu Kyi or parties led by those close to the military. In the Saffron Revolution of 2007, when the military used excessive force against monks, the images were more dramatic. But the current situation is no less worrying.

What happens if the elections go ahead but lack competition and credibility? What can and should ASEAN neighbours like Singapore do with the new government? Might flawed elections foment internal instability, as with Iran?

There are implications for ASEAN and for Singapore, which has sometimes been singled out as being close to Myanmar.

While it is true that Singapore engages in investment, aid and technical assistance, it is not a defender or proxy of the regime, and increasingly has offered critical comments. The relationship between the two countries is evolving. Even if Singapore will not join the largely Western chorus of criticism, there is a range of policy options that the government can and should explore in future.

Such options were discussed amongst Singaporean experts, business leaders, and nongovernmental organizations (NGOs) involved in Myanmar in a roundtable organized by the SIIA.

Some observations may surprise. While Singaporean economic transactions in Myanmar are criticized, their absolute value is small — less than a quarter of 1% of Singapore’s total trade. For investment, while some Singaporean companies went in early, few are now actively looking to increase their exposure in the country. Instead, there is considerable caution and even notes of pessimism about business prospects there.

On humanitarian efforts, Singapore-based nongovernmental organizations have reported some success in helping people in the wake of Cyclone Nargis in 2008. But they also reported continuing limits to their direct access to citizen groups.

After the Saffron Revolution, there is also a sense that Singaporean public opinion has turned against the regime. There may not be pressure for sanctions, but there is an expectation that the Singaporean leadership should not cosset or be too close to such a regime.

Going forward, there is a spectrum of policy options, ranging from “proxy” to “principled”. Some businesses and experts suggest that Singapore should implicitly accept the junta’s actions and encourage the full range of business activities as well as government ties, as a “proxy”.

At the other end of the spectrum, some feel that a more “principled” approach should now be taken. This would have Singapore emulate the posture of the US and Europe, with diplomatic disengagement, reduced aid and economic sanctions.

A middle path of pragmatism is also possible. Singapore would continue to work for change, but in a quieter way. Aid, investment, and technical assistance could continue at appropriate levels and for directed causes, while Singapore used an independent voice to encourage reform.

For elections in Myanmar, Singapore has quite consistently called for a credible process and for the participation of all parties, including the NLD. Singapore’s position can effect how ASEAN as a whole responds.

The regional group is diverse, with some like Indonesia pushing actively for change and democracy, while others regard this mainly as a domestic issue for Myanmar. Myanmar officials attend approximately 250-300 ASEAN meetings each year, at different levels of bureaucracy. Although this has not brought change, ASEAN as well as Singapore can then leverage their increased access to lessen violations of human rights and encourage fundamental tenets of good governance, in keeping with the ASEAN Charter, which Myanmar has accepted.

Singapore’s relationship with Myanmar bilaterally and through ASEAN can make it a significant player. It cannot shift the regime on its own. But what Singapore does can be significant, especially if there is coordination with ASEAN and other significant players, especially China and the USA.

Coordination does not mean that countries would have identical positions. Rather, like an orchestra, different countries can and should use different instruments and play different notes, provided the main theme is consistent.

UNITED States President Barack Obama’s decision to postpone his visit to Indonesia and Australia last week was understandable. The health-care Bill, a centrepiece in his legislative agenda, was at a critical juncture and domestic priorities trump international visits. Moreover, the President had visited Asia less than six months ago and has rescheduled for June, not so far off.

Yet while the postponement will be accepted – including by the Indonesians, who had looked forward to welcoming Mr Obama to the land where he spent part of his youth – it is neither insignificant nor without consequence.

This goes beyond the symbolism of the Chinese Premier deciding to visit Indonesia before Mr Obama arrives in June. It points to deeper questions about America’s future in Asia. And it also touches upon the different visions of the regional architecture that have been put forward by Australia, Japan and Asean.

Australian Prime Minister Kevin Rudd has proposed an Asia-Pacific Community while Japanese Prime Minister Yukio Hatoyama has spoken of an East Asian Community. In the meantime, Asean leaders have emphasised the group’s centrality and would prefer to develop existing regional structures instead of creating new ones. Some in Asean propose expanding the East Asian Summit, where Asean hosts the leaders of China, Japan, South Korea, India, Australia and New Zealand. Singapore Senior Minister Goh Chok Tong recently suggested bringing in the US and Russia, to make what might be called an Asean+8. Details have yet to be given. But this is more than just a question of acronyms and numerals.

Asia may propose, but much will depend on US attitudes. Its willingness to engage Asia cannot be taken for granted. The postponement of Mr Obama’s visit to Indonesia is another sign of how the mood is changing in the US.

The Obama administration began with considerable ambitions in Asia. It showed its commitment in the first Asean-US Summit, with the President personally declaring himself the first Pacific President. But at the end of last year, when Mr Obama journeyed to Singapore for the Apec summit, he was pilloried at home.

Concurrently, frustration about joblessness grew and the President’s approval ratings fell. The US economy remains fragile now and domestic issues continue to take precedence over international ones. The consequence may well be drift in America’s relations with East Asia.

Consider trade: When President Obama attended the Apec summit, he won kudos for showing interest in the Trans-Pacific Partnership. But the truth is that a number of free trade agreements that the US has already negotiated – with South Korea, for instance – remain mired in Congress, unratified.

When American attention does turn to Asia, its agenda can be worrying. It is now filled with complaints about China, including its undervalued currency. This signals a growing belief among Americans that trade with Asia is not always to their benefit. Given this mood, it is possible the US will either be largely absent from Asia, or engage with it acrimoniously.

In the past, Asians would have sought to accommodate America’s demands. Not so now. China for one sees no need to bend to US pressure. Even Japan is openly debating the value of US military bases in the country. Asians are growing more confident and self-assertive, and not without justification.

But Asian triumphalism must be avoided. So too must the belief that Asians can go it alone, without America. There are security threats and rivalries in the region that continue to require US involvement. Moreover, the US is still by far the largest economy, and a critical market for Asia.

Instead of simply waiting for Mr Obama, Asians should seek to engage America in new and more sustainable ways. One forum can be Apec. But Apec is focused on economics and its membership goes beyond just Asia and the US.

Another forum can be the summit that Mr Obama began with Asean. This is important as a complement to the active ties that Asean has with China, Japan, India and other key players.

Another initiative by Asians may be useful. Hence the various proposals. While these differ, some key principles can be aligned. First, any new arrangement should aim to ensure a regular dialogue among strategic partners, especially the US. However, we must accept that these dialogues cannot occur too often. The political reality is that while America continues to be important to Asia, its leadership may not always be present.

Second, any new arrangement cannot be seen as trumping intra-Asian frameworks, in which Asean has been central. No major power, including the US, can be allowed to dominate these arrangements.

Third, any new arrangement should be inclusive and based on principles of equality. Asia cannot be run by a small directorate of major powers. Medium- and small-sized states must be included.

The Australian, Japanese and various Asean proposals will be debated. Whatever emerges, one hopes it will embody these principles – to the benefit of all those who wish Asia to continue to engage America and vice versa.

The writer is chairman of the Singapore Institute of International Affairs. Think-Tank is a weekly column rotated among eight leading figures in Singapore’s tertiary and research institutions.

OP-ED CONTRIBUTOR
Are global responses to the challenge of climate change compatible with future economic growth?

By Peter Löscher

Climate change is a fact. Carbon dioxide concentrations in the atmosphere are higher today than at any point during the last 350,000 years. If carbon dioxide emissions were to double by 2035, the temperature of our planet would rise between 1.5 and 4.5 degrees celsius – with catastrophic consequences for civilization and our entire biosphere. We cannot afford this. Sir Nicholas Stern has calculated the annual economic losses associated with climate change to be at least five percent of the annual global GDP. That’s equivalent to two times the losses caused by the economic crisis – and these losses would occur every year. If we continue to do business as usual, climate change will in effect neutralize economic growth. From a global macroeconomic point of view, fighting climate change is not only compatible with growth, it is essential to growth.

Even if climate change were not a reality, as some falsely claim, it would still make good economic sense to make the transition to sources of energy other than fossil fuels and to strive for greater energy efficiency. Most obviously, fossil fuels are finite. At some point in the distant future, the world’s fossil fuel reserves will be depleted. Yet even now, supply is not keeping pace with demand. As the global population booms and demand for electricity increases, energy prices will inevitably rise in the future. Denying the reality of climate change irresponsibly postpones the transition to a more diversified energy mix and ultimately to a more sustainable economy. The challenge we face is to meet the exploding global demand for energy while reducing emissions.

There are two good reasons to believe we can meet this challenge:

FIRST, the technologies needed to mitigate climate change are already available today; they just have to be deployed.

There’s no doubt that fossil fuel fired power plants will continue to generate the lion’s share of electrical power over the next decades. However, the efficiency of these power plants will improve dramatically. Upgrading all fossil-fuel fired power plants currently in operation worldwide to the best technology available today would save 2.5 billion tons of carbon dioxide emissions per year.

Of course, the long-term objective is to increase renewable energy’s share of the mix. Currently, biomass, wind, geothermal and solar account for only three percent of the global energy mix. (Hydropower’s share is 15 percent.) But our projections and those of the InternationaI Energy Agency indicate that this share will grow to 14 percent by 2030. In absolute terms, that would be an increase from 600 billion kilowatt hours today to 5200 billion kilowatt hours in 2030, or nine times as much power from renewable sources.

In North Africa and the Middle East, three times as much solar power can be produced per area than in Central Europe, and this is the rationale behind Desertec, a visionary project in which power is generated in the desert regions of North Africa and the Middle East and transported to African and European countries. Here, another key technology is needed: High Voltage Direct Current (HVDC) power distribution. This technology is capable of transporting power over long distances at a loss of just three percent per 1,000 kilometers. We are currently helping China build a 1,400-kilometer HVDC superhighway that will transport 5,000 megawatts of power from the country’s interior to its coastal cities.

SECOND, most investments in more energy-efficient technologies pay for themselves – and saving energy is the fastest and most effective way to reduce emissions.

Buildings account for about 40 percent of energy consumption worldwide and for approximately 21 percent of all greenhouse gas emissions. The Intergovernmental Panel on Climate Change (IPCC) estimates that more efficient technologies could reduce the carbon dioxide emissions of buildings by up to 40 percent by 2030. A large share of this reduction is attainable by implementing relatively simple measures, such as electricity-saving technologies, effective insulation, energy-saving lighting, and combined heat and power solutions that generate electricity and heat on site, as well as solutions that utilize sensors and building automation systems to create optimal air and light conditions.

The Shanghai CITIC Square project is an excellent example of how energy-efficient technology pays for itself. The project includes a chiller plant retrofit, chiller water optimization, a building envelope retrofit, a building automation system, and an elevator control system. All these improvements will trim energy costs by about RMB 1.4 million per year and reduce annual carbon dioxide emissions by 600 tons. Most importantly for the owners, the investment will amortize in five years.

Investments in green technology not only save energy and reduce emissions; they save money; and as energy costs steadily increase, that is perhaps the most compelling argument of all for investors.

This explains why the market for energy-efficient and environmental technologies is booming. According to recent forecasts, the global market for green technologies is expected to grow to a volume of €2.2 trillion by 2020. That’s more than seven times the revenue of the entire German auto industry.

At Siemens, we are benefiting from this growth. Our green portfolio as a whole generated €19 billion in fiscal 2008 – or about one quarter of our total annual revenue. We expect our revenue from green products to grow 10 percent annually and reach the €25 billion mark by 2011. Siemens and many other companies understand that the color of future economic growth is green. And we are ready for the green revolution.

Committing to emission reduction targets and time frames for meeting these targets is the most effective action the international community can take to fight climate change. Regulation should transcend national borders and mobilize all major economies and emitters; it should create a level global playing field for all industries; it should link industrialized and developed countries through strengthened global emission reduction mechanisms; finally it should recognize and support all technologies that are both energy-efficient and climate-effective, and this should include renewable energy, nuclear energy as well as clean coal technologies. Firm long-term commitments and uniform international regulation would add even more momentum to an already dynamic green market.

The silver lining in the global economic crisis is that it proved that national governments are indeed capable of joining forces to manage an emergency. The response of the international community to the crisis has been fast, appropriate and unified – and the magnitude of this response is unprecedented.

This is the kind of collective effort needed to meet the biggest challenge of our generation: climate change. And this is an effort we must make for the sake of future generations.

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Peter Löscher is the President and CEO of Siemens AG

OP-ED CONTRIBUTOR
By Bjørn Lomborg

Our current approach to solving global warming will not work. It is flawed economically, because carbon taxes will cost a fortune and do little, and it is flawed politically, because negotiations to reduce CO2 emissions will become ever more fraught and divisive. And even if you disagree on both counts, the current approach is also flawed technologically.

Many countries are now setting ambitious carbon-cutting goals ahead of global negotiations in Copenhagen this December to replace the Kyoto Protocol. Let us imagine that the world ultimately agrees on an ambitious target. Say we decide to reduce CO2 emissions by three-quarters by 2100 while maintaining reasonable growth. Herein lies the technological problem: to meet this goal, non-carbon-based sources of energy would have to be an astounding 2.5 times greater in 2100 than the level of total global energy consumption was in 2000.

These figures were calculated by economists Chris Green and Isabel Galiana of McGill University. Their research shows that confronting global warming effectively requires nothing short of a technological revolution. We are not taking this challenge seriously. If we continue on our current path, technological development will be nowhere near significant enough to make non-carbon-based energy sources competitive with fossil fuels on price and effectiveness.

In Copenhagen this December, the focus will be on how much carbon to cut, rather than on how to do so. Little or no consideration will be given to whether the means of cutting emissions are sufficient to achieve the goals.

Politicians will base their decisions on global warming models that simply assume that technological breakthroughs will happen by themselves. This faith is sadly – and dangerously – misplaced.

Green and Galiana examine the state of non-carbon-based energy today – nuclear, wind, solar, geothermal, etc. – and find that, taken together, alternative energy sources would get us less than halfway toward a path of stable carbon emissions by 2050, and only a tiny fraction of the way toward stabilization by 2100. We need many, many times more non-carbon-based energy than is currently produced.

Yet the needed technology will not be ready in terms of scalability or stability. In many cases, there is still a need for the most basic research and development. We are not even close to getting this revolution started.

Current technology is so inefficient that – to take just one example – if we were serious about wind power, we would have to blanket most countries with wind turbines to generate enough energy for everybody, and we would still have the massive problem of storage: we don’t know what to do when the wind doesn’t blow.

Policymakers should abandon fraught carbon-reduction negotiations, and instead make agreements to invest in research and development to get this technology to the level where it needs to be. Not only would this have a much greater chance of actually addressing climate change, but it would also have a much greater chance of political success. The biggest emitters of the twenty-first century, including India and China, are unwilling to sign up to tough, costly emission targets. They would be much more likely to embrace a cheaper, smarter, and more beneficial path of innovation.

Today’s politicians focus narrowly on how high a carbon tax should be to stop people from using fossil fuels. That is the wrong question. The market alone is an ineffective way to stimulate research and development into uncertain technology, and a high carbon tax will simply hurt growth if alternatives are not ready. In other words, we will all be worse off.

Green and Galiana propose limiting carbon pricing initially to a low tax (say, $5.00 a ton) to finance energy research and development. Over time, they argue, the tax should be allowed to rise slowly to encourage the deployment of effective, affordable technology alternatives.

Investing about $100 billion annually in non-carbon-based energy research would mean that we could essentially fix climate change on the century scale. Green and Galiana calculate the benefits – from reduced warming and greater prosperity – and conservatively conclude that for every dollar spent this approach would avoid about $11 of climate damage. Compare this to other analyses showing that strong and immediate carbon cuts would be expensive, yet achieve as little as $0.02 of avoided climate damage.

If we continue implementing policies to reduce emissions in the short term without any focus on developing the technology to achieve this, there is only one possible outcome: virtually no climate impact, but a significant dent in global economic growth, with more people in poverty, and the planet in a worse place than it could be.

OP-ED CONTRIBUTOR
By Stephen King

We have reached a tipping point in global economic affairs. While there are some encouraging signs of recovery in the developed world, the real economic action is taking place elsewhere. For both cyclical and structural reasons, the emerging nations are set to dominate world economic activity in the years ahead. Although we have revised up our 2010 projections for most countries in the world, the revisions leave the emerging world looking particularly healthy: we now expect emerging nations to see economic growth of 6.0% next year (up from 5.3% last quarter) while the developed world will expand by only 1.8% (from 1.2% previously).

Part of the emerging nations’ dominance reflects ongoing struggles in the developed world. A combination of low interest rates, quantitative easing and loose fiscal policy has returned stability to financial markets and raised hopes that the worst of the crisis is now safely behind us. Nevertheless, some of the central problems of recent years have yet to go away. Banks no longer enjoy the funding of old. Households and governments are awash with debt. Developed economies remain on life-support systems imposed by policymakers.

While, then, there has been a welcome turnaround in the inventory cycle and we have been in the process of revising up many of our forecasts, we expect policymakers to maintain stimulus packages for a long time. In the US, for example, even though growth prospects have improved, the level of activity is set to remain very low, suppressing core inflation and keeping unemployment unacceptably high.

Over coming months, investors will doubtless focus on so-called ‘exit strategies’, assuming that the financial system is not about to suffer any more nasty financial shocks. We think the exit ‘sequence’ is of considerable importance. Tighter fiscal policy should ideally come before tighter monetary policy in a bid to ensure no sudden, and unwelcome, rise in bond yields. Co-ordination between fiscal and monetary authorities is, therefore, vital even at the cost, however temporary, of central bank independence.

The merry-go-round

The structural arguments in favour of outperformance by emerging economies are compelling. Low per capita incomes offer plenty of room for catch-up. Thawing political relations have allowed companies from all over the world to invest in emerging nations. Information travels around the world much more quickly and much more cheaply thanks to new telecommunications technologies, making the management of assets within the emerging world much easier than before. Trade linkages between emerging nations have increased rapidly in recent years. And banking systems in the emerging world have come out of the crisis relatively unscathed.

In the short term, however, emerging nations will also benefit from what we call the monetary merry-go-round. Low US interest rates typically encourage capital to flow into the emerging world. Attempts by emerging nations to limit the resulting exchange rate appreciation lead to offsetting capital outflows in the form of rising foreign exchange reserves which are often invested in Treasuries. Higher demand for Treasuries keeps yields low and, hence, leaves US interest rates low, thereby allowing the merry-go-round to repeat, seemingly ad infinitum.

The global cost of capital ends up being too low as a result. A hunt for yield develops. Before the credit crunch, this led to huge investments in mortgage-backed securities which, in turn, fuelled the US housing boom. Post-credit crunch, however, the hunt for yield has gone elsewhere. Investors are now keen on the emerging nations with their strong secular economic prospects.

The implications are simple. Emerging currencies will be under upward pressure, their asset markets should appreciate and their sources of growth should switch from exports towards domestic demand, thereby narrowing their currently high current account surpluses. In time, problems will arise, either in the form of higher inflation or the re-emergence of rapidly widening current account deficits but, at this moment, we are only in the foothills of the process. With no imminent upward move in US interest rates likely, the merry-go-round should be able to spin a few times more. China and India will continue to expand at a rapid rate: we project economic growth for these two giants in 2010 of 9.5% and 7.2%, respectively.

A raw deal

A switch from developed to emerging-led economic growth, combined with loose US monetary conditions, should pave the way towards higher commodity prices. Demand for commodities is now disproportionately focused on the emerging world: lower incomes per capita tend to be associated with much more incremental spending on infrastructure and the basics of human life, all of which are highly commodity-intensive.

Apart from benefiting some of the commodity producers in the emerging world (among them, Brazil, Russia and Saudi Arabia), higher commodity prices will also offer currency support to the likes of Canada, Australia, New Zealand and Norway. Meanwhile, for those countries still pondering exit strategies and faced with multiple years of debt repayment, we suspect currencies will be weak: the most obvious candidates are the US dollar and sterling.

Our asset allocation recommendations continue to thrive on the mountains of liquidity created by central banks and fiscal authorities around the world. Within our preference for risky assets, we favour corporate bonds over equities: low levels of activity will, in our view, lead to anxiety over long-run sources of corporate profits. Meanwhile, with liquidity flowing from the developed to the emerging world, we favour emerging market assets in general over their equivalents in the developed world.

***

Stephen King is the Group Chief Economist and Global Head of Economics and Asset Allocation Research at HSBC.

JAKARTA POST 15 JUNE 2009

By Jusuf Wanandi

There are many political-security challenges in East Asia, such as terrorism, proliferation of WMD, transnational crime, climate change, energy security, pandemic diseases, and natural disasters. However, in the last 18 months or so a new political-security challenge has arisen that has overridden everything else, not only in the East Asian region but also globally, namely the financial and economic crisis that started with the sub-prime mortgage problems in the US.

This has been recognized by Admiral Dennis Blair, President Obama’s top national intelligence director. He considered this new threat as one that is global and overriding everything else in the security field, because it could have so many impacts on the world, all the regions, and all countries, developing or developed.

This crisis has definitely been very damaging to developing countries in the East Asian region. The greatest danger to them is to become failing or failed states. Although they are not directly responsible for the outbreak of this financial crisis, but the resulting deepest recession since the 1930s are felt by the whole world and are going to have an impact on their export, developing assistance and capital flows, including foreign direct investment (FDI). It has increased poverty and unemployment, and could even cause deflation, political instability, and even anarchy, civil strife and regime change if not attended to seriously.

For the more developed nations, new challenges will arise and a tendency towards “beggar thy neighbor” policies, such as protectionism and the withdrawals of their capital from other places will create tensions, dissidence, and possibly frictions and conflicts, although wars are not imminent.

At the beginning of the crisis there was talk about de-coupling between developing East Asian countries and developed countries (the US, EU and Japan). And questions were asked whether China and India could become the new locomotives for the world economy. This was immediately answered in the negative by economist looking more deeply into their economic capabilities, which were still far behind that of the US.

By now, however, it is recognized that the impact of the crisis on East Asia has not been as dramatic across the board as was expected earlier. China will grow around 8 percent in 2009, while India will be around 6 percent, and Indonesia will be at 4 percent. And that is going to help also the other economies in the region, whose outlook has improved and is better than expected.

At the global level there is the G 20 that is becoming the most important forum to find a way out of the crisis and in the medium term to establish new rules and institutions, such as the IMF and the IBRD (World Bank), which can incorporate the rapid changes that have happened over the past two to three decades.

To be successful at the G20, East Asian governments have to come together and cooperate closely to have the necessary impact at the global level. There are five countries from East Asia in the G20, namely China, Japan, Indonesia, South Korea and Australia. The APT (ASEAN plus Three) members have already come together at the Summit level on the sideline of the ASEM Meeting in Beijing in October 2008 and have instructed the ministers and senior officials to take steps towards the multilateralization of the Chiang Mai Initiative (CMI). This is conceived of as an emergency fund whose amount was increased from US$80 billion to $120 billion. The Finance Ministers Meeting in Phuket has endorsed it and in May 2009 in Bali they created the fund.

But for the five East Asian member of the G20, there is the necessity to cooperate closely because next year’s summit will be organized by South Korea. This provides a golden opportunity to influence the G20 for the interest of the region, especially to make sure the G20 will continue and replace the G7/G8, which is no longer relevant for today’s world. To prepare this, the think-tanks in the East Asian region, especially the 5 member countries, should give the necessary support to their governments.

It should be noted that despite the urgency, it has taken the ASEAN Plus Three (APT) a lot of time to implement the idea of the regional fund. Although the idea has been there for some time, and APT leaders had given a go ahead at the ASEM Beijing Summit, it took several months before Finance Ministers finally concluded the deal. This process has been too slow for the initiative to have an effect in overcoming the crisis.

This is why the coordination of the East Asian members of the G20 is becoming more urgent than ever. A better-coordinated East Asia opens the way for informal meetings to be established among them with G20 members on the other side of the Pacific, namely the US, Canada and Mexico. This Asia Pacific caucus will help strengthen trans-Pacific cooperation, similar to the established trans-Atlantic dialogue and cooperation. It is critical that this caucus be formed soon.

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Jusuf Wanandi is Senior Fellow at the Centre for Strategic and International Studies (CSIS), and Vice Chair of the Board of Trustees of CSIS Foundation.

By Simon Tay

CRISES provoke changes. The initiative to bring together the world’s 20 largest economies last November was one change the global economic crisis instigated. The Group of 20 (G-20) summit meeting in September in Pittsburgh was only its third. But the G-20 has already emerged as the key grouping in the global crisis.

Why? How has it performed? What are the possible dangers?

The rapid rise of the G-20 is due largely to the absence of any other effective global organisation. The old G-7 consisting of the established powers no longer sufficed for it did not take into account the rise of China, India and Brazil. The established economies were no longer able to move the world without acting in concert with a number of players which weren’t in their club. Moreover, the largely Euro-American nature of the G-7 seemed too narrow.

The International Monetary Fund, which dealt with previous financial crises, was also overdue for reform. Its handling of the 1997-98 Asian financial crisis has been questioned, with some accusing it of having made matters worse. Moreover, with the epicentre of the current crisis in the United States and Europe, the IMF was placed on the sidelines.

Asia has undoubtedly gained from the G-20. Only Japan was a member of the G-7. Now China, Indonesia, South Korea and India – as well as Australia and Thailand, as the current Asean chair – are part of the G-20.

But has the grouping been effective? There are real differences between the member states on fiscal and monetary policies. The stimulus packages each introduced differed dramatically in size and scale, reflecting different underlying philosophies. The G-20 has also steered clear of some key but controversial issues like how the US and Europe propose to clean up their respective banks and the long-term role of the US dollar.

Instead, the G-20 has been taken up with other issues, where the interests of its members may not coincide with those of the world as a whole. Climate change, for example, featured in the discussions at Pittsburgh. There is a danger that large, powerful states might come to an agreement among themselves on this issue and then dictate to others.

Another issue the G-20 has taken up has been tax havens. It has issued black and grey lists to identify and pressure the countries it considers to be behaving badly in this area. The US, for example, has pressed Switzerland to release the names of American citizens who have deposited funds with UBS Bank, suspecting these depositors of having illegally avoided paying US tax.

No one should condone tax evasion. But the issue does not seem to have been directly related to the financial crisis that began with American banks.

Another area of divergence between large and smaller countries is that of free trade. Despite G-20 proclamations, many large countries have found ways to limit imports and protect their producers. The most recent example is the US decision to restrict imports of tyres from China. Such actions signal the diminishing belief in globalisation among countries with the largest markets.

Medium- and smaller-sized countries with open economies cannot afford this luxury. In Asia, such countries would include Singapore as well as Malaysia and Thailand. Similar countries elsewhere would include Chile, Holland, New Zealand and the Scandinavian states.

These countries have gained from the global economy. As medium- and smaller-sized countries, they have had to follow international trade rules, rather than make them or break them as more powerful countries can.

Some among them have been able to attend the G-20 but they are not fully within the group. The G-20 is now a permanent institution. Cooperation among the biggest powers is indeed important. But there is no guarantee that large countries will take into account sufficiently the concerns of smaller countries.

Rather than aspire to get into the G-20, medium- and smaller-size countries open to the global economy may be better served by organising among themselves. Working together, they might make their views better known to the G-20 and collectively have a weight that none of them would have separately.

The ‘G’ in G-20 stands simply for ‘group’. But with the largest and most powerful countries on board, it could just as well stand for ‘Giant’ or ‘Gulliver’. The smaller open economies might consider coming together as an ‘L-20′ – ‘L’ standing for Lilliputians.

In Jonathan Swift’s tale, the giant Gulliver could not be constrained by the Lilliputians who tried to tie him down with ropes. He snapped them like threads.

The Lilliputians should not hope to tie down the Gulliver 20. But they can hope to guide the G-20 to decisions that are best for the global system as a whole – and, in the process, prevent the giant states of the G-20 from stepping on them, inadvertently or otherwise.

***

Simon Tay is the Chairman of the Singapore Institute of International Affairs and the 2009 Schwartz Fellow at the Asia Society in New York.

OP-ED CONTRIBUTOR
There is no simple, single or immediate solution to the haze

By Simon Tay

The week the earthquake hit Padang, I was in Kuala Lumpur for a dialogue about the regional haze.

Should we be criticising Indonesia for the fires, someone asked, when the country had just suffered such tragedy? Does the haze pollution seem inconsequential? Does Indonesia have the right to do whatever it wants without outside interference?

It is hard to compare an earthquake of 7.6 magnitude with the haze pollution. It is like apples and oranges, durians and mangoes.

In the earthquake, the damage is visible immediately and dramatically, especially since the centre of Padang was hit. For the haze pollution, the image of KL’s twin towers shrouded and hardly visible, is also compelling. But the harm is harder to see. The pall of the smoke is spread across the region and the spike in respiratory problems plays out in a hundred small clinics.

The earthquake is a natural disaster and we focus on the victims. The fires, while made worse by the prolonged dry spell, are deliberately started by humans and many look to identify the culprits.

Our meeting began with a minute of silence. Not only for the earthquake victims but also for those in the Philippines and Vietnam who have suffered because of Typhoon Ketsana. When we discussed the haze, the sharpest criticism came from the Indonesians themselves, especially those working in the most fire prone districts of Riau and Kalimantan.

While Jakarta has been immune, these Indonesians have been the first victims. They suffer the thickest haze when vast tracts of land, often belonging to large companies, are cleared by fires, notwithstanding the laws. By comparison, the people in Malaysia, Singapore or other countries are like second-hand smokers.

But whether more or less intense, the human suffering from the haze pollution is not divided by national flags, but interdependent across borders. The earthquake, too, demonstrates the growing sense of shared humanity. Foreign governments, charities and humanitarian organisations have joined the Indonesian officials in providing assistance.

For the earthquake, the urgent need for cooperation has eclipsed fear about outside interference. A similar sense may be emerging about the haze, albeit more slowly and less certainly.

Special interests deny responsibility but President Susilo Bambang Yudhoyono’s government has promised action. In 2007, the target was to reduce fire hotspots by half.

Last month, at the G20 meeting in Pittsburgh, Indonesia promised to reduce its carbon emissions by 26 per cent by 2020. To achieve that, massive deforestation and fires must stop, as these give off the bulk of emissions and not industry.

But will promises lead to action? New ways to cooperate must evolve. Both Singapore and Malaysia have taken the initiative to work with local Indonesian officials and communities in Jambi and Riau. For Asean, the haze agreement awaits ratification by Indonesia’s recently elected legislature.

At the global level, negotiations for a new climate change regime must provide incentives for Indonesia to retain and regenerate their forests to absorb and lock up carbon. In return, however, there must be an assurance that these forests can be secured and kept safe from fires.

The earthquake and haze both demonstrate our interdependence. For the recurring problem of the haze, there is no simple, single or immediate solution. But working at different levels and different sectors can bring progress.

***

Simon Tay is the Chairman of the Singapore Institute of International Affairs and the 2009 Schwartz Fellow at the Asia Society in New York.

The global economic situation has eased since the financial crisis started about a year back. Leading indicators are looking up, and the IMF recently lifted its forecast for global GDP growth in 2010 to around 3%. But it is too early to take our eyes off the economy – it will be a bumpy ride, fraught with risks. At the same time, we should now start to look at how to retool our economies to position ourselves for new growth opportunities in the post-crisis landscape.

The issue of how to re-position the Asia-Pacific economies for new growth paradigms has been a preoccupation in the APEC meetings that Singapore has been chairing this year. It will occupy our Leaders’ minds when they gather in Singapore next month for the Summit. It cannot be “growth-as-usual” going forward.

We must start to gradually unwind the global macro imbalances, which were at the root of the crisis. We must spread the benefits of growth more broadly across all segments of society, so as to maintain the consensus for globalisation. We must start steering our growth paths onto a low-carbon trajectory, to mitigate the risks of climate change and leave a sustainable future for the next generation. At the same time, APEC economies must remain firmly committed to promoting free trade as the key engine of growth to uplift all segments of society.

Since its founding 20 years ago, APEC’s steadfast efforts to keeping pushing for open markets and free trade has made a tremendous contribution to boosting growth and prosperity in the region. For instance, through unilateral liberalisation by economies, average tariff rates in the Asia-Pacific fell by two-thirds during the first 15 years of APEC’s existence – from 17% in 1989 to 5.5% in 2004. Intra-APEC merchandise trade has grown five-fold – from US$1.7 trillion in 1989 to US$8.4 trillion in 2007.

The question before us is what to push for next, given the already low existing tariff rates. Indeed, because tariff rates in the Asia-Pacific are already relatively low, the marginal benefits of further reduction in such barriers are likely to diminish.

This is why APEC is focusing on the next wave of economic integration – dealing with the practical, behind-the-border obstacles faced by businesses so that they can draw fuller benefits from open markets.

There are three key thrusts along which APEC can make contributions toward this next wave of trade policy-related reforms.

1. Making FTAs more business-friendly.
2. Making regional supply chains smoother and more efficient.
3. Improving the business and regulatory environment.

First, on making FTAs more business-friendly. Since the late 1990s, the Asia-Pacific has been at the forefront of trade liberalisation, with a fast-growing network of bilateral and regional FTAs. In 2000, only three FTAs were in effect. In just nine years, the number has risen to 54. This has helped bring tariffs down and boosted trade.

However, the flipside of the spread of FTAs is that it has led to more diverse and complex rules of origin (ROOs). This has raised the cost of compliance for business that want to make use of the FTAs.

Indeed, in APEC’s consultations with businesses, both importers and exporters have drawn attention to the tedious processes related to the use of ROO-related documents. Many highlighted the tedious layers of information required for application and authentication of such documents, and in general, the huge workload involved. Obviously, if the costs associated with administering rules of origin are too high, then that undermines the benefits derived from the FTAs. Cumbersome ROOs would lead to the under-utilisation of FTAs. A recent ADB survey among 609 firms in the East Asian region [1] found that only 22% take advantage of FTAs.

APEC has therefore been focusing on simplifying the procedures and documentation related to ROOs. We want to help maximise the potential gains from these FTAs, so that more businesses and consumers in the Asia Pacific can enjoy the benefits of lower materials costs and more affordable products.

Second, making regional supply chains smoother and more efficient. The decentralisation of global production networks, more complex customer demands, and the shortening of product life cycles have made it increasingly important for businesses to be able to move goods in a predictable, timely, and cost-effective way.

Achieving smoother and more efficient regional supply chains can help businesses to better tap the growing opportunities in the Asia-Pacific, and for the region to more fully realise the opportunities from trade and investment liberalisation. The potential gains for the region from enhanced connectivity are significant. In a study conducted by the Australian Centre of International Economics (CIE), it was found that a 10 percent rise in efficiency in supply chain connectivity could lead to an increase of US$21 billion dollars per year in combined APEC GDP . In another study, it was found that each additional day of delay for a good prior to being shipped reduces trade by at least one per cent .

Hence, APEC embarked on a Supply Chain Connectivity initiative early this year to identify and address key chokepoints in the regional supply chain. This could include, for instance, improving and forging closer links for all forms of transport networks from land, air and sea so that shipments can move smoothly and quickly, to simplifying customs procedures so that exports do not incur costly delays. APEC has identified several of these chokepoints and we look forward to completing the exercise by year-end, along with proposed actions for economies to work together to address them in future.

Third, to improve the business environment in the region. We want to enhance the business environment by focusing on regulatory reform to make it easier, faster and cheaper to do business in the region. This means, for instance, shortening the time needed to get a licence or streamlining procedures to start a business. Reforms on areas that impact the daily operations of business could make the Asia-Pacific an even more attractive investment destination and encourage greater cross-border trade.

This year, Singapore is leading an APEC initiative to identify key regulatory areas for reform and five areas of interest to the business community have since been identified. They are: a) starting a business; b) getting credit; c) trading across borders; d) enforcing contracts; and e) getting permits.

The next step is to set APEC-wide targets for all the five areas so that we can measure progress. We are also working together to design reform programmes led by “champion economies” with strengths in each of the areas. APEC economies are well-positioned to collectively push for more improvement in the business environment. Nine of the APEC economies are among the top 20 in the World Bank’s Ease of Doing Business rankings in 2010. The approach is to leverage on one other’s strengths to help all the APEC economies move up. We look forward to announcing more details on the targets and reform programmes at the upcoming APEC ministerial meeting in November.

This next wave of reforms will not be easy to implement and will take time. Compared to cutting tariffs, they are also administratively and technically more complex, and require an economy to have the capacity, determination and will to implement the necessary changes.

APEC’s traditional strengths of building capacity through the sharing of experiences and best practices will be a plus in this next wave of trade reforms. Because APEC is voluntary and non-binding, its unique pathfinder approach enables smaller groups of like-minded economies ready and willing to undertake reforms to go ahead first, allowing others to join in later when they are ready.

With APEC’s strong commitment to regional economic integration and a flexible approach that facilitates reform, I am confident that APEC will continue to stay at the forefront of trade and investment liberalisation in the next 20 years.

***

Lim Hng Kiang is the Minister for Trade and Industry, Singapore.

This article is taken from the Speech given by Mr Lim at the Conference Dinner for the Pacific Economic Cooperation Council (PECC) Conference on “Economic Crisis and Recovery: Enhancing Resilience, Structural Reform, and Freer Trade in the Asia-Pacific Region”, on 9 October 2009