Sunday, 25 November 2012

Tommy Koh: 'Why 2013 will be peaceful'

Tommy Koh explains optimism, but also lists downsides for the region
By Leslie Koh, The Straits Times, 24 Nov 2012

DESPITE the bleak forecasts for US-China ties, Asean's credibility and Europe's unity held by many, Professor Tommy Koh has an optimistic view of the global situation.

The ambassador-at-large believes that the world's two biggest powers will live in peace, the regional bloc will continue to be relevant, and the European Union will survive its financial crisis. "My prognosis for 2013 is that it will be a more peaceful and prosperous year than 2012," he said in his keynote speech at a Straits Times forum yesterday.

It was an optimism that the veteran diplomat maintained as he joined several economists and the newspaper's foreign correspondents in giving their take on the global outlook for next year.

The Straits Times Global Outlook forum, which was organised by ST and Standard Chartered Bank, was held at the Mandarin Orchard hotel, and drew more than 350 ST readers.

It featured ST's US Bureau chief Chua Chin Hon, China Bureau chief Peh Shing Huei, Europe Bureau chief Jonathan Eyal, supervising money editor and news editor Ignatius Low, and StanChart's head of Greater China research Stephen Green and chief investment strategist of the wealth management division Steve Brice.

They took turns to give their views on recent developments, from leadership changes in the US and China to forecasts for Singapore. They also took questions from participants.

In his keynote speech, Prof Koh took pains to explain his optimism - though he also qualified himself at one point by adding with a grin: "You have to discount some of the things I say, because I am a natural-born optimist."

On US-China relations, he noted that the two superpowers were too economically inter-dependent not to co-exist in peace.

As for Asean, he said leaders had reaffirmed their commitment to the bloc's unity and centrality at the latest summit,and also adopted a declaration on human rights. He believed that the regional bloc would succeed in its goal to build an Asean community and form a single market, because its members know the need to be united.

And he noted the determination by European leaders to keep their integration project on track, while also expressing confidence that China-Japan tensions would not get out of hand.

But Prof Koh was also circumspect in his assessments of Asia, noting that the region had to tackle many challenges, from poverty and illiteracy to rising income gaps.

ST's journalists were a little less sanguine than Prof Koh, noting an increasing pessimism in the regions they cover.

Mr Chua, for example, said he found American public opinion towards China worsening. "Even among elites in the China policy circle in the US, there is a striking pessimism about where the relationship is going," he said.

Mr Eyal too described a European Union that had a "50-50" chance. While it had not cracked up yet, it faced many challenges to reform its economy and welfare state.

ST reader K.L. Tan, who runs a company marketing industrial products, said the forum offered useful insight into the region, and suggested even deeper coverage.

"Perhaps it could be a full-day event and go more into the Asean nations," he said.

Spectre of inflation 'dampens prospects for Singapore'
By Rachel Chang, The Straits Times, 24 Nov 2012

PROSPECTS for the Singapore economy next year are bleak, and unlikely to be improved by government help, said The Straits Times' supervising money editor Ignatius Low yesterday.

Speaking at a Global Outlook forum held to mark the launch of ST's Asia Report website, Mr Low said the Government, which has often acted to ease previous slowdowns, has to contend with the spectre of relatively high inflation. Inflation, expected to come in at over 4.5 per cent this year, has spiked in part because of Singapore's tighter foreign worker policy.

The ensuing labour crunch, which has contributed to a 6.1 per cent year-on-year rise in the cost of hiring a worker, has put a supply constraint on growing the economy.

Because of this, Mr Low did not think there was likely to be a fiscal stimulus by the Government, as this could worsen inflation. Neither will the Government ease monetary policy to help exporters; it is committed to a modest appreciation of the Singapore dollar - at least until April next year - to keep a check on inflation.

Noting that high inflation is currently more "politically damaging" to the Government than low growth, he added that there is a growing consensus that next year's Budget statement is likely to be a contractionary one.

Mr Low said Singapore's economy is still very dependent on the United States and Europe. For example, economists have found that Singapore's exports to China are more closely correlated to the US economy's performance than even China's, because much of what it exports to China are intermediate goods whose final destination is North America.

Hence, uncertainty in the West weighs heavily on Singapore's prospects.

A "tech recovery", which is under way for economies such as Taiwan and South Korea - thanks to a recent slew of smart mobile devices - will also likely pass Singapore by, said Mr Low. This is because Singapore is more a producer of PCs and computer servers.

Despite the lacklustre outlook, chief investment strategist for Standard Chartered Bank Steve Brice pointed to Singapore equities as a good bet next year, as the Straits Times Index is yielding higher dividends than the Government's 10-year bonds. In particular, he pointed to real estate investment trusts (Reits) as outperforming the index as a whole.

But Reits' drive to maintain high yields has led to a relentless spike in rents for small businesses, charged forum participant Wilson Tan, whose plastics manufacturing business recently saw an 80 per cent rise in rent.

Mr Brice said global liquidity is indeed being poured into the few investments "in a currency that's appreciating and one that's generating yield," like Singapore Reits. This is probably creating a bubble, he said, "but is it about to burst? I don't think it is".

The global outlook for 2013
Professor Tommy Koh, Ambassador-at-Large from the Ministry of Foreign Affairs, delivered the keynote speech at The Straits Times Global Outlook Forum yesterday. The keynote, which was delivered in his personal capacity, explored themes such as Sino-American ties, the future of the euro zone and the unity of Asean. We provide an edited extract below.

AS 2012 is rapidly coming to a close, it is time for us to look to the future. What is the global outlook for 2013? In this preview, I will attempt to answer four questions.
Will the US and China live at peace with each other?
The people of America re-elected President Barack Obama on Nov6. A week later, the Chinese Communist Party chose Mr Xi Jinping as China's new leader. The leadership of the two countries is in good hands. I believe that the United States and China will live at peace with each other for the following five reasons.

First, economically, the two countries have become inter-dependent. China needs access to the US market, science and technology, and know-how. The US needs access to the Chinese market and to China's growing pool of foreign exchange reserves. China is America's largest creditor nation, holding about US$1 trillion (S$1.2trillion) of Treasury bonds.

Second, militarily, China is in no position, now or in the foreseeable future, to challenge the US, and China has no intention to do so. The Chinese know that war with the US would destroy China's historic opportunity to achieve modernisation and first world status.

Third, the American people are concerned about China's economic strength and regard China as a competitor. However, the American people do not see China as their enemy. There is, therefore, no domestic support for any American leader who wishes to demonise China as the new enemy. I would also say that if America were to attempt to build an anti- China coalition in the Asia-Pacific, there would be very little support for it. Asean, for example, wants good relations with both the US and China and would not join such a coalition.

Fourth, at the regional and global levels, China has become America's indispensable partner in the quest for solutions to challenges such as North Korea's nuclear weapons programme, terrorism, proliferation, the Doha Round, climate change and so on.

Fifth, there is more continuity than change in US policy towards China. The modus vivendi has always been a combination of cooperation and competition. They cooperate where their interests coincide and compete when they do not. This policy goes back to President Richard Nixon and has been honoured by both Republican and Democratic administrations ever since.
Will there be a new Sino-Japanese War?
The current dispute between Japan and China over the Senkaku/ Diaoyu islands reminds us that, unlike Europe, there has been no closure and no historic reconciliation between the former adversaries in North-east Asia.

There are two competing narratives between Japan and China (and Taiwan) concerning the ownership of those islands. There are three ways to calm the situation. The first is for the two countries to refer their dispute to a court of law (the International Court of Justice or the International Tribunal for the Law of the Sea). The second is to put aside the sovereignty dispute and focus on joint development. The third is to revert to the rules of engagement agreed by the two sides in 1972.

The simultaneous rise of nationalism in the two countries is a worry. However, given the enormous economic stake which they share, I am reasonably confident that things will not get out of hand. There will be no war between China and Japan.

I am encouraged by the fact that on Nov20, the leaders of China, Japan and South Korea met in Phnom Penh to reaffirm their commitment to begin negotiating a trilateral free trade agreement (FTA) among them.

Economic integration may eventually bring about the historic reconciliation which has eluded us for 67 years.
Will the euro zone disintegrate or emerge stronger from the crisis?
It is often forgotten that the current crisis in Europe was made in America. Because of contagion, the crisis spread across the Atlantic and attacked those European and euro zone countries whose public finances were not in good order. As a result, the countries with unsustainable debt levels were punished by the market.

The crisis in the euro zone also revealed that you cannot have monetary union without common fiscal discipline. The subsequent adoption of the fiscal compact treaty was, therefore, a step in the right direction.

First, I believe that the European integration project is on track and will not be derailed. As a result of the crisis, the integration will become even tighter and closer. The United Kingdom may feel uncomfortable and decide to opt out. I believe that although both sides will lose, the UK needs the European Union more than the EU needs the UK.

Second, I believe that the euro will survive the crisis and become an even stronger currency.

Third, it is good to remember that we should not tar all European countries with the same brush. Not all European economies are in crisis. Five of the 10 most competitive economies in the world are European. However, for some European countries, massive unemployment, caused by rigid labour markets and a mismatch of skills between what the education system produces and what the market needs, is a serious challenge.
Will Asean remain united?
In July, Asean's credibility suffered a serious setback when, for the first time in 45 years, the Asean Foreign Ministers adjourned their annual meeting without adopting a joint communique. This was a wake-up call for both China and Asean.

It reminded China that a divided Asean is not in China's interests. China's interests are best served by a peaceful and united South-east Asia. It reminded Asean that Asean unity is paramount and must not be undermined by differences over the South China Sea or any other issues. Without unity, Asean will be unable to play the central role it does in regional institutions.

I am happy to say that Asean leaders have reaffirmed their commitment to maintain unity and centrality at the just concluded Summit. Asean adopted a Declaration of Human Rights and reaffirmed its commitment to build an Asean community by Dec31, 2015. The Asean+1 summits and the East Asia Summit were held successfully.

There was a frank discussion of the South China Sea issue and the leaders reaffirmed the importance of dealing with it peacefully and in accordance with international law and the United Nations Convention on the Law of the Sea.

We also witnessed an agreement by Asean+6 (China, Japan, South Korea, India, Australia and New Zealand) to launch negotiations for an FTA to be called the Regional Comprehensive Economic Partnership (RCEP). The 16 economies together represent one-third of the world economy.


LET me conclude. I believe that under the leadership of Mr Obama and Mr Xi, the US and China will live at peace with each other. I believe China and Japan will not escalate their dispute over Senkaku/ Diaoyu into a full-scale conflict. I believe that the European integration project has not been derailed and the euro will emerge stronger from the crisis. I believe that Asean will remain united and will continue to play a central role in the emerging architecture of the region. Finally, while the Doha Round is going nowhere, trade liberalisation and economic integration are alive in our region and are being driven by the Trans-Pacific Partnership and RCEP.

In view of the above, my prognosis is that 2013 will be a more peaceful and prosperous year than 2012.

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