With Thailand posting a 17-year record drop in exports for the first quarter of 2009, and the economy shrinking by 7.1 percent as a consequence, the global downturn is clearly causing severe problems for some one-time stellar performers.
Like its Tiger Economy counterparts, Malaysia and Singapore, Thailand’s exports account for a majority of the country’s economic activity — more than 60 percent in Thailand’s case. Ultimately, these countries depend heavily on Western consumers buying the products they make, or the ones they make components for, depending on the particular industry and local position in the globalized manufacturing chain.
Given their level of openness, and therefore vulnerability, to global economic conditions, perhaps the muting of the Tigers’ roar is not that much of a shock. More surprising, however, was a recent assessment by Ajay Chibbber, former World Bank economist and now the United Nations Development Program’s Asia-Pacific head. “For the first time,” Chibbber told the Financial Times, “there is the possibility that South Asia may have higher growth than East Asia.”
The Tigers could be overtaken, for now at least, by economies such as Pakistan and Bangladesh, which have long been regarded as stagnant basket cases: dependent on aid and/or remittances, and overshadowed by political instability. The regional giant and exception, in terms of perception at least, is India, which has posted average growth of almost 9 percent over the past half-decade. Companies such as Tata, Infosys and Wipro have, in turn, emerged as real players on the transnational corporate scene, competing effectively with Western and Japanese rivals.
Only around 20 percent of the Indian economy is based on exports, much lower than its ASEAN neighbors to the south and east, or China, where they make up around 45 percent of the economy. In the period from March 2008 to March 2009, India grew at 6.7 percent, well above more industrialized or advanced counterparts.
Differences between Southeast Asian economies, however, undermine the notion that the region as a whole will suffer disproportionately from the global downturn. Professor J.S. Djiwandono of Nanyang Technical University pointed out that the Philippines and Indonesia have larger domestic sources of growth than other ASEAN economies, while Malaysia and Thailand are less dependent on exports.
With consumption down in the belt-tightening West, the highly globalized ex-Tiger economies might be tempted to rethink their economic model. But according to Dr. Suiwah Leung, an economist at Australian National University, such a reorientation may not be viable, given economies of scale. “For the small, open economies of East and Southeast Asia, boosting domestic demand is not really a substitute for exports.”
Arpitha Bykere, senior analyst at RGE Monitor, went even further, telling World Politics Review, “The political ‘will’ might be lacking in many countries, especially since the model has helped reduce poverty and increase the standard of living. . . . Even after being hit by the recession, few countries have shown the willingness to re-think this model and their policy responses — export subsidies in stimulus packages — clearly signal this.”
If Tiger economies were to turn inward, it would mark a serious reversal for globalization, in a region that has benefited from it more than most. It could also have a ripple effect on other economies, prompting beggar-thy-neighbor approaches and the application of politically expedient Band Aids to economic wounds.
Can proximity to China provide some succor? According to the World Bank’s June quarterly update (.pdf), the Chinese economy will grow at 7.2 percent for 2009 — well down from the 2008 figure of 11.9 percent, but a success given the external conditions and the level of China’s exports. Despite its prodigious growth and seemingly voracious appetite for energy and raw materials, though, China still only generates 7 percent of global output. As for Beijing’s internal response to the downturn, whether or not attempts to stimulate domestic consumption have any positive impact further afield in Southeast Asia remains to be seen.
Better, therefore, to try wait out the crisis, rather than fundamentally restructure. Arvind Panagariya, professor of Economics at Columbia University, reaffirmed his belief in the export model, saying, “The slowdown in the U.S. economy will naturally cut the exports of India and China to it, but when the U.S. economy revives, exports to it will rise again.”
The current resilience displayed by South Asia could actually be a result of structural problems, and augur trouble when the world’s economy regains some dynamism. According to Bykere, “Low export dependence highlights [South Asia’s] . . . inadequate policy reforms. In fact, many South Asian countries have tried to emulate the export model by attracting export-related foreign direct investment in manufacturing in order to become the next low-cost location for multinational corporations.”
It may therefore be premature to predict Tigers decamping to South Asia just yet. Leung summed things up: “One year is a very short time horizon in which to compare South Asia with East and Southeast Asia. It may well be true that growth in 2009 could be faster in South Asia, but over the next decade, the networks that have been built up in East and Southeast Asia since around the mid-1980s could prove to be quite resilient, although the focus of final consumption [would need to be] diverted somewhat away from the U.S. and the EU.”Show