Sukarno’s two bodies

http://asiapacific.anu.edu.au/newmandala/2014/05/26/sukarnos-two-bodies/

BY 

JOHN ROOSA 

 – 26 MAY 2014

John Roosa explains how both Prabowo and Jokowi are advertising themselves as the legatees of Indonesia’s first President, Sukarno.

……………

Which Sukarno imitator would you prefer? The fellow wearing the black fez, just like the one Sukarno wore, or the fellow professing Sukarno’s slogans?

This is the choice facing Indonesia’s voters in the July 9 presidential election. The race between Prabowo Subianto and Joko Widodo (Jokowi) pits one version of Sukarno against another version. Both candidates advertise themselves as the authentic legatees of the country’s first president. Why are they appropriating the symbols and words of a long-dead president? Suharto, the army general who deposed Sukarno, spent his 32 years in power discrediting him as a relic of the “Old Order.” Why is his ghost still hovering around Indonesian politics?

Prabowo, the former lieutenant general and black ops specialist, likes the visual associations: his microphones are of a 1950s design like those Sukarno was photographed with; his white jacket is like the one Sukarno wore; the backdrops behind his photo-ops contain Sukarno portraits. His campaign managers claimed the large house they are using as their headquarters, Rumah Polonia, was once occupied by Sukarno. In fact, it was occupied by one of his wives, Yurike Sanger, and Sukarno only dropped in for the occasional conjugal visit.

Prabowo Subianto reprises Sukarno as he campaigns during Indonesia’s elections.

The tempo doeloe (old times) style of the campaign launch at Sanger’s former house went to the head of Amien Rais, a leader of an allied political party, who took the microphone to improbably suggest that Prabowo’s heavy-set, droopy-cheeked faceresembled Sukarno’s. Rais was like a drunken father of the bride at a wedding party as he watched his protégé, Hatta Rajasa, a faceless political operative, step forward as Prabowo’s running mate. Hatta was chosen because he knows more about the secrets of the ruling oligarchs than just about anyone else: he has been a cabinet minister for the last 13 years and Coordinating Minister of Economic Affairs for the last four. That his name is the same as Sukarno’s co-proclaimer of independence is just serendipitous. Prabowo’s campaign managers hoped to take advantage of the coincidence by using the building where Sukarno and Hatta wrote the declaration of independence in 1945 as the site of the campaign launch. They were disappointed to learn that it is a protected landmark.

Prabowo’s invocation of Sukarno’s spirit seems bizarre given that he is the ideological child of Suharto’s New Order and the biological child of a famous enemy of Sukarno’s. His father, a Dutch-educated economist, Sumitro Djojohadikusumo, collaborated with the CIA to sabotage Sukarno’s government and establish a parallel government in Sumatra in the late 1950s. The attempt failed and Sumitro was labeled a traitor. Prabowo (born 1951) partly grew up outside the country in places such as Singapore and Kuala Lumpur where his family lived in exile. Sumitro only returned in 1968, after Sukarno had been driven out of power and kept under house arrest (at the house of his Japanese wife, Ratna Sari Dewi). Back in Jakarta, Sumitro became the Minister of Trade and a father figure to the US-trained economists of the so-called “Berkeley mafia” who were helping engineer the New Order’s great natural resource sell-off. Prabowo’s family owes its fortune to the Suharto regime.

What Prabowo sees in Sukarno is the image of a powerful, charismatic leader. He admires the Sukarno who emasculated the political parties and ruled by decree during the Guided Democracy years (1959-66). Prabowo has said that he would like to create a new version of Guided Democracy. His political philosophy from the 1990s, when he started speaking to journalists, to the present consists of essentially a single point: Indonesia needs a strong leader. His speeches and his party’s literature revolve around this point. Gerindra, like its emblem of the Garuda (the bird on which Lord Vishnu rode), is just a vehicle; it is designed to ferry its god to the presidential palace, an earthly paradise for worshippers of state power. Prabowo and his billionaire brother created the political party so that he could run for president. He has had no patience for the day-to-day wrangling of law-making and the rule of law: he has not served as a member of parliament. He has no experience with government, only with the military, business, and the business of the military (as an international arms trader). His entire political career has been an exercise in personal aggrandisement.

Gerindra’s manifesto characterises the post-Suharto political system as “liberal democracy” that is not in accordance with the “national culture.” Electoral democracy is decentered and dissolute; it has made the body politic flaccid, preventing a “strong national leadership” from standing erect. In Prabowo’s mind, everything about a country – the quality of its economic system, culture, and international standing – depends on the “leadership factor.” The solution for all of Indonesia’s ills is a “strong national leadership,” meaning himself, the great one riding the $300,000 Lusitano horse.

Prabowo’s version of the Führerprinzip cannot be equated to Sukarno’s without anachronism. Sukarno built a cult around his leadership at a time when the nation was in an existential crisis: the Constitutional Assembly was deadlocked on the basic principle of the state, with the Islamic political parties insisting on an Islam as the basic principle; army colonels in the outer islands had set up a rival government with help from Prabowo’s father and the Dulles brothers; armed partisans of an Islamic state terrorized West Java, even in areas close to the capital; the country was under martial law; cabinets had trouble lasting for more than a few months. And so on. Sukarno, as a product of the mass struggle for independence, presented himself as the “tongue” of the people, their voice, not their backbone or élan vital. His July 5, 1959Dekrit was a last resort, an unwanted outcome. This authoritarian polity was not what he had worked towards since becoming a political leader in the 1920s, even as he put the best face on it.

Prabowo is condemning “liberal democracy” at a time when the Indonesian state is not facing an emergency, when much can be done to expand the rule of law and democratic rights. His ideas have not changed since he was part of Suharto’s praetorian guard. A journalist interviewed him in 1997: “He quotes academic studies that claim that a viable democracy can only be maintained after a society reaches a per capita GNP of around $2,000 (Indonesia is at $940). In the meantime, he says, there must be stability to achieve a basic economic level of welfare.” One knows it’s a fool’s game when the goalposts keep moving: Indonesia’s GDP per capita today is about $3,500 but supposedly it is still not enough to have a “liberal democracy.”

Prabowo fills his speeches with the populist, anti-imperialist rhetoric that has been the stock-in-trade of the Sukarnoist political tradition. He condemns the privatization of state-owned companies, deregulation pushed by the IMF, and the money politics behind Indonesian elections. According to him, foreign corporations, neoliberal policy wonks, and kleptocrats conspire to exploit the sweated labor of Indonesian peasants and workers. It is hard to take the rhetoric seriously coming from a wealthy capitalist who has been negligent in paying his own workers. Gerindra would not exist without the infusions of money from his brother, Hashim, the 32nd richest man in Indonesia according to Forbes. (If Prabowo becomes president one can be sure Hashim will quickly rise in the rankings.) Prabowo’s opportunistic use of the Sukarnoist rhetoric has occasionally landed him in trouble. Because of his promises to reassert state ownership over unnamed foreign-owned businesses, Hashim had to issue a press release to assure spooked investors that his brother has no plans to repeat Sukarno’s nationalization policies.

For the sake of historical accuracy, he should build his campaign around Suharto nostalgia. Prabowo wants to return the country to some form of the pre-engineered electoral system and unaccountable presidency of Suharto’s time. The problem he faces is that Suharto lacked one thing that he needs to win elections: the image of a virile, charismatic public speaker forcefully denouncing enemies and rallying “the masses.” Suharto’s public image – the quiet, reserved, non-ideological administrator – was designed to be the antithesis of Sukarno’s. Prabowo is designing a new mutant creature, transplanting the wild, romantic heart of Sukarno into the stiff, rotting corpse of Suhartoism.

If Prabowo invokes Sukarno to legitimate his retrograde, personalistic politics, Jokowi invokes Sukarno to legitimate a polar opposite political agenda. Jokowi, the choice of Sukarno’s biological daughter, Megawati (whose mother is another wife, Fatmawati), to be her party’s presidential candidate, represents a clear break with the existing politics of rent-seeking. As mayor of Solo (2005-12) and governor of Jakarta (2012-14), he cracked down on the civil servants’ bribe-taking and embezzling, thereby freeing up money to be spent on public goods. The progress in just two years in dealing with Jakarta’s problems, such as flooding, traffic congestion, lack of green space, and poor public health, has been impressive, especially when compared with the passivity of previous governors. Jokowi repeatedly states that the government has enough revenue to finance social welfare projects, as long as the revenue is not diverted into private pockets. He has shown what can be done when civil servants are serving the public.

Jokowi, unlike Sukarno and Prabowo, is not given to grandstanding. His speeches, effective and straightforward, have no flair. For his campaign slogan, he has borrowed Sukarno’s formula of Trisakti – the three sakti-s. Sakti connotes a kind of sacred or magical power. In a 1963 speech, Sukarno called for Indonesia to be “standing on its own feet” in its politics, economics and culture. At the time, Sukarno was defending the peculiarities of Guided Democracy. Jokowi has no desire to return to that form of authoritarianism. His interpretation of Trisakti is generic, abstracted from the original context. For Jokowi, who claimed Trisakti to be his guiding principle as early as 2012, it has practical import. It means, for instance, in economic terms, a greater emphasis on domestic production for domestic consumption, a reduction in the massive importation of things such as rice and sugar that can be easily produced in Indonesia. It means deriving greater revenue from the mines and oil wells that have so far enriched foreign corporations and a small group of local oligarchs, such as Aburizal Bakrie, the head of Golkar who has joined forces with Prabowo.

Jokowi’s commitment to the rule of law means that he is trying to overcome the entrenched legacy of both Sukarno’s Guided Democracy and Suharto’s New Order. Unlike every other presidential candidate since the first post-Suharto democratic election in 1999, he is seriously proposing to improve what social scientists call state capacity – its ability to collect taxes and spend that tax money on public goods – instead of just reshuffling the same set of rent-seekers. Prabowo has reportedly pledged a certain number of ministries to two of the parties supporting him (Golkarand PKS). That is the usual practice: the parties of the winning coalition receive ministerial posts as rewards. It is a sublime experience for them, sometimes prompting tears. They then proceed to mercilessly squeeze all the money they can out from their departments. With Jokowi, there is a chance that things will turn out differently. He has stated that he will not reward his allied parties with ministries.

The image of Sukarno (left) is used on an advertisement for Jokowi.

Jokowi’s “vision and mission” statement is a detailed 42-page document, quite distinct from Prabowo’s 9-page, insubstantial, hastily written statement. While it contains some boilerplate prose, it also contains concrete proposals and carefully considered ideas. In elaborating the meaning of Trisakti, Jokowi’s statement lists nine priorities for his administration. Implicitly alluding to Sukarno’s Nine Points speech of June 1966 (Nawaksara), in which Sukarno defended his record against accusations from the newly triumphant Suharto, Jokowi names the priorities the Nine Ideals (Nawacita). One ideal is to “uphold human rights and reach just resolutions for past cases of human rights violations.” Jokowi specifically mentions the “1965 Tragedy” and the case for which Prabowo was responsible: the disappearance of political activists in 1998 (p. 27).

When it comes to imitating Sukarno, Jokowi is as much an imposter as Prabowo. It could not be otherwise. Sukarno was a protean and unique figure. Jokowi adopts the left-wing populism of Sukarno while (thankfully) repudiating the authoritarian tendencies. Prabowo adopts the authoritarian tendencies while insincerely mouthing the rhetoric of left-wing populism. One champions the rule of law. The other champions himself as Il Duce. That both of them are emphasizing their allegiance to Sukarno indicates the enduring hold he has over the public’s imagination of state power.

Sukarno tried to embody the entire nation in himself and believed in the impossible idea that he could singlehandedly bind all the disparate groups together. Every year on independence day, he stepped behind a bank of microphones to deliver a lengthy speech that explained where the nation had come from, where it was, and where it was going. It was nothing like a US president’s “state of the union” address. It was about the meaning of the nation’s existence. The speech was broadcast over the state radio stations and many Indonesians reverently listened at the same time in sonic communion. He once said his monologue over the airwaves was really “a two-way conversation between Sukarno-the-man and Sukarno-the-People.”

In The King’s Two Bodies (1957), Ernst Kantorowicz wrote of the medieval kings of Europe having both a mortal body and an eternal body. As the embodiment of the entire state, the king’s body was also the “body politic.” It was a conception of royal power that can only be grasped by considering some political ideas as simultaneously theological ideas. The Indonesian state, like all other states today, carries its own theology, involving itself in ideas of immortality, the sacred, and the sublime. We have not transcended the medieval state in this respect, only sublimated it in different forms. As Benedict Anderson has argued, nationalism is better understood as a religion than an ideology.

Sukarno, given his central role in formulating the permanent state ideology (Pancasila), proclaiming independence, an irreversible event of eternal significance (sekali merdeka, tetap merdeka; once independent, forever independent), and ruling as its first president (appointed at one point as “president for life”), seems destined to reign as the immortal corpus mysticum of Indonesia’s body politic.

Sukarno is dead. Long live Sukarno.

……………

Professor John Roosa is a historian at the University of British Columbia in Vancouver, Canada.

Health and Healthcare Systems in Southeast Asia

http://unu.edu/publications/articles/health-and-healthcare-systems-in-southeast-asia.html
2012•04•05

Jamal Hashim, Virasakdi Chongsuvivatwong, Kai Hong Phua, Nicola Pocock, Yap Mui Teng, Rethy K. Chhem, Siswanto Agus Wilopo and Alan Lopez

UN Photo/Eskinder Debebe

Shaped by its history, geography and position as a major crossroads of trade, Southeast Asia is a region of vast social, economic and political diversity. This has contributed to the disparate health status of the region’s various populations, and to the diverse nature of its health systems, which are at varying stages of evolution. Despite their diversity, Southeast Asian countries are attempting to forge a common regional identity to seek mutually acceptable and effective solutions to key regional health challenges. This article is based on a paper from the Lancet Series on Health in Southeast Asia in which a team of researchers, including Jamal Hashim of the UNU International Institute for Global Health, presents key demographic and epidemiological changes in the region, explores the challenges facing health systems, and draws attention to the potential for regional collaboration.

• • •

Southeast Asia consists of the ten independent countries located along the continental arcs and offshore archipelagos of Asia — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand and Viet Nam — collectively known as the Association of Southeast Asian Nations (ASEAN). The region is home to more than half-a-billion people spread over highly diverse countries, from economic powerhouses like Singapore to poorer economies such as Cambodia, Laos and Myanmar.

In comparison with India and China, Southeast Asia is less visible in global politics and economics. The same is true of global health. We analysed the key demographic and epidemiological transitions of the region to delineate the challenges facing health systems and to emphasize the potential for regional collaboration in health. (This overview sets the scene for more detailed discussion of specific health issues in five subsequent reports in a series, profiling maternal and child health, infectious diseases, non-communicable diseases, health workforce challenges and health-care financing reforms. )

Data were gathered after a call to regional experts for information on selected subthemes related to health: geography, history, demography, epidemiology and health systems. Quantitative data were retrieved from databases of WHO, the World Bank, and the UN Population Fund, as well as from the scientific literature. Qualitative information was retrieved from grey literature (e.g., WHO reports) as well as academic literature. Data were critically appraised and analysed to elaborate trends, projections and associations between socioeconomics and population health measures.

Population and health transition

Southeast Asia contains about 600 million people, or 9 percent of the world’s population, with Indonesia having the region’s largest population (and fourth largest in the world) and Brunei the smallest.

Forty-three percent of the region’s population live in urban areas, but there is much variation between countries (from 15 percent in Cambodia to 100 percent in Singapore). Population densities range from a low of 27 people per square kilometre in Laos to a high of 7,022 per square km in Singapore. Further, although population sizes may be similar, greater sprawl can mean that cities like Manila and Jakarta are less densely populated than Mumbai and Delhi.

Although urbanization is expected to continue to rise in the region, urban slum populations seem to be less deprived than they are elsewhere, with about a quarter living in extreme shelter deprivation (defined by UN Habitat as a slum household lacking three or more of the following conditions: access to water, access to sanitation, access to secure tenure, a durable housing structure and sufficient living space).

Trends in mortality and fertility are also varied. Although life expectancy in all countries in the region has improved, there have been significant variations in the rate of progress. Most countries have enjoyed continuous rises in life expectancy since the 1950s. In some cases (Myanmar, Cambodia) political regimes and history of conflict have affected progress, as has HIV in Thailand.

Population age structures of countries in the region vary widely as a result of past differences in fertility, mortality and migration trends.

Population distribution by age in southeast Asia, 2005

These trends are, in turn, affected by economic, social, cultural and political developments. With increasing longevity, the pace of increase in numbers of the oldest old (aged 80 years and older) in Southeast Asia is projected to exceed that of East Asia over the period 2025–2050. This rise will have important implications for management of the burden of disease and healthcare provision for elderly people.

Increasing longevity is a result of diminishing burden from communicable, maternal and perinatal diseases, whereas countries with aged populations have a higher burden of noncommunicable diseases. Interestingly, mortality rates from these two groups of diseases, as well as from injuries, are correlated. Countries with high mortality rates from communicable diseases also have high death rates from chronic diseases. Deaths from communicable diseases are still prominent in Cambodia, Myanmar and Laos. Injuries are an important cause of death in all countries, though less so in Singapore and Brunei.

As countries in the region succeed in bringing communicable diseases under control, the importance of injury prevention and chronic disease control programmes will become increasingly pressing.

The region as a whole does not have reliable longitudinal data for disease trends. However, evidence from studies of disease prevalence shows a strong inverse association with national wealth, which can be largely attributed to the social determinants of health, including the provision of more efficient health systems with greater population coverage.

Regional environment and health

The environment continues to be an important contributing factor to disease and mortality in the developing world, including countries in Southeast Asia, accounting for up to a quarter of all deaths.

Southeast Asia is one of the most disaster-prone regions in the world; the Indian Ocean earthquake off the coast of Sumatra in 2004 caused a devastating tsunami in Aceh, Indonesia, and countries on the fringe of the Indian Ocean — one of the worst natural disasters ever recorded. Countries in the northern part of the region, such as the Philippines and Viet Nam, are badly affected by seasonal typhoons that have increased in intensity over time. The Philippines and Indonesia are located on the Pacific Ring of Fire, a zone prone to earthquakes and volcanoes, where around 90 percent of the world’s earthquakes occur.

Uncontrolled forest fires raged in the Indonesian states of Kalimantan and Sumatra in 1997. The severity of the fires was closely linked to the occurrence of the El Niño Southern Oscillation, which historically has brought severe drought conditions to Southeast Asia, creating conditions ripe for fires. In 1997, the gravity and extent of haze pollution was unprecedented, affecting some 300 million people across the region. The health-related cost was estimated to be US$164 million. The health effects of the 1997 haze in Southeast Asia have been well documented.

Climate change could also exacerbate the spread of emerging infectious diseases in the region, especially vector-borne diseases linked to rises in temperature and rainfall. Southeast Asia has been identified as a region that could be vulnerable to effects of climate change on health, because of large rainfall variability linked to the El Niño and La Niña oscillation, with attendant consequences for health systems.

Health systems in Southeast Asia

The pressures placed on national healthcare systems by the recent demographic and epidemiological transitions are amplified by the growing demands of an increasingly educated and affluent population for high-quality healthcare. Many traditional health practices persist alongside the use of new medical technologies and pharmaceutical products, presenting regulatory problems in terms of safety and quality.

Countries in Southeast Asia and their health system reforms can thus be categorized according to the stages of development of their healthcare systems. A typology of common issues, challenges and priorities are generated for the diverse mix of health systems at different stages of socioeconomic development.

The 1990s began with the opening up of socialist states and rapid growth among market economies in the region. Before the East Asian financial crisis in 1997–98 and the recent global economic recession, an expanding middle class in the urban populations of the larger cities pushed their demand for high-quality care into a booming private sector. As a result, market forces have turned many aspects of healthcare into a new industry in countries such as Singapore, Malaysia and Thailand, contributing to labour-force distortions for the production and distribution of health workers both within and across countries.

Following the lessons learnt from the past financial crisis, most countries have strengthened their social protection mechanisms and essential health services. Throughout the region, many innovative pro-poor financing schemes were implemented, such as the Health Card and 30-baht Schemes in Thailand, the Health Fund for the Poor in Viet Nam, Health Equity Funds in Cambodia and Laos, and, even in affluent Singapore, the Medifund, a subsidy scheme for indigent patients.

So far, the healthcare systems with dominant tax funding are fairly stable, in view of the strong role of governments and effective controls by health agencies to overcome inequity problems. However, crucial issues involve rising costs, future sustainability of centraliszd tax-financed systems, efficiency and quality of the public services, and higher public expectations.

Some of the most innovative and advanced forms of public–private mix in health services have developed within the region — for example, the restructuring or corporatization of public hospitals in Singapore from as early as 1985 and the later Swadana (self-financing) hospitals in Indonesia.

With the anticipated rise in the ageing population and future problems of intergenerational funding through pay-as-you-go mechanisms, there are experiments with new healthcare financing, such as compulsory medical savings and social insurance for long-term care. Some countries, such as the Philippines, Viet Nam and Indonesia, have radically decentralized their healthcare systems with the devolution of health services to local governments — a restructuring that has affected aspects of systems performance and equity, even though the impetus for decentralization was mainly political. Consequently, to ensure increased financial coverage and affordability, many governments have passed laws to establish national health insurance systems and mandated universal coverage, although implementation is problematic. With existing policies of decentralization and liberalization, equity issues and poor infrastructure will continue to challenge the development of the health sector.

Towards regional collaboration in global health

The severe acute respiratory syndrome (SARS) epidemic emphasized the need to strengthen regional health collaboration. This cooperation occurred via two channels: direct bilateral collaboration by individual countries (ministries of health and foreign affairs) and those under the aegis of ASEAN.

Enthusiasm for regional economic collaboration continues to grow, evident from the explicit goal of the ASEAN Free Trade Area to increase the region’s competitive advantage as a production base geared towards the world market. ASEAN leaders have identified healthcare as a priority sector for region-wide integration. From an economic perspective, opening of healthcare markets promises substantial economic gains. At the same time, however, this process could also intensify existing challenges in promotion of equitable access to healthcare within countries. It could also lead to undesirable outcomes whereby only the better-off will receive benefits from the liberalization of trade policy in health.

With globalization, ensuring accessible health services for citizens is no longer the sole responsibility of the state; healthcare in Southeast Asia is fast becoming an industry in the world market. The private sectors in Singapore, Thailand and Malaysia have capitalized on their comparative advantage to promote medical tourism and travel, combining health services for wealthy foreigners with recreational packages to boost consumption of such health services. Because of poor local economic conditions, the Philippines had a policy to export human resources for health to the world and to richer countries in the region as an income-generating mechanism. Although the financial returns from this strategy seem substantial, equity issues have surfaced concerning the negative effects of international trade in health services and workforce migration on national health systems, especially in widening disparities in the rural–urban or public–private mix.

Conclusion

Southeast Asia is a region characterized by much diversity. Social, political and economic development during the past few decades has facilitated substantial health gains in some countries, and smaller changes in others. The geology of the region, making it highly susceptible to earthquakes and resultant tsunamis, along with seasonal typhoons and floods, further increases health risks to the population from natural disasters and long-term effects of climate change. Public policy in these countries cannot ignore such risks to health, which could have important social and economic consequences. Regional cooperation around disaster preparedness and in the surveillance of and health systems response to disease outbreaks has obvious advantages as a public health strategy.

Concomitantly, all countries in the region are faced with large or looming chronic disease epidemics. Even in the poorest populations of the region, non-communicable diseases already kill more people than do communicable, maternal and perinatal conditions combined, with many of these deaths occurring before old age.

Greatly strengthened health promotion and disease prevention strategies are an urgent priority if the impressive health gains of the past few decades in most countries of the region are to be replicated. Further growth and integration of the ASEAN region should prioritize enhanced regional cooperation in the health sector to share knowledge and rationalize health systems operations, leading to further public health gains for the region’s diverse populations.

Remarks by World Bank Managing Director and COO Sri Mulyani Indrawati at 20th International Nikkei Conference on the Future of Asia

http://www.worldbank.org/en/news/speech/2014/05/23/world-bank-managing-director-coo-sri-mulyani-international-nikkei-conference

East Asia in the World Economy: Challenges for the Next 20 years

Distinguished guests, ladies and gentlemen,

It is my great pleasure to attend this conference for the third time. The rich agenda and excellent speakers always inspire me to think through some of the critical issues ahead of us.

The world economy has entered a new and very different phase since I was here last year.  The effects of the global financial crisis are starting to wane. Quantitative easing in the United States is coming to an end. And for the first time in over five years, developed economies are not a source of instability, but are in recovery mode and show growth, albeit slow.

This is encouraging news for developing countries because it will restore external demand. It also provides developing countries an opportunity to wind down some of their stimulus measures and also reduces risks in their economies. 

At the same time, it means that the days of easy money and easy growth are over.  So, in order to compete successfully and sustain growth, policymakers need to tackle the structural challenges they face today in order to overcome the challenges of tomorrow.   

So the theme of this conference is therefore entirely appropriate.

In Japan, the reform momentum of the Third Arrow has been building recently: measures such as the recent designation of special economic zones; the efforts to improve corporate governance; and the debate on a corporate tax cut are promising. And they are also vital to secure long-term growth.

Today I want to focus on this long view. I want to explore the following questions:

• If current trends prevail, how will developing and emerging economies particularly in East Asia look 20 years from now?
• How can they cross the hurdles ahead to stay on track?

So what is the outlook? Over the past 20 years, developing economies have been growing considerably faster than developed economies, particularly since the global financial crisis.

The World Bank Group released data last month confirming this trend. Measured in comparable prices, emerging and developing economies constitute half of the world economy, up from less than a third two decades ago.

This data – based on 2011 figures -  also shows that China now accounts for 15 percent of the world total economy compared to 17 percent for the U.S. Based on this, China is about to overtake the U.S. as the largest economy in the world much sooner than expected.  India is now in third place, surpassing Japan.

Globally, developing economies contributed more than two thirds of world growth in the past few years. More than half of world trade is taking place among developing and emerging economies.

Developing countries in East Asia and the Pacific now account for 28% of the world’s population, and some 40 % of world growth in 2012. 

It’s little wonder then East Asia is viewed economically as the most dynamic region in the world, today. And the neighborhood for growth and development.

If current trends prevail, we can expect the importance of emerging economies will only grow.  Looking at population, savings and catch up in productivity, emerging economies will dominate the world economy by the middle of this century.

On the other side, the relative economic importance of many of the advanced economies will decline.

But current trends are not destiny. 

Today’s emerging economies will need to manage a host of exceedingly complex economic, social and political challenges to secure success.  All related and intertwined.

Among the economic challenges two issues stand out: productivity and macroeconomic stability. 

Just consider the task ahead for countries to move from the ranks of middle income up the ladder to high income status. Over the last 50 years, only 13 of 101 middle income countries graduated to high income level.  Five of these, including Japan, are in East Asia. It’s a result that bodes well for other countries in the region, as they have good examples to follow among their neighbors. 

Avoiding the middle income trap means first and foremost changing their growth model. It won’t be enough to mobilize resources and move people from agriculture to industry and services. Instead productivity must increase within industries.

Most East Asian countries seem to have succeeded in this. People have moved into high productivity jobs, and productivity increased within industries, supporting continued growth. 

 But the challenge is sustaining this.

A successful transition to more productivity-driven growth requires investing in people – to upgrade their skills, so they can adapt to new technologies and innovate.  This requires research and development, an area where public and private sectors can both play a role.

And it needs infrastructure. Yesterday, in a speech at JETRO, I pointed out that developing and emerging countries need to double their investments in infrastructure every year until 2020 to meet the needs of their people and reach their potential.

In my view, several policy areas need to be managed to secure the continued reallocation of resources to the most productive sectors. First it means , developing labor market institutions that maintain flexibility in the labor force while protecting people; second, fostering financial institutions that can channel money to its most productive use; third, creating a positive business climate that allows new firms to emerge—and unproductive ones to exit.  

Finally, openness to trade and investment including well managed migration will provide the competitive pressures to allocate resources efficiently, as well as the links to markets and ideas that can foster innovation and productivity.

East Asian countries, with few exceptions, have been relatively open to trade and investment in the past. As a result those economies are now linked in supply chains that span the region.  This is a valuable basis for future growth and productivity increases.

Foreign direct investment has played a critical role in forging these ties. Japan took the lead in the early 1970s and 1980s, followed by Korea. China is likely to play a larger role in investment as production costs rise rapidly at home. 

A second challenge will be to maintain macroeconomic stability. 

The global financial crisis starkly reminded us that even advanced countries run the risk of severe macroeconomic imbalances which can create havoc for growth and prosperity. 

When Japan’s asset bubble burst in the early 1990s it led to decades of lost growth. It took Latin America more than a decade to recover from the debt crisis of the early 1980s. 

Of course, the immediate challenge for many East Asian countries is to weather the US federal reserve’s tapering of the quantitative easing. As you all know, much has been said about this, and I believe that, after some initial jitters last year, most countries in the region are well prepared to manage possible volatilities in capital flows.

In some countries in the region, credit growth has been rapid in recent years, and leverage has been building up. The effects on growth have been leveling off, and increasingly credit seems to be boosting asset prices. A decrease in capital inflows could reduce some of the risk.

Beyond tapering, in a post-financial-crisis-world, we can expect more volatility as the dynamics of capital flows in East Asia continue to be dominated by foreign direct investment. Bank intermediation is down, and will be for some time to come, as they repair their balance sheets and prepare for tougher standards. 

In recent years, countries in Asia and elsewhere have developed other ways to manage sharp capital inflows, broadly known as macro-prudential policies. In a more volatile world, these policies can be useful complements to traditional monetary instruments in maintaining macroeconomic stability.

Let me now come to social challenges – equally as important to deal with.

A prime obstacle for middle income countries is income inequality. 

With rapid growth in East Asia, the gap between the wealthy and the rest of the people has grown, most notably in China and Indonesia, both traditionally egalitarian societies. 

Rising inequality needs to be watched – not the least for the direct impact on people.

World Bank research shows if inequality starts to affect equity of opportunity, inequality can threaten growth. 

Inequality can also undermine the consensus needed to implement policies and reforms that keep growth high. Managing inequality requires first and foremost creating access to equal opportunities.  Recent research suggests that East Asia is still performing well in that respect: income mobility is still relatively high compared to other countries, and a child’s school performance is less dependent on its parents’ socio-economic position,  than in many other parts of the world. 

Another issue for middle income countries is to get urbanization right. 

We all know cities are magnets. Today, already more than half of the people in developing East Asia live in cities.  By the middle of this century it will be three quarters of the population.

If managed well, urbanization can create enormous opportunities, allowing innovation and new ideas to emerge. Almost 80 % of GDP is generated in cities, and it will be difficult for any country to reach middle-income status and beyond without getting urbanization right. And it matters for reducing poverty – for every ten people lifted out of poverty in the East Asia and Pacific region, two were helped solely because of urbanization.  But if not managed well, rapid urbanization can result in social tensions between newcomers and established citizens. It can overload public services and even lead to high urban unemployment, increased poverty and slums. And it can take a hefty toll on the environment. Cities consume around 70% of the world’s energy and account for nearly 80% of global greenhouse gas emissions.

In the past, Japan and Korea have managed rapid urbanization well, and can serve as an example for other East Asian Economies. Recently, China has published a plan to guide urbanization in the next decade.  We worked with our Chinese partners in the Development Research Center to develop a comprehensive program of reforms to make China’s future urbanization more efficient, more inclusive and more environmentally sustainable—goals that all urbanizing emerging economies can and should aspire to.

Lastly, East Asia’s societies are getting older. 

In the next two decades, some countries in East Asia, including Japan but also China, Korea, Hong Kong, Singapore and Malaysia, will have to manage a rapidly ageing society.

Japan’s population is already declining.  China’s labor force started to decline in 2012.

The negative effects on productivity and rising costs of pensions and health care for the elderly will have economic impacts. With Asian societies changing and family ties weakening, more of the burden of old age care is likely to fall on the state. 

This means societies will need to build up sufficiently robust pension and health systems to provide for the elderly in a cost effective manner. 

Other options should be considered including increasing the participation rate of women in the labor force. That can help reduce the effects on aging for some countries in the region, including Japan, but also in middle income countries such as Malaysia.

Economic and social challenges do not exist in a political vacuum.

The first political pressure is domestic. 

A rising middle class means greater demands. The expectations of the middle class on the political systems in East Asia are likely to rise further. But we know governments find themselves with limited resources. So maintaining the balancing act between the increased demand for services and good governance while addressing the challenges I mentioned before requires difficult trade-offs. All of them are inherently political. 

One of the toughest threats can come from state capture through elites who will seek to protect their privileges, by discouraging competition for resources. Countries will need encourage trade, competition, and promote political participation to balance the interests of the powerful with the need to share prosperity and provide inclusive growth.  The recent experiences in the Middle East provide useful lessons about the cost of state capture, rent seeking, and exclusive development.

Second, there are international political challenges as well. 

A rising East Asia—and for that matter the growing importance of all developing economies—will pose challenges for the international order.  This order, largely still based on the outcomes of World War II, will need to adapt to the newcomers, and provide the space for the emerging economies to have their say. 

As the most vibrant region with its rising economic weight, East Asia not only needs a strong voice on the international stage, it also has to be able to listen, and to act - as individual countries, as a region, and as a strong global partner.

This region has to determine the role it wants to play. I am hopeful that role will be driven by cooperation, mutual benefits, and positive leadership.

In closing let me stress that the World Bank Group stands ready to assist countries as they meet the challenges that lie ahead.   Indeed, our institutional goals s—eliminating extreme poverty and boosting shared prosperity—align fully with developing countries’ desire to succeed in the future. 

The internal reforms the World Bank Group is currently implementing are aimed at bringing the best possible expertise and knowledge to our client countries. And we strive to bring not just expertise, but also considerably more financial resources to help meet the challenges—resources from within and also those of the private sector. 

Japan has been very supportive of the WBG reforms.  It has been a great partner in development in the past, and I hope that we can continue to work closely together in the coming decades. The decades ahead will be crucial for Asia’s successful development and shared prosperity.  

Thank you.