TEXT: COMMERCE'S AARON 9/17 REMARKS TO BANGKOK AMCHAM
(Exchange controls, import substitution do not work)Bangkok -- Under Secretary of Commerce David Aaron said Thailand is doing a good job dealing with the current finance crisis but should continue down the path of economic reform and trade liberalization.
"Thailand is one of our largest export markets," he said, "we believe Thailand has a great future and we want to be a part of it."
In remarks to the American Chamber of Commerce in Bangkok September 17, Aaron said exchange controls, import substitution and state management do not work. "The failure of countries to rid themselves of residual aspects of such policies," he said, "played an important role in the collapse of most Asian economies."
"When looking at the Asian crisis," Aaron said, "it is very important to step back for a moment and remember that the countries in the region have had decades of strong growth based on great underlying strengths. Over time, by addressing their problems, these countries will once again be able to draw on those strengths and attract increased foreign investment."
Following is the official text of Aaron's remarks, as prepared for delivery:
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September 17, 1998Remarks of U.S. Under Secretary of Commerce for International Trade
Ambassador David L. Aaron
American Chamber of Commerce, Bangkok
September 17th, 1998A Long Term Partnership
Introduction
Thank you, David, for that kind introduction, and thank you to the American Chamber of Commerce in Bangkok for hosting this event. It is a pleasure to be here in Thailand.
I came to Southeast Asia to lead a high tech U.S. trade mission through the region. A couple days ago I was asked in a TV interview why we have come here during this time of turmoil and economic difficulty. I answered that this is exactly why we are here -- to show the people of Thailand that we are not just fair weather business partners. We are here during El Nino, El Nina and everything in between. Our futures are intertwined and the U.S. is committed to doing business with Thailand for the long term.
The United States is Thailand's top export market and second largest trading partner. Thailand, in turn, is one of our largest export markets, ahead of Spain and Argentina. We believe Thailand has a great future, and we want to be a part of it.
But our relationship is not just about trade. I remember my last visit to Thailand, twenty years ago. I was traveling with then Vice President Mondale and we spent some time with his Majesty the King. I remember talking to him about playing the clarinet. I told him that my father played the instrument in Les Brown's orchestra. To my surprise his Majesty replied that he also once played with Brown and was a great fan of his music. The United States and Thailand?s diplomatic relations were established over 140 years ago and our enduring partnership is engraved in our common history.
It is in this spirit of cooperation and partnership that I am urging Thailand to continue down the path of economic reform and trade liberalization. Our past partnership contributed to decades of economic growth. Our continued relationship can help your companies and Thai companies recover from the current crisis.
Boom and Bust
East Asia's economic growth over the last several decades was remarkable. Between 1965 and 1990, East Asia grew faster than any other region of the world. Thailand was no exception to the rule, indeed it was a leader.
The United States played an important role in that economic boom. our companies and investors provided the region with needed foreign investment, technology and know-how. We helped build factories, roads and communication systems. More importantly, we provided Southeast Asia, including Thailand, with the largest market in the world for its exports. For decades, both sides profited from this mutually beneficial partnership.
But as they say on Wall Street, trees do not grow to the moon. A little over a year ago, Thailand devalued its currency, igniting a financial firestorm across Asia. Today, the region remains far from recovery although we are impressed by Thailand's leadership in adopting a reform program and sticking to it.
The crisis has also impacted the United States. Our exports, after years of substantial growth, were up only one percent in the first six months of this year. Exports to Asia were down over thirty percent, while exports to the rest of the world were up seven percent. Since roughly one third of our economic growth over the past several years has been fueled by exports, this decline will clearly affect our overall economic performance.
Recovery
There is no doubt that the region will recover. The fundamental sources of growth have not changed But recovery will not be easy. It will require a serious, sustained, commitment to trade liberalization and structural reform.
But countries must be careful in their actions. At a time when many nations throughout Asia are in need of capital to help restructure their economies, measures that make countries less attractive to foreign investors are likely to carry a significant cost.
Following Malaysia's imposition of exchange controls, which itself followed a sharp fall in global markets, many editorialists and pundits pronounced the death of globalization. Not only is such analysis wrong but it also exposes a profound misunderstanding of what happened and what is needed for recovery.
In answering the pundits, I want to emphasize that globalization is not just about global capital flows, it is also about global trade, global transportation, global telecommunications and global exchange of culture. Globalization is you, the men and women in this audience. Globalization is alive and well, and those countries who seize its opportunities and heed its disciplines will recover the fastest. Why? Because there is no alternative.
We have already learned that the supposed alternatives -- exchange controls, import substitution and state management -- do not work. Indeed, the failure of countries to rid themselves of residual aspects of such policies played an important role in the collapse of most Asian economies. State- directed lending, for example, was the principal cause of the crisis. But non-economic and ultimately non-performing loans caught up with Asian economies and precipitated their downfall.
This crisis is a classic case of 'boom and bust.' Capitalism is a system of profit and losses. And, this is exactly why capitalism works - it punishes bad decisions.
Unfortunately it also punishes those that are the least responsible and the least able to protect themselves. And it can feed on itself. These are the real issues governments need to address. But failed nostrums of the past are not the answer. The bottom line is that those who stick with reform programs will come out of the crisis ahead of the competition.
Four Priority Areas
Thailand is doing a good job at this during very difficult times. The international community recognizes Thailand's firm commitment to continue down the path of liberalization and market opening. But as long term partners, I believe there are also things we can do together. Let me mention four. First, we can push for a trade agreement at the November APEC Summit. Second, we can work towards the completion of negotiations on expanding the Information Technology Agreement -- that is ITA II. Third, we need to address the Millennium Bug problem. And finally, we need to develop a favorable environment enabling e-commerce to flourish throughout Asia.
I encourage Thailand to show the same kind of leadership within APEC as it has shown in reforming its economy. In the coming months Thailand's leadership will be needed as we finalize a new APEC trade agreement. This agreement will advance trade liberalization and help counter the pressures of protectionism. This effort is called EVSL -- Early Voluntary Sectoral Liberalization. The aim of this effort is to eliminate or reduce tariffs, address non-tariff barriers and develop economic and technical cooperation programs. Successful conclusion of APEC's EVSL initiative is essential as a confidence building signal to financial markets and to sustain APEC's own credibility in this time of crisis. I received mixed reports earlier this week from our delegation in Kuantan where an APEC senior officials meeting took place over the weekend. In light of these latest developments we need to redouble our efforts to reach an agreement by November.
As with the original ITA, APEC leadership is necessary to finalize ITA II negotiations. This agreement would lower tariffs and increase market access for electrical and information technology equipment in 44 countries. As economies in the region continue to make critical structural adjustments, access to the most advanced, lowest cost IT products and technologies is essential. This is especially true for Thailand for inexpensive IT products would enable the country to capitalize on its well-trained, educated workforce.
Another area where we can cooperate is the Millennium Bug. A significant number of entrepreneurs, especially small and medium sized enterprises, have not begun to address the Y2K problem. It is particularly important that Thai companies become Y2K compliant. It would be devastating for companies just recovering from the financial crisis to find themselves suddenly hit by unforeseen consequences of the Millennium Bug. The Thai government also needs to play a part in addressing this problem by both raising public awareness and implementing conversion programs.
Finally, electronic commerce can play an important role in helping to lift Asia out of this crisis. APEC economies already have 40 percent of the world's Internet users, a percentage that is expected to increase over the next decade. Asian governments need to give the private sector a positive environment to enable electronic commerce to firmly take root.
We believe the underlying principle behind the facilitation of e-commerce is private sector leadership and market-driven outcomes. We applaud Thailand's effort to make the Internet accessible to all through its school-net program. We also appreciate Thailand's indispensable support in the APEC e-commerce task force.
Reform, e-commerce and Y2K will all be important factors in this country's and this region's eventual recovery. But Thailand, or any other nation in Southeast Asia, cannot recover by itself. This is why President Clinton announced on Tuesday a five-part strategy to help struggling economies deal with the world financial crisis.
Presidential Initiative
First, the President committed to intensifying America's effort to speed up economic recovery by helping Asian corporations emerge from massive debt overhang. Second, he urged assistance for families in afflicted economies by calling on the World Bank and the ADB to double their aid through a Social Compact Initiative. Third, the President called on leading nations to stand ready to activate $15 billion in the emergency fund of the IMF to respond immediately if the currency crisis continues. Fourth, he urged our Congress to meet, without delay, our own obligation to the IMF.
Finally, President Clinton asked leading economies to face up to their responsibilities for stimulating growth and recovery. The President said that America will maintain the fiscal discipline that has fueled job growth and investment. He called on Europe to keep its markets open and pursue policies that spur growth. But the President focused his appeal particularly on Japan which needs to be the catalyst for renewed growth in Asia.
Because Japan is the world's second largest economy and the largest by far in Asia -- about 70 % of Asian GDP is generated in Japan -- the region cannot regain its economic health without Japan. Thailand has been especially hard hit by Japan's recession. Thailand's exports to Japan are down 16% in the first six months of the year, while its exports to the States are up 13% in the same period.
For many months U.S. officials -- including most recently the President -- have been urging Japan to take significant steps to fix its banking system, re-energize its domestic demand, and deregulate and open its markets. Quick action is imperative if the economic fundamentals are to change and the pervasive negative psychology gripping markets in Asia and around the world is to be reversed.
Conclusion
When looking at the Asian crisis, it is very important to step back for a moment and remember that the countries in the region have had decades of strong growth based on great underlying strengths. Over time, by addressing their problems, these countries will once again be able to draw on those strengths and attract increased foreign investment.
The United States is Thailand's second largest investor -- over the years, American firms have invested about $15 billion here. GM and Ford, for example, recently invested over $1 billion in new manufacturing facilities. Our companies established in Thailand represent the best that America has to offer, both in technology and in managerial know-how.
As you can see from the number of impressive business representatives on my mission, American companies are committed to being an integral part of Thailand's future. Companies large and small, such as those on my delegation -- environmental technology, small and medium size enterprises and telecommunication multinationals -- are here to find customers, partners, and opportunities, hoping to be a part of the recovery.
Thank you for your time and attention, and I'll be happy to take a few questions.
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