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	October 26, 2001	atimes.com

Editorials

Collateral damage ... and how to limit it

Hong Kong-based Political and Economic Risk Consultancy Ltd (PERC) reports that expatriate business executives' perceptions of risk arising from security problems, social unrest and political instability in the Asia-Pacific region have changed dramatically since September 11. That's hardly surprising, of course. Risk is up wordwide. But the extent to which once relatively risk-free countries have taken a plunge in PERC ratings is nonetheless little short of astonishing. Singapore, on a scale of zero to 10 (with zero the best possible grade), has declined from 2.17 to 7.50, outranked now only by Indonesia with 8.50. There have been very substantial declines in Australia's, Japan's, and Hong Kong's ratings as well. After Indonesia and Singapore, the Philippines and Malaysia, with scores of 7.0 and 6.80 are considered the most vulnerable. China and Vietnam emerge as the least affected.

Increased risk perception translates into higher cost of capital and other factors that dampen investment (both foreign and domestic); it also constrains trade through less favorable credit terms and higher insurance premiums, and depresses consumer demand. Consequently, East Asian economies - already in or near recession before September 11 - are in for a far rougher ride this year and in 2002 than earlier anticipated. There is credible talk now of average GDP declines in the 2.5 percent range - China not included.

To regional governments upset about seeing their political-risk ratings downgraded and economic fortunes plummet, we offer some unsolicited advice and recommend some hard-nosed thinking consistent with their international policy commitments.

First, there's a war on. The war on terrorism is global in scale and, though focused now on Afghanistan, is not in principle and will not in reality remain limited to that theater - and it will not go away any time soon. As a result, the world has changed, economic realities and decision-making parameters included. Most importantly, as in any large-scale war, political and military considerations take priority over economic ones. In part at least, the world economy has been and will continue to be transformed into a war economy.

Second, in this war, the country suffering the initial surprise attack and defeat, the United States, has taken the lead initiatives and has, in particular, asked not only its immediate military allies, but nations worldwide to declare their stand and render their support. The leaders of the Asia-Pacific Economic Cooperation (APEC) forum did precisely that in their October 21 counterterrorism statement in Shanghai. "Leaders unequivocally condemn in the strongest terms the terrorist attacks in the United States on September 11, 2001 ... Leaders consider the murderous deeds as well as other terrorist acts in all forms and manifestations, committed wherever, whenever and by whomsoever as a profound threat to the peace, prosperity and security of all people, of all faiths, of all nations," the statement said.

But it now remains to be seen to what extent individual nations are prepared to transform words into action. Going back to the risk ratings, some nations may believe that toning down their support for and limiting their actions in the war on terrorism will buy some added security and get them out of the firing line. That, we would advise, would be a fundamental mistake. In war, halfway measures lead to setbacks and defeat. Russian President Vladimir Putin, a former high-ranking intelligence officer, said it in Shanghai in the clearest terms: The military campaign should continue until Afghanistan's Taliban militia is defeated, "otherwise terrorists will feel invincible".

Third, in broad terms, the war aims of the US and the coalition of nations supporting it are quite clear: To rid the world of terrorists and punish the organizations and states aiding terrorism so as to eliminate such actions and capabilities. In this regard, the APEC leaders' statement added a crucial component, saying that "Leaders reaffirm that it is [now] more important than ever for every economy to forge ahead in its commitment in achieving Bogor's goal of free, open trade and investment."

This was expanded in the Shanghai Accord on the APEC vision:

"Globalization and the New Economy have transformed the global and regional economy significantly since the Bogor Goals, bringing forward extraordinary opportunities as well as challenges. APEC's vision needs to reflect these changes. While trade liberalization is at the core of APEC's agenda, Leaders also agree that the Bogor Goals need to be placed within the context of an updated and expanded vision that addresses trade and investment liberalization and facilitation and economic and technical cooperation in an integrated manner to maximize the benefits for all economies in the region. One of the greatest challenges to materialize such a vision is to intensify the collective and individual actions that economies take at domestic and international levels on reforms and capacity building across a range of areas."

With this, APEC has made clear that acceleration of global economic integration and reform are key elements in the war-fighting strategy against terrorists and states supporting them. Success at the Doha, Qatar, World Trade Organization meeting of November 9-13 in launching a new round of trade liberalization talks will be an important measure of the viability of such an integrated strategy and of the degree of resolve of the nations that have committed to it. Erasing memories of the shameful failure of the Seattle WTO summit and dealing the anti-globalization movement and terrorist elements associated with it a sound defeat could constitute a first critical victory in the global war now underway.

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