GLOBAL GOVERNANCE: OPPORTUNITY AND CHALLENGES FOR ASEAN ECONOMIC COMMUNITY Dr. Sjamsul Arifin Bank Indonesia Yogyakarta 13 October 2011 Workshop on Managing Regional and Global Governance in Asia
PRESENTATION OUTLINE 2 1. INTRODUCTION 2. PROBLEM STATEMENTS 3. KEY CONCEPTS AND DEFINITIONS 4. The G-20 a. The G-20 as a Forum b. G-20 Meetings c. Effectiveness d. Legitimacy 5. ASEAN ECONOMIC COMMUNITY a. ASEAN s Role in Regional Governance b. ASEAN s Role in the Global Governance c. Enhancing ASEAN s Role in Global Governance 6. CONCLUSION AND SUGGESTIONS
INTRODUCTION 3 With globalization, governments world-wide embarked on policies of enhanced openness. Formerly localized threats are no longer locally containable. Global governance institutions are valuable because they enable member states to coordinate and cooperate in mutually beneficial ways. Governments have responded to the global crisis with unprecedented demonstration of international policy coordination. The shift of regulatory authority from domestic to global bodies requires that decision makers are accountable and responsive to those affected by their decisions. Critics have been leveled ed against the G-20 as the authorities have shifted the authorities to a global forum include legitimacy, accountability, and credibility. What is ASEAN s contribution to regional and global governance. How is ASEAN s influence in the global governance. How to enhance ASEAN s influence in the global governance.
GLOBAL GOVERNANCE AND G-20 4 FORMALITY PROBLEMS 1. Legitimacy 2. Credibility 3. Accountability 4. Representativeness EMs Influence?
PROBLEM STATEMENTS 5 1. What are global public goods and global governance and why they are necessary? 2. Who is to deliver the global public goods and global governance? a. Does the G-20 play the role to provide global governance as global public goods? b. If so, how to address legitimacy, accountability, and credibility? 3. What is ASEAN s role and how it can contribute and gain benefit from the current global environment?
6 KEY CONCEPTS AND DEFINITIONS 1. Public good and global public good 2. Global governance 3. Legitimacy 4. Accountability
PUBLIC GOOD AND GLOBAL PUBLIC GOOD 7 Public good possesses the characteristics of: Non-rivalry in consumption: the consumption of the good does not reduce its availability for consumption by others, and Non-excludable : no one can be excluded from using that good. Global public good : Things whose characteristics of publicness (non-rivalry in consumption and non-excludability of benefits) extend to more than one set of countries or more than geographic regions. Three types of global public goods (UNDP, 1999) Natural global commons, e.g. the ozone or atmosphere Human-made commons, e.g. world s knowledge, stocks of universal norms and standards Policy outcomes, e.g. international market efficiencies, equity, peace and security
PUBLIC GOOD AND GLOBAL PUBLIC GOOD (2) 8 International financial stability is a very important global public good (Griffith- Jones, 2003). Financial stability is a global and regional public good (Wyplosz,1999) : No country would have an incentive to work toward it if others do not do it while all benefit from it. Disruptions caused by financial crisis at a regional level are a major incentive for cooperation. Financial instability is public bad that spreads across countries.
GLOBAL GOVERNANCE 9 The collective management of common problems at the international level (Burrows, 2010). Global governance is governing without sovereign authority. Global governance is doing internationally what governments do at home, emphasizing what is done than the legal basis for doing it (Finkelstein, 1995). Global governance institution is necessary or valuable because it creates norms and information that enable member states to coordinate their behavior in mutually beneficial ways (Buchanan & Keohane, 2006). Global financial governance does not only comprise supranational institutions but also informal groupings. Its primary aim should be facilitating the proper functioning of cross-border markets and thereby reducing transaction costs. G t t l b k i t ti l i tit ti th t Governments, central banks, international institutions are the means to collectively provide the global public good for global stability (Trichet, 2010).
LEGITIMACY (1) 10 Legitimacy means it has the right to rule (Buchanan & Keohane, 2006). Legitimacy is the justification regarding the appropriateness of an organization s existence, activities and its impacts in terms of social values. The shift of regulatory authority and activity from domestic to global bodies calls for assurance that regulatory decision makers are (Kingsbury & Steward, 2009): accountable and responsive The delegation of authority from a sovereign country to an international body raises the issue of legitimacy of the body receiving the authority representativeness, accountability, and transparency. The higher the body meets those criteria, the higher the legitimacy of that body.
LEGITIMACY (2) 11 Types of legitimacy Legal legitimacy: that is legitimacy arising from compliance with legal and regulatory requirements such as meeting registration requirements. Normative legitimacy: claims to an organization s legitimacy can be grounded in widely held social values, norms, and standards. An organization with normative legitimacy are assessed as: meeting norms for performance, i.e., it does good work and as implementing desired structures and processes, i.e., it represents it constituents. Pragmatic legitimacy: emerging from the instrumental value they provide to various stakeholders either directly in terms of specific outputs or creating conditions that meet stakeholders interest. Cognitive legitimacy: an institution is perceived as legitimate when their activities and goals are seen as appropriate, proper, and making sense to the larger society.
LEGITIMACY (3) 12 Measuring legitimacy Moral acceptance: A requirement to refrain from violations of the least controversial human rights, Comparative benefit: The legitimacy of an institution is called into question if there is an institutional alternative that is feasible, accessible without excessive cost and meets minimum moral acceptability criterion, and Integrity: There are no major discrepancies between an institution s behavior, on one hand, and its prescribed procedures and professed goals, on the other.
ACCOUNTABILITY 13 Accountability: the responsibility for someone or something, or an obligation to justify one s actions with reference to law or social norms. Accountability: the responsibility to answer for a performance expectation to specific stakeholders (Brown & Jagadananda, 2007), including three elements (Buchanan & Keohane, 2006): o o o Standards that those who are held accountable are expected to meet Information available to accountability holders The ability of those accountability holders to impose sanctions: The perceived lack of transparency and accountability of the G-7 and G-20 has resulted in decision making more focused on short-term crisis management and in decisions that have not stood the test of time well. Neither the G-7 nor the G-8 can be held directly accountable since their power and influence is exercised informally through the IFIs.
14 The G-20 a. The G-20 as a Forum b. G-20 Meetings c. Effectiveness d. Legitimacy
THE G-20 AS A FORUM 15 The G-20 s origin is the Asian Financial crisis of 1997/98. If unaddressed, the crisis had a potentially destabilizing effect on the global financial system, which could not be solved by the G-7 governments alone. It called for the involvement of the largest and systemically important t developing countries. At the G-7 Ministerial meeting on 26 September 1999 in Washington, D.C., the G-20 was officially i established as a forum for informal dialog with The objective of ensuring broader participation in discussions on international financial affairs among countries whose size or strategic importance gives them a particularly l crucial role in the global l economy. At the third Leaders meeting in Pittsburgh (Sept 2009), it was designated as a premier forum to discuss international economic cooperation.
G-20 MEMBERS 16 Membership in the G-20 the G-7 countries plus Russia other major economies and emerging markets. the MD of the IMF, the President of the WB, as well as the president of the ECB and the chairperson of the IMFC and the DC. It consists of a wide range of national income levels US GNP per capita of $47,132 to India at the other (GDP $1,176). Ideas about the appropriate government role in the economy varied widely: liberalism of the US and UK highly interventionist states of China and to a lesser extent Korea and Brazil. in contrast to the G-7, the G-20 was far from a peer group of like-minded states. The strength of the G-20 was the highly representative nature of its membership (Martinez-Diaz, 2007). The G-20 members represent over 60% of the world s population. The GDP accounts for 85% of the world, and cumulatively hold 60% of the votes on the executive boards of both of the Bretton Woods Institutions. Critics: it lacks legitimacy because it is self-selected and almost 2.5 billion people are unrepresented (Truman, 2010).
17 EXPANSION OF G-7 TO G-20
G-20 INCOME AND POPULATION 18 No Member GDP (nominal) GDP (PPP) GDP per capita GDP per capita Population Billion USD Billion USD (nominal) l)usd (PPP) USD (million) 1 Argentina 370.2 642.4 9,138 15,544 41.1 2 Australia 1,235.5 882.3 54,869 39,692 22.3 3 Brazil 2,090.3 2,172.0 10,471 11,289 193.8 4 Canada 1,574.0 1,330.2 45,888 39,033 34.0 5 China 5,878.2 10,085.7 4,382 7,518 1,341.0 6 France 2,582.5 2,145.4 40,591 34,092 65.4 7 Germany 3,315.6 2,940.4 40,512 35,930 81.7 8 India 1,537.9 4,060.3 1,176176 3,290 1,210.1 1 9 Indonesia 706.7 1,029.8 2,963 4,380 237.5 10 Italy 2,055.1 1,773,5 33,828 29,418 60.3 11 Japan 5,458.8 4,309.5 42,820 33,804 127.3 12 Korea 1,007.0 1,459.2 20,590 29,835 48.8 13 Mexico 1,039.1 1,567.4 8,959 13,971 112.2 14 Russia 1,465.0 2,222.9 10,521 15,807 141.9 15 Saudi Arabia 443.6 621.9 16,641 23,742 27.1 16 South Africa 357.2 523.9 7,101 10,505 49.3 17 Turkey 741.8 960.5 10,399 14,077 72.5 18 United Kingdom 2,247.4 2,172.7 36,298 35,053 62.0 19 United States 14,657.8 14,657.8 47,132 47,132 309.1 20 European Union 16,282.2 15,170.4 32,283 32,600 501.2
19 G-20 AND REST OF THE WORLD
EFFECTIVENESS 20 There are views which deem the G-20 an effective crisis management : It is reflected in governments response to the global crisis with unprecedented international policy coordination (Truman (2010). The effectiveness attributable to its informal non-institutionalized form. The task of implementing agreements made by the G-20 Leaders falls to international organizations endowed with formal rules of membership, decision making, and a formal authority to implement. An effective Global Steering Committee needs to travel light: without being over-burdened by bureaucracy, convening with rapidity, unencumbered by rules and structures, but being inclusive enough to command a minimum legitimacy. They will need to ensure that the formal institutions (such as the IMF, FSB, and WB) are fully representative and accountable balancing the light, nimble flexibility of the G-20, with full legitimacy and authority of formal organizations (Woods, 2010).
LEGITIMACY 21 Against 1. Mandate. Its mandate is questionable (Truman, 2010: 2&15) since its origin is in the G-7 and membership self-selected Helleiner (2001). 2. Inclusiveness. It does not meet the criteria of inclusiveness (Truman, 2010) as it contains no representations either from the poorest or (Helleiner (2001) 3. Institution deficit. It suffers institution deficit because it was established without a charter, not institutionalized, and not having a permanent secretariat t (Henkel, 2009). 4. Ad-hoc group. The G-20 membership is selfselected with 2.5 billion people unrepresented (Truman, 2010). 5. Opaque. The G-20 possesses no mechanism for either for reporting or accountability to the broader international community (Henkel, 2009; Helleiner 2001) In favor 1. There is a need for the involvement of LICs to internalize international spillovers. (UNDP, 1999). 2. The establishment the G-20 network marks the beginning of positive developments because it is a forum of dialog on an equal footing (Woods, 2010). 3. The G-20 reflects the emergence of a new order in the global governance (Gleckman, 2009) 4. Inclusiveness is no real problem provided that the performance justifies (Henkel, 2009). 5. The G-20 is effective in crisis management (Truman, 2010). 6. The demand for international cooperation and institutions and new methods of governance is increasing but the answer is not always the establishment of new institutions (Vayrynen, 1995).
22 ASEAN ECONOMIC COMMUNITY a. ASEAN s Role in Regional Governance b. ASEAN s Role in the Global Governance c. Enhancing ASEAN s Role in Global Governance
ASEAN INCOME AND POPULATION 23 GDP mkt price PPP GDP Per capita Per capita Population US$ billion US$ billion GDP US$ PPP $ GDP (million) Brunei 14.1 19.3 35.623 48,180 397 Cambodia 11.0 28.0 756 1,909 14,656 Indonesia 511.2 901.1 2,237 3,943 228,523 Lao PDR 5.3 13.7 918 2,406 5,763 Malaysia 222.1 383 7,970 13,748 27,863 Myanmar 27.22 68.2 465 1,166166 58,510510 Philippines 166.8 317.2 1,844 3,507 90,457 Singapore 182.1 238.8 37,629 49,338 4,839 Thailand 273.77 546.3 4,117 8,218 66,482 Vietnam 90.7 242.7 1,053 2,817 86,160 ASEAN 1,594.2 2,758.4 2,577 4,726 583,651 CLMV 134.2 352.7 813 2,137 165,089 ASEAN6 1,379.0 2,405.6 3,273 5,747 418,562
ASEAN S ROLE IN REGIONAL GOVERNANCE (1) 24 If global financial stability is part of the global governance by analogy regional financial i stability is part of regional financial i governance. The grounds for promoting regional cooperation: regionalism contributes to managing shared challenges at regional levels and beyond (Burrows, 2010): i. regional governance arrangements are closer to the sources of the problems ii. iii. neighboring countries are directly affected by threats, and might develop a sense of solidarity in addressing them. Urgency for regional cooperation: i. dissatisfaction with the performance of global governance ii. iii. relative power is shifting at the regional level as well, e.g. China, Japan, or Brazil the global financial crisis has impacted all global regions and amplified both the suspicion of external interference in regional affairs and a sense of self-reliance to address economic (Burrows, 2010: 21).
ASEAN S ROLE IN REGIONAL GOVERNANCE (2) 25 Since regional stability is part of the global governance, than the ASEAN Surveillance Process (ASP) may be viewed as ASEAN s contribution to regional governance aimed at: promoting stability; maintaining sustained growth; and strengthening capacity building. ASEAN+3 with its Chiang Mai Initiative (CMI) is also intended to promote regional stability through a mechanism of crisis prevention and crisis resolution.
ASEAN S ROLE IN THE GLOBAL GOVERNANCE 26 Repeated requests had been made earlier by LDCs to involve them in order to carry legitimacy and sense of ownership to be effective (Helleiner, 2001). The inclusion of EMs in the G-20 is a major breakthrough for developing countries in the discussion and debates about global governance. In the G-20, the members comprise DC and EMs but not LDCs. Those three categories of countries have different interest in the global economic issues and debates. In the G-20 forum, ASEAN is represented by Indonesia with the GDP accounting for approximately ⅓ and population of 40% of that of ASEAN s (Truman, 2010). Representativeness, ownership, and accountability are an important issue. This underscores the need to maintain transparency through communication and openness.
EMERGING ASIA S CONTRIBUTION TO GLOBAL GROWTH 27 12,0 10,0 8,0 6,0 4,0 2,0 World AEs 0,0-2,0 20-4,0 2008 2009 2010 2011 2012 Asia EEs -6,0
ENHANCING ASEAN S ROLE IN GLOBAL OVERNANCE (1) 28 During the recent global financial crisis, ASEAN, together with other Asian countries have made significant contribution to the global economic recovery by promoting domestic demand and maintaining open global trading system. Indonesia is the country representing ASEAN in the G-20. Indonesia has been an active participant in various G-20 meetings with the outcome relevant to EMS and LICs are as follows: 1. Reform of international financial institutions, including the IMF and multilateral development banks (MDBs). Among other outcomes of the reform of the IMF was as follows: 2. The completion of the XIV General Quota Review raising substantially the resources available to the IMF of more than $750 billion and a shift of more than 6% in quota share to under-represented countries while protecting the quota share of poorest.
ENHANCING ASEAN S ROLE IN GLOBAL GOVERNANCE (2) 29 The IMF responded to EMs request to introduce financial assistance reflecting the precautionary motive with ex ante conditionality, Flexible Credit Line (FCL) and Precautionary Credit Line (PCL). further work is being done on the possibility for the FCL for a number of countries affected by the common shock. Another breakthrough is the willingness of the IMF to accept the proposal to engage with Regional Financing Arrangement (RFA) such as the CMIM to make use of potential synergies, which previously has been perceived as a competitor to the IMF. With respect to the reform of Multilateral Development Banks (MDBs), Indonesia was the co-chair (together with France) of the WG IV in the G-20 in 2009 succeeded in significantly increased capital of those banks including the ADB by $235 billion.
ENHANCING ASEAN S ROLE IN GLOBAL GOVERNANCE (3) 30 Indonesia was involved in the financial sector reform with the objective, among other things, to ensure that the standard of financial regulation promote development while maintaining financial integrity. It also addresses regulatory reform issues pertaining specifically to EMS and LDCs. Inclusion of all G-20 members in the Financial Stability Forum, hence the name was changed to Financial Stability Board in April 2009. Indonesia s proposals in the G-20 include two important topics, namely financial inclusion and global warming issues. Both topics have been well received. The financial inclusion is intended to contribute to improving access to financial services and expanding opportunities for poor households and small and medium enterprises which is currently incorporated in the Seoul Development Consensus for Shared Growth as contained in the Seoul Summit Leaders Declaration of November 2010. Regarding global warming, the Seoul Leaders Summit also recognize the threat of global l climate change and reaffirm commitment to support implementation i together with other international agencies, such as the UN Framework Convention on Climate Change.
INFLUENCE IN THE GLOBAL GOVERNANCE 31 Although EMs already have seats in the high table, it does not by itself mean that their voice gain weight in the global governance. The difficulties for the G-7 to listen to EMs and LDC s follows in fostering global economic dialog is that it is currently a dialog of the deaf (Rajan, 2008). Advanced countries no longer requiring financing long time ago; they now believe they are responsible global citizens, and guard their policy independence carefully. They view the primary role of multilateral institutions as correcting the policy mistakes and the naked mercantilism of emerging markets, and providing aid to the poor. EMs feel they have come of age; they believe multilateral institutions follow an agenda set by industrial countries, and do not see why their own policies should be under scrutiny when industrial countries show scant regard for the multilateral institutions. LDCs, beset with their own problems, have little time or interest es in a global agenda.
INFLUENCE IN THE GLOBAL GOVERNANCE 32 Developing countries should be aware that their interest are unlikely be advanced by the G-20 Leaders network. In practice, the obligation of representing smaller, poorer countries has fallen on the UN Secretary General, the President of the WB, and the MD of the IMF. Factors which h constraint t EMs and DCs influence arising i from both external and internal factors as follows (Martinez-Diaz & Woods, 2009; Martinez-Diaz, 2007). The external factors, judged by the contents of the G-20 Finance Communiqués, which mostly echoed that of the G-7 Finance because: i. The G-7 wields enormous influence in the networks and organizations that surround the G- 20, particularly in the IMFC, executive board of the IMF and WB, BIS and FSB; and ii. G-7 finance Ministers hold their own ministerial and head-of state meetings before he before the G-20 ministerial each year. The internal factors : i. differences in the interest of EMs and LDCs; ii. iii. iv. EMs are only recently involved to engage in such a forum; net working among members is much less stronger than that of the G-7/8; and less resources available to make proposals based on strong arguments.
33 G-20 INSTITUTIONAL ENVIRONMENT
CONCLUSION 34 1. The world needs global l governance to provide global l public goods in order to contain externalities arising from countries policy in the globalizing economy. 2. The role has currently been assumed by the G-20, the premier forum to discuss international economic cooperation. 3. While it has been considered effective, critics have been leveled on the legitimacy because its membership is self-selected, hence questioning its representativeness, accountability, and credibility. In addition, the agenda does not accommodate the interest of the poor countries. 4. There are two different views with respect to legitimacy: those who are against and those who support the G-20. 5. A number EMs are included as members of the G-20 but currently, their influence is limited due to internal and external factors. 6. By fostering cooperation to promote economic growth and maintain stability, ASEAN countries have played a role in the provision of regional and global governance. 7. In the G20 G-20, ASEAN s membership is represented by Indonesia. Some achievements have been recorded; yet, overall developing countries influence is still limited.
SUGGESTIONS 35 1. Critics on the G-20 s legitimacy, especially regarding representativeness, mainly focus more on formalities rather than substance. In any international cooperation, there is always a tradeoff between representativeness and effectiveness. In this regard, the G-20 should emphasize substance over form (Truman, 2010). Effectiveness in solving the global crisis justifies its existence despite its shortcomings. 2. There ways to enhance the legitimacy of the G-20 (Helleiner (2001) Reduce opaqueness by increasing transparency, such as making discussion papers, documents, and reports publicly available. It must expand its agenda to address the full range of problems and issues especially expand its agenda to include the interest of poor countries. 3. ASEAN countries should raise its influence and profile in order to gain more benefit from the existence of the G-20. To this end, ASEAN countries should be committed to: Dedicating a certain agenda in the ASEAN meetings to discuss issues of common interest which will possibly be taken up in the G-20 agenda. Capacity building to strengthen research which calls for commitment of more resources. Expanding network especially among emerging markets so as to make stronger join the BRIC.
36 Thank you