The 27th Pacific Basin Economic Council International General Meeting, Kuala Lumpur, 25 May 1994

In his book entitled "A History of Civilizations", by Fernand Braudel, considered th finest French historian this century. Although first published in French more than 30 years ago, this fascinating work only appeared in its English translation earlier this year. Braudel, despite his vast erudition, could not foresee the rise of the Pacific, or the Asian renaissance. In a way Braudel could be forgiven, for when he was writing the book, Asian countries were still struggling to consolidate political stability and to put the infrastructure for growth and development in place; and when he died in 1985, the Berlin Wall was still standing. The rise of the Pacific, as the locus of partnership between a rejuvenated Asia and the Americas, is perhaps too recent to merit the attention of a meticulous historian. Nonetheless, the rise of the Pacific has been unprecedented, surpassing all known projections and realizing itself as the centre of global economic activity.

Be that as it may, from a long range perspective, bullish as we are with the prospects of Asia and the Pacific, one must guard against a premature sense of triumphalism. Only a few years ago, the industrial economies were engulfed with the sense of euphoria following the end of the Cold War and were ready to reap the so-called peace dividend; then there was the excitement about the massive economic potential of a single Europe. Excitement has now given way to frustration.

In the context of the Asia-Pacific, the realization of the Asian renaissance is only beginning. The Pacific, as the sphere of partnership between the renewed East and America, representing the fullest development of the contemporary West, is still largely to be constructed. The crucial task before us is to ensure its sustainability and the flowering of its potentials, economics and beyond economics. Asian governments not only need to persevere in their reform policies but also to improve them as they go along. Macro-economic stabilization, deregulation, rightsizing the public sector are policy prescriptions that had done good to some countries in Asia and enabled them to join the ranks of the newly-industrialised. These policies are generally sound, but far from perfect. While the basic ideas underpinning the so-called East Asian Miracle are valid, judicious adjustments are necessary to suit specific circumstances.

Most Asian countries are still struggling to keep a tight rein on their economic fundamentals. We have to fight against conventional wisdoms in economics that generate complacency and a sense of contentment. First, the assumption that inflation is inevitable and has to be tolerated as we pursue growth policies has misled many developing countries. They allowed inflation to creep in and even to spiral i nthe name of growth. Anti- inflationary policies are often unpopular, thus it requires tremendous courage on the part of the government to institute monetary and fiscal measures to suppress inflation. In Malaysia, we will be unrelenting in pursuing policies to ensure price stability.

Secondly, the legacy of Lord Keyness in economics has made it respectable for governments not to balance its annual budgets. The developing countries are full of practical men, who believe themselves quite free from any intellectual influences, but are often slaves of Keynesian economics. Thus in the name of development the goverment thought that it would spend more than it could tax. Keynes' legacy is that governments can do away with fiscal responsibility and discipline, and future generations can be held bondage to the deficit financing of public outlays designed to provide temporary and short-lived benefits. In Malaysia, we were struggling to free ourselves from these ideas, and last year, despite an increment in operational expenditure and a 17 per cent increase in development spending, for the first time in our history, we managed to balance our budget. We have to recultivate the common sense wisdom, which is as true for individuals and families as well as for governments: One should not spend beyond one's means. If one has to borrow, it must only be for the purpose of increasing the productive capacity of future generations.

One of the ways of keeping within our spending limits has been to rightsize the public sector and to privatize agencies that could best be run as private enterprises. Agencies, established for the ostensible purpose of eradicating poverty or enhancing social welfare, multiply in such numbers that they overlap in function and become bureaucratic white elephants. With regard to privatization, while it will continue, its modus operandi will have to undergo closer scrutiny from time to time. Privatizing public-owned monopolies requires innovation in regulation to protect the interests of the general public. A government which is accountable to its electorate has also to maintain its credibility, through transparency in the conduct of privatization and ensuring fairness in the distribution of opportunities.

There is a danger too that the rapid growth of Asian economies in recent years will be taken for granted. Sustainability cannot be achieved without continuous investment, in physical as well as human capital, both from outside and inside the region. Fortunately, Asian countries are now fast realizing the ideas of inter-linked economies. Growth triangles have multiplied and have become an effective mode of forging economic partnership and synergy between ASEAN countries and our neighbours, generating growth to areas previously relegated to the periphery. It is remarkable too that many of the decisions to establish linkages no longer come from the highest levels of national leadership, but from the provinces and the private sector.

It is in attracting foreign capital from across the Pacific that countries within the region have to encounter stiff competition among themselves. We therefore need to provide an appropriate framework for partnership and collaboration for mutual benefits, and be wary of the unintended consequences of such ventures including their social costs.

We in Asia must be prepared to temper our economic self-confidence with the humility to undertake further reforms, including to strengthen our institutions of civil society. Economic progress is only meaningful if it comprehends at the same time progress in the social and political spheres. In Malaysia, we have demonstrated that development and democracy are not mutually exclusive. The empowerment of the ordinary citizen does not necessarily result in political instability or social indiscipline. There must not be an undue emphasis on economic indices to the extent that to achieve success we have to opt for a dull, cheerless and uniform collectivity. Indeed, we should relish our diversity and spontaneity which are the mainsprings of national creativity. We expect our partners to exhibit greater understanding and appreciation of the complexity of some of our problems. And although we reject the condescending attitude to some, we cannot remain unmoved by the real blights and shortcomings of our societies, abject poverty, corruption, and moral decay being among the most prominent. Under no circumstances should we condone social injustices and oppression, wherever they occur, or be intimidated from voicing our conscience on matters of fundamental concerns.

In the final analysis, the partnership of nations within the Asia-Pacific region must necessarily extend beyond the realm of economics. Together we must conceive relationships which are truly humane and civilizational in nature. I believe, we still have a long way to go before a truly Pacific era can emerge. However, we have to begin by laying the foundations through continuous dialogues based on a genuine search for understanding. Or, if we look upon it as a journey, we have to take the first bold steps in the direction of reconciliation. For East and West to meet at the centre of the of the Pacific we must be prepared to purge our systems of all the residue of bitterness and pride that has marked the previous encounters of these civilizations.

Thank you.