BALI, Indonesia-–What a difference a year makes. Last May, when some 3,000-plus members of the world’s financial elite — diplomats, finance ministers, central bankers, private bankers, private-equity mavens, bond traders, and the journalists who cover them — met in Madrid for the Asian Development Bank’s 41st annual meetings, the common thread that ran through the meetings was a bitter resentment against perceived high-handed American diplomacy. The board of governors for the ADB’s 67 member countries enthusiastically approved a strategy aiming to eradicate the remaining pockets of poverty in the region by 2020, proposing to double the multilateral lending institution’s $55 billion capitalization. While some ADB members including Switzerland, Australia, and the United Kingdom expressed reservations, basically questioning where the money would come from, the United States stood out conspicuously for refusing to vote for the so-called Strategy 2020. With Uncle Sam – and particularly the unilateralist-minded President George W. Bush – it’s always “my-way-or-the-highway,”went the anti-American refrain. That was Madrid, May, 2008.
How different the atmosphere was this week as the same crowd met here in Bali for the ADB’s 42nd annual meetings. Now, with the wildly popular Barack Obama in the White House, the US has a president who is famous all over the world – especially here in Indonesia, where Obama lived for several years in his youth — for his ability to charm, and willingness to listen. On May 2, ADB President Haruhiko Kuroda announced that the board had voted to triple “our capital base from $55 billion to $165 billion. “This substantial increase is a resounding vote of confidence from our shareholders for what we can achieve as a premier development partner in the Asia and Pacific region,” Kuroda noted. This time, there wasn’t a peep of protest from Uncle Sam.
[In part, the US profile was low here in Bali because back in Washington, Treasury Sec. Tim Geithner doesn’t yet have an undersecretary for international affairs to dispatch to important international gatherings. Brookings Institute economist Lael Brainard has been tapped for the position, but has not been confirmed by the senate. But Geithner is generally well-regarded in ADB circles as basically a multilateralist who supports increasing the ADB’s budget.]
But while the new American tone has been welcomed, it doesn’t necessarily follow that US influence in Asia is on the upsurge. Indeed, the hard news suggests quite the contrary, as China, Japan, South Korea and the 10 members of the Association for Southeast Nations announced significant steps to lessen their financial dependence upon the Yankee dollar. This is, ADB President Kuroda, declared, a “historic” development. Meanwhile back in Washington, the news from the Obama administration suggested that the new president is not paying attention to the shifting economic and diplomatic terrain in Asia. Instead, Obama and his team unwittingly signaled watching Asians here this week that the president is still playing the same protectionist politics that he employed to get himself elected.
On May 4, the White House and the Treasury Department announced new steps to raise taxes on American multinational corporations — a move that was perceived here as grandstanding that, if it becomes policy, will surely likely to diminish American competitiveness. Indeed, there was much talk on the sidelines in Bali to the effect that US financial power is on the wane, with diminished political influence sure to follow. If the 21st century is going to be another American era, there was precious little evidence to cite in Bali this week that Asians still believe that. An idea of the undercurrent surfaced at one financial seminar here this week, when one young woman who said she worked for the United Nations in New York said, with a marvelous over-the-top style, that Uncle Sam “sort of reminds me of a dying rock star.” Everyone laughed: nobody seriously took issue with the assertion.
What Asians do believe — correctly — is that the U.S., beginning with its sub-prime housing debacle, deserves the lion’s share of the blame for inflicting the present global financial turmoil upon the world. “Because of the global financial crisis, economic growth in Asia will be 3 percent lower than last year,” ADB Managing director general Rajat Nag told one audience on May 2. “Last year, we grew by 6.3 percent. For 2009, we expect it to be 3.4 percent.”
The upshot of the current financial crisis is that Asian countries, which have been talking about how to become more self-reliant for most of this decade, have now moved in the direction of putting their money where their mouths have been. In 2000, the so-called ASEAN+3 countries — China, Japan, South Korea, and the 10 members of the Association of Southeast Asian Nations — set up the so-called Chiang Mai Initiative. The idea was based on resentment of perceived high-handed tactics employed by the US and the International Monetary Fund during the Asian financial crisis of 1997-98.
On May 3, the ASEAN+3 countries announced on the sidelines of the ADB meetings that they have reached a deal to establish their own $120 billion fund that will offer emergency support to countries in need of balance-of-payments support– a business that once was left to the Washington-based IMF. While the technicalities of currency swaps meant to address the problems of capital flight and currency devaluations are best left to macroeconomic experts, reporter Aditya Suharmoko captured the political flavor in a May 4 report in the Jakarta Post. “Surveillance by member countries is preferred because most of the ASEAN+3 nations have suffered traumatic experiences from tapping financial support from the International Monetary Fund, which is regularly tied with seemingly unfavorable and ineffective terms and conditions. Members can borrow money from the fund without having to worry about being put under the strict supervision of the IMF.”
As the Asians moved to assert their financial independence from Washington, there was much talk here in Bali of the diminishing power of Yankee dollars. Taimur Ahmad and Anthony Rowley caused a stir here when they quoted famed economist Joseph Stiglitz in an Emerging Markets article, as basically saying that a shift away from the dollar system was inevitable. “The question is not whether we’re moving on from the dollar reserve system,” Stiglitz said. “We are – and we will get there either with or without the US.”
Meanwhile, China has been calling for using the IMF’s so-called Special Drawing Rights to replace the US dollar as a global reserve currency. Here in Bali, nobody dismissed the idea out of hand; if opinion differed, it was expressed mainly in speculations as to what might be found to replace the Yankee currency, if not SDRs. There was a time not long ago when such talk would have been abruptly dismissed.
Independently of Stiglitz and the Chinese – who are well-noted in some circles for their ability to make economic mischief — Mark Mobius said the following at a May 4 seminar: “I find it difficult to understand why sovereign wealth funds in [places like] Singapore, should go to New York and London for investments.” Mobius added that he thought that the “big challenge for the ADB” is that “you’ve got to create an Asian-wide market.” The highly regarded Mobius manages the Franklin-Templeton mutual funds, and his views on any financial subject carry great weight.
As for the US, Mobius observed that the “US government is printing money at a rapid rate,” which he said was aimed at short-term fears of deflation, but raised concerns about inflation in the future. “I can’t think of a government in the world that is not afraid of deflation, so they are also printing money.” The Franklin-Templeton manager added, “They trust the US dollar. I’m not sure whether that is a good idea or not.” Nobody challenged the point.
Of course, such talk only suggests that the new American President has serious issues to deal with, not that the increasing financial clout in Asia is necessarily threatening, nor that American decline is inevitable. But viewed from Bali, the news from the Obama administration back in Washington, D.C. suggested that the president and his top economic team are not yet ready for prime time, when it comes to demonstrating a sure grasp of international economic diplomacy.
On May 4, the White House and Tim Geithner’s Treasury Department announced plans to crack down on alleged foreign “tax havens” used by American multinational corporations to escape high US corporate taxes. (The US has among the world’s highest corporate tax rates, but the notion that its tax burden might better be reduced apparently hasn’t any political traction in the Obama administration). The president is looking to rake in some $21 billion more in taxes from the likes of General Electric, Johnson & Johnson, and other luminaries of the Fortune 500. The president is aiming to please voters in places like Ohio and Michigan, where he promised to bring American jobs back home. But here in Bali, the news from Washington was greeted with rolling eyes, as one more sign that the US government has lost its economic sensibilities.
As Cathy Schultz, the vice president for tax policy at the Washington-based National Foreign Trade Council put it in a May 4 press release: “The international tax provisions announced today would saddle US-based multinational companies with what amounts to a tax increase at a time when they are doing all they can to remain competitive and protect and grow US jobs. US-based multinationals employ millions of Americans and drive economic growth.”
I asked several financial mavens here whether they agreed with Obama or Schultz, on the merits. Nobody picked the US president. While the bankers and international investors each said they preferred not to be quoted by name, the consensus was that Schultz’ analysis shows that at least not everyone in Washington is in a financial slumber. Three months-and-counting into his presidency, they said, and the famous listener in the Oval Office still sounds like a campaigner — and a leader who presently isn’t really listening to calls that he put international economics ahead of politics.