"Overcoming the Economic Crisis to Rekindle a Rapidly Developing Asia"

Speech by H.E. Mr. Taro Aso, Prime Minister of Japan
May 21, 2009, Imperial Hotel, Tokyo, Japan
on the Occasion of the 15th International Conference on The Future of Asia

Japanese

Three years ago, I participated in this conference while I was Minister for Foreign Affairs. At that time, as I recall, I said that Japan would like to proceed optimistically towards the creation of an open Asian community.

As you are well aware, the global situation, particularly the economic situation, has changed completely since that time. We are now in the midst of an economic and financial crisis said to occur once a century.

Unfortunately, Asia has been no exception to this. While the economies of Asia boasted an average rate of growth of 8% annually over the last five years, it has been forecast that this figure will drop dramatically this year.

Yet today I have come to tell you that my optimistic view of Asia remains unchanged.

I will also be speaking about what Japan and what Asia should do in order for Asia to overcome its current challenges and return to growth and for people to recapture hope for their daily lives.

Asia is said to be the "center of the world's economic growth for the 21st century, open to the world". East Asia alone is home to approximately half the global population at some 3.2 billion people, with population growth over the past four years of 130 million people, an increase equivalent to the entire population of Japan. Over the past decade, the combined nominal GDP of ASEAN, India, and China has tripled.

If we are to elicit the latent potential I have just described and ensure prosperity in Asia, I believe that it will be necessary for us to engage in efforts in what I have broken down into three main areas.

The first of these is responses to the economic and financial crisis through appropriate macroeconomic policies and measures to address the financial markets.

The second is implementing an economic growth initiative from a mid- to long-term viewpoint.

And the third is addressing cross-border issues such as environmental problems, health and sanitation challenges, terrorism and piracy as well as security issues so that people can go about their daily activities in safety and peace of mind.

I will be speaking about each of these in turn.

Responses to the Current Economic and Financial Crisis

First and foremost are policies to enable us to overcome the economic and financial crisis we now face.

It is extremely important now for each country to move in coordination towards an expansion of domestic demand.

Japan's experience after the bursting of its "bubble economy" in the 1990s was that even with a nominal interest rate of zero, no one was borrowing money or increasing investments. Taking the lessons of that era to heart, in the current crisis we have thus far undertaken fiscal stimuli totaling about 120 billion US dollars. In addition, we are now poised to engage in new fiscal outlays of approximately 150 billion dollars. We have taken such steps in the belief that abnormal economic circumstances demand exceptional responses as well. I am also greatly encouraged by the fact that countries around Asia are now undertaking domestic economic stimulus measures.

Next, in my view, the stability and development of Asia's financial markets will be absolutely essential not only for the region but also for the stability of the global economy.

Since the Asian currency crisis in 1997, regional financial cooperation in East Asia has evolved to become increasingly robust, including through the Chiang Mai Initiative, a framework for accommodating liquidity. The other day, agreement was reached that the Chiang Mai Initiative would be made more stable in the form of a multilateral arrangement by the end of this year. The scale of 80 billion US dollars thus far will be expanded to 120 billion dollars, with Japan contributing approximately 40 billion dollars. This is a major step forward towards the future.

In the decade after the Asian currency crisis of 1997, the Asian region came to take an important position within global economic activities, mainly by accelerating its exports to Europe and the US. The other side of the coin is that Asia's economies have become significantly exposed to impacts from economic developments in Europe, the US, and so on. Turbulence in global economic activities is in fact being reflected in reduced trade from the Asian region and in smaller investment flows.

Consequently, the critical issues are, first, the further enhancement of intraregional trade and capital transactions within Asia. Second, in order to advance regional financial cooperation still further, there is a need to promote the use of local currencies for intraregional trade and capital transactions. Third, in the context of this globalized world, I believe, it will also be necessary for our Asian regional cooperation to be regional cooperation that is definitively "open to the world."

Japan is also determined to participate actively in these efforts. One example lies in fostering the attractiveness of the Japanese market as an investment destination and as a source of capital. In addition, I believe that we can expand new possibilities for the future by broadening and enhancing options for regional cooperation, such as by making the Japanese yen available to the countries in the region during times of crisis under bilateral swap arrangements.

Moreover, taking advantage of various opportunities, Japan has been appealing for the necessity of a capital increase of the Asian Development Bank (ADB), to triple its current 55 billion dollars in general capital to a scale of 165 billion dollars. The agreement reached recently among the member countries to undertake this increase would enhance the ADB's ability to provide effective responses to the crisis.

At the same time, we must not forget to draw lessons from the Great Depression of 1929. At the G20 summits in Washington and London, the leaders confirmed that they would resolutely oppose protectionism. I believe that this agreement needs to be implemented thoroughly.

An Asian Growth Initiative

As the second major area, following the response to the economic crisis, it will be necessary to implement policies to strengthen Asia's growth potential from a medium- to long-term perspective and to elicit that latent potential.

Last month, I announced a "Growth Initiative" that aims to double the current scale of Asia's economy by 2020. This initiative is aimed at transitioning Asia's economy to an economy led by domestic demand rather than one driven by exports, as it has been until now, through encouraging region-wide development and expanded consumption.

Here I would like to state two points in concrete terms.

The first of these is the promotion of region-wide development. This aims to achieve dramatic development of a broad range of industrial fields across the entire region including through promoting the development of sub-regional infrastructure and industry as well as improvements in customs and other processes in a coherent manner, thereby enabling a smoother flow of people, goods, and capital.

For example, it currently takes about two weeks for a ship to travel from Ho Chi Minh City in Vietnam to Chennai, India, using the Strait of Malacca. But goods could be transported in only 10 days if a land route were to be developed from Ho Chi Minh City to the Andaman Sea and sea transport were used for the final leg. Furthermore, if the time needed for customs and other processes could be reduced by utilizing Japanese technologies known as "one-stop" customs services, it would be possible to transport the goods in only 8 days.

In order to materialize this initiative, there is a need to make a "comprehensive Asian development plan", which would help facilitate Public-Private Partnership. To this end, I have already proposed that Economic Research Institute for ASEAN and East Asia (ERIA), ADB, and ASEAN Secretariat, in cooperation with related countries, would work together to make such a plan.

Next is the expansion of Asia's domestic demand. To achieve this, it would be necessary for each country to develop "safety nets" such as social security systems so that Asia's middle class will increase their consumption with peace of mind. In addition, the middle class itself must be expanded through enhancing education.

The efforts that I have mentioned above, including those in the financial realm, must be implemented through cooperation among the countries of Asia. Japan intends to be at the forefront as it leads these efforts.

In concrete terms, for these efforts, including those to address the economic and financial crisis, I have prepared (a) the equivalent of up to 20 billion US dollars in ODA, (b) the equivalent of 20 billion dollars for a new line of trade insurance for infrastructure development, (c) the equivalent of 5 billion dollars over two years for the Initiative "Leading Investment to Future Environment" of the Japan Bank for International Cooperation (JBIC), and (d) the equivalent of 22 billion dollars over two years in additional support for trade finance in order to underpin trade credit, and so on. Japan will mobilize all possible policy measures to support the efforts being made by Asian countries.

Today I would like to touch on the following points in particular regarding intraregional cooperation in its relation to the growth of Asia.

First of all, Japan places importance on the integration and development of ASEAN. In addition, as I see, the frameworks of the East Asia Summit and ASEAN+3, now moving forward with ASEAN as the driving force, provide us with significant opportunities, which may lead us to the realization of an East Asian community in the future.

There remain within the ASEAN region significant economic disparities, ranging from a country having over 30,000 US dollars in GDP per capita to countries whose equivalent figures amount to only a few hundred dollars.

In particular, there is the issue of how to promote the Mekong region development, which has been lagging, and how to strengthen logistics and distribution between the east and the west through this region. In order to discuss these issues, within 2009 I would like to invite the leaders of Cambodia, Lao PDR, Myanmar, Thailand, and Vietnam to Japan to hold the first-ever Mekong-Japan Summit and accelerate our cooperation.

Next I would like to touch upon the promotion of trilateral cooperation among Japan, China, and the Republic of Korea (ROK). The first Japan-China-ROK Trilateral Summit Meeting, held in Fukuoka this past December, attracted attention from around the world. The combined economies of Japan, China, and the Republic of Korea account for 15.9% of the global economy, surpassing the size of the combined economies of the UK, Germany, and France. Through the direct leadership of the Heads of the States/Governments, the three countries will advance trilateral cooperation, including in the area of economics. I strongly hope to achieve the success of the next Trilateral Summit, which will be held in China this year.

As we consider the economic development of East Asia, I would also like to point out here the importance of our relations with Russia, which has been making efforts for the development of Far East Russia and Eastern Siberia and trying to achieve its integration into the Asia-Pacific region. I visited Sakhalin this past February and commemorated together with President Dmitry Medvedev the launch of operations of the liquefied natural gas plant within the Sakhalin II Project. In addition, I held talks with Chairman of the Government Vladimir Putin on the issues including the development of Far East Russia and Eastern Siberia the other day during his visit to Japan. In 2012 Russia will be hosting the APEC Summit in Vladivostok. I believe that in building regional stability and prosperity, Russia too can be an important partner. Towards that end as well, I am determined to devote my utmost efforts to eliminate the obstacle now in the Japan-Russia bilateral relationship, namely the issue of the Northern Territories.

Cross-border Issues

Ladies and gentlemen,

The third major area is that of cross-border issues.

In order for Asia to continue its growth in a sustainable manner, there must be an environment in which people can conduct their daily activities safely and with peace of mind. In concrete terms, there is a need for cooperation to address issues that cross national borders and cannot be solved by any single country acting alone, including the fields of health and sanitation and the environment, and also terrorism and piracy, as well as a need to cooperate in addressing regional security issues such as the situation on the Korean Peninsula.

Today, in the interest of time I would like to touch briefly upon the issues of infectious diseases, particularly pandemic influenza; global warming; and North Korean issues.

The H1N1 strain of influenza emerging in Mexico last month is spreading around the world in virtually no time. In Japan as well, the number of infected persons is increasing, and the Government of Japan is sparing no effort to address the situation.

As part of its cooperation towards Asian countries to combat pandemic influenza, Japan has been providing assistance for the stockpiling of 1.5 million courses of anti-viral drugs and personal protective equipment sufficient for 1.2 million people so as to curb the spread during the initial stage. Japan intends to utilize the case of the influenza strain recently originating in Mexico as a lesson and in the future further expand upon its efforts regarding region-wide responses in Asia.

Looking next at global warming, this is a serious issue that will certainly come back to affect all humanity if left unaddressed, through frequent and larger-scale natural disasters and decreases in national land, among other effects. For example, in the Pacific Ocean, island states such as Tuvalu are at risk of submersion of their national land due to sea level rise, making global warming an urgent issue connected to their very survival as nations.

The Pacific Islands Leaders Meeting (PALM) will convene in Tomamu, Hokkaido from tomorrow, with the participation of the heads of state and government of 13 Pacific countries and regions, and the issue of global warming will be one of the meeting's major themes.

Japan intends to lead a "low-carbon revolution" for the benefit of Asia as well as the entire world. In Japan, I have launched large-scale projects to disseminate solar power generation, electric cars, and energy-saving home appliances.

The weak point of the Kyoto Protocol is that it covers a mere 30% of the world's total greenhouse gas emissions. All-out efforts are being pursued across the world to ensure that agreement on a post-2012 framework is reached at COP15, which will be held in Copenhagen at the end of this year. As I also pointed out the other day when I met with Minister for Climate and Energy, Connie Hedegaard of Denmark, the host country of this conference, the new framework must have the participation of all major emitters, be sufficiently ambitious towards the resolution of the issue, and strike a balance with the need to ensure economic growth and energy security. Together with the people of Asia, I will be devoting my greatest possible efforts to this issue.

From the perspective of regional security, as you are well aware, regrettably, the security environment of Northeast Asia is becoming increasingly severe. North Korea, in complete disregard of the calls from the international community, is continuing to advance its nuclear and missile development. It also gives no indication that it will work towards the resolution of the abduction issue.

Japan's position remains unchanged, in that it seeks to normalize relations with North Korea through the comprehensive resolution of these issues and the settlement of the unfortunate past between Japan and North Korea. I earnestly hope that North Korea will listen to the voices of the international community and engage sincerely in the efforts to resolve these issues.

The Six-Party Talks is the most realistic framework for the resolution of the North Korean issues, and Japan, in close cooperation with the US, the ROK, China, and Russia will work rationally towards the resumption of the Six-Party Talks at an early date.

The voices of the countries of Asia also have great power. I ask for your continued cooperation in this regard.

Conclusion: Building a Stable and Prosperous Asia Together

Ladies and gentlemen,

I hold the concept of "Peace and Happiness through Economic Prosperity and Democracy" as my political conviction. This is also the path that Japan has been following as a peaceful nation for over 60 years since the end of World War II.

Providing freedom of choice to each individual makes the stability and prosperity of society even more solid. In Asia as well, the happiness of the citizens in countries following that same type of path seems to be unfailingly increasing. Japan will support friends who walk that same road and make efforts towards those ends.

There is a saying, "Light comes from the East." This expression was used by the people of ancient Rome in reference to Oriental civilizations. Would it not be fitting for us today to take this word "East" and replace it with "Asia" -- the Asia that is the center of the world's economic growth?

"Light comes from Asia." Asia will first restore its vitality and then spread that "light" to the rest of the world.

I will conclude my remarks today with that thought.

Thank you very much for listening.


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