With the Covid-19 pandemic, the Asia Pacific is undergoing an unprecedented health, human, and economic crisis. Its many dimensions make this an exceptional challenge for policymakers and one that can only be effectively overcome through international cooperation. While the Asia Pacific was initially at the center of the shock, through its long-established norms and processes it can also locate itself at the heart of the solutions. Before the crisis struck, Asia Pacific Economic Cooperation (APEC) forum officials were working on a post-2020 vision for the region, but now attention is focused on dealing with the immediate crisis. The argument we make here is that the Bogor Goals of free and open trade and investment helped drive reform efforts for the past 25 years, and now a similar call to action, indeed a leap of faith, is needed to restore confidence and drive growth once the pandemic is over.
Before the Bogor Goals were adopted in 1994, regional economies were already reforming and liberalizing. It is not as if regional leaders gathered in Indonesia and all of sudden decided to open their markets. Indeed, APEC’s “vision” was articulated at its first leaders’ meeting on Blake Island, near Seattle, the previous year. Before that, mostly on their own accord or in the context of General Agreement on Tariffs and Trade (GATT) negotiations or of regional agreements such as the ASEAN Free Trade Area (AFTA), governments had been lowering tariffs. That was the path of development they had chosen. Yet the adoption of the Bogor Goals was still important, because it signaled a political commitment to reform and openness at the highest level among the world’s fastest growing markets.
Commitment of that kind will once again send a signal, not only to the Asia Pacific but to the world as well, that this region of close to three billion people will remain on course to achieve its stunning potential.
The Asia Pacific is expected to shrink by 4.7 percent this year before recovering to 5.4 percent growth in 2021, according to the International Monetary Fund (IMF). Data from the International Labor Organization (ILO) show that global working hours declined in the first quarter of 2020 by an equivalent of about 130 million full-time jobs.
Beyond unemployment, the impact of the crisis on poverty is likely to be disastrous. The World Bank estimates that the number of people living in extreme poverty – less than US$1.90 a day – will increase from 595 million to as much as 712 million people. In the worst-case scenario, all poverty reduction over the past five years will be wiped out.
To understand views on the economic impact of the crisis, areas for cooperation, strategies for exiting from quarantine and the likely long-term impact on business and government behavior, the Pacific Economic Cooperation Council (PECC) undertook a survey of more than 700 regional policy experts and stakeholders from May 19 to June 12.
While forecasts for economic growth for the region are for a rebound in 2021, the respondents to the PECC’s survey are far more pessimistic, expecting on balance weaker growth than 2019 for their economies for the next three to five years. In 2019, the Asia Pacific grew by about 3.4 percent, and using survey responses to develop a growth index, the region is not expected to get back to that level for the next five years.
These sentiments and expectations have important consequences – they depress levels of spending by businesses and households. Ultimately, confidence will only be restored when the pandemic is over and a vaccine is discovered. There also remains a great deal of uncertainty over the size of the shock, its duration, implications for stabilization policies. and an eventual recovery. This uncertainty makes it extraordinarily difficult to assess the situation and would certainly add to constraints on their spending. It is also difficult to formulate policies or strategies for recovery.
Behind the pessimism
The views of our policy community on the risks to growth help us understand the origins of this pessimism. In the context of the Covid-19 crisis, it is hardly surprising that pandemics were selected as the top risk to growth, followed by disappearing jobs. The other top risks were a slowdown in world trade growth, increased protectionism and trade wars, and lack of political leadership. The Covid-19 crisis has accelerated a number of existing trends – if one of those trends was the rapid transformation of economies due to economic and technological change then it is little surprise that disappearing jobs has risen as a concern. More needs to be done to help economies adjust to this process.
Protectionism has been rising as a risk to growth in our surveys each year over the past decade. The percentage of respondents selecting protectionism as a top-five risk to growth for their economy has been steadily growing, from 25 percent in 2011 to 64 percent in last year’s survey. Protectionism has a real impact on growth, the IMF estimates that the impact of trade tensions on global gross domestic product in 2019 was about 0.8 percent. Even if the health crisis is resolved, and unless trade tensions are also resolved, growth is likely to continue to be much slower than it otherwise could be. Correcting this situation will take political leadership, which respondents to PECC’s survey also perceive to be lacking.
At the height of the Covid-19 crisis, governments were implementing trade restricting measures or export bans to deal with the surge in demand for medical equipment. At the same time, however, they were also liberalizing trade to facilitate the import of the same goods and reduce tariffs on them. The best outcomes are when governments not only refrain from trade restrictions but also encourage free trade. APEC trade ministers have agreed to a “Declaration on Facilitating the Movement of Essential Goods” which is a sign of progress. This is a positive move and demonstrates the potential that APEC has for forging consensus among a diverse group of economies through dialogue and non-binding commitments.
Long-term impact on business and government
Another trend intensified by Covid-19 is the development of the digital economy. For those privileged white-collar workers who still have jobs, the inescapable reality while under lockdown has been the videoconference. Pre-pandemic, downloads of video-conferencing apps averaged about 5 million a week. But by the time governments were implementing social-distancing protocols such as school and workplace closures, these had jumped to close to 56 million downloads weekly.
The digital economy has not just been a lifeline for businesses during the great lockdown. It has allowed millions of schoolchildren and university students to continue with their education. Going digital has been a lifeline in medicine. With people unable or frightened to visit doctors, the risk of other sicknesses going untreated has risen. As a result, telemedicine providers have reported a massive increase in demand for their services. In countries where the infrastructure – both soft and hard – does not exist or is limited, digital divides are growing. Children are missing out on education, people cannot see doctors, and businesses that are not digitally enabled are struggling or even closing.
This is an enormous agenda for governments to address. This situation is made even more difficult by the fractures in the global digital economy, with various security concerns as well as geopolitical forces putting up barriers to integration across regions. While within economies the use of the digital economy is intensifying, its applicability to international business is being impeded.
APEC has an Internet and Digital Economy Roadmap and, in this environment, it needs to be implemented more rapidly. A series of member-led projects would be invaluable. In particular, in APEC’s dialogue mechanism, members can share how they have addressed the gaps underscored by Covid-19 such as lack of high broadband access, inadequate online payment systems, the lack of digital ID systems, and restrictive services policies, among others.