Economic isolation is difficult

It noted that Asia can withstand a renewed financial crisis and weakened export demand from developed markets, but long-term prosperity hinges on relying more on domestic and regional markets as well as expanding ties with Latin America and Africa.

Moreover, the report said that currently, the national focus is on containing crisis risks from potential financial contagion and weaker trade. Regionally, there is need for a strong, effective and adequately resourced financial safety net to complement national and global financial arrangements.

It added that this year could prove crucial since financial tensions in Europe could raise more. And there remains concern over the fledging economic recovery in the United States.

via Asia needs new economic growth model – chicagotribune.com.

 

The first point is a valid one: a country cannot remain primarily export-directed in low-end goods forever. The rise of a consumer class in many Asian nations is the single most significant demographic and economic trend of the next half century, and providing an expanded range of products for these individuals will do more to create sustainable growth for the relevant nations.

The second one is more difficult. The ability to limit exposure to international financial trends is extremely limited for even the most functional set of institutions, and even moreso when the status quo focus is on exports.  Even if the first goal of domestic diversification is accomplished, however, credit markets are so readily interlinked that disentanglement is functionally impossible. So what’s the solution? TARP-style ex post facto policies? Basel III type leveraging limits or capital requirements for financial entities? More rigorous anticipatory regulating bodies to install firewalls to prevent contagion effects? While any of those could help, the plausibility of many of these governments having the institutional capacity or resources to execute them is dubious. Like it or not, Asia goes as the rest of the world does.

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