Singapore, 2009

When we met here last

year, financial institutions such as Lehman Brothers

and American International Group (AIG) were falling

like tenpins. For weeks, credit froze as perceptions of

risk shot up. The global financial system went into

seizure. National Governments took emergency

measures to rescue banks and keep credit lines open.

The United States Treasury and the United States

Federal Reserve, in particular, reacted with

extraordinary boldness. For a period of time, it seemed

as if everyone was flying blind.

After a year, the situation no longer looks as

bleak today. In fact, after a sharp contraction of the

advanced economies in the first half of this year, there

are signs of a recovery. Some of the leading indicators

are flashing positive again and the next two quarters

will probably register good growth globally. Whether

this growth can be sustained is, however, a different

question.

41 09-52598

It would be a mistake to think that the global

economic crisis will soon be over. The crisis came

about because of excesses and imbalances which have

to be put right. Looking back, we know that the

excesses were the result of inadequate regulation of

banks and quasi-banking institutions. Over the years,

clever minds turned non-banks into de facto ones

which were not regulated as conventional banks. This

unregulated financial sector grew to dwarf the

regulated sector.

To forestall collapse when the bubble burst,

Governments and regulators stepped in taking over

financial institutions, guaranteeing liabilities,

increasing public spending and pumping liquidity into

the economy. These are emergency measures which are

needed to get the global economy through a critical

phase. They have stabilized the financial sector and

prevented the real economy from being too badly

affected.

However, as when steroids are administered to

reduce inflammation, there is a price to be paid for this

temporary relief. First, the expectation that

Governments will step in when things go badly wrong

creates a huge moral hazard. Once Governments set a

bottom limit to the consequences of risk-taking, more

risks will be taken in the future.

Secondly, the huge increase in global liquidity

has slowed down or reversed the fall in inflated asset

prices. Worldwide stock markets have benefited from

easy money. In Asia, property markets are booming

again even though the real economy is still struggling.

Withdrawing liquidity without destabilizing economies

and asset markets in the coming months and years will

be a tricky business.

And thirdly, the emergency measures which have

been taken reduce the need for painful restructuring.

Yet without major restructuring of regulatory systems

and businesses, the imbalances which created the

conditions for the crisis in the first place can only get

worse.

While excesses in the financial sector were the

trigger of the crisis, the deeper underlying cause was

the global imbalance between producers and consumers

and between saving and consumption. For too long, the

world depended on the United States consumers

keeping global demand high and on lending those

consumers the money to keep the game going. To

correct this imbalance, Asians have to consume more

and save less as a proportion of income, while

Americans have to consume less and save more.

Otherwise, a global Keynesian paradox of thrift will

cause the global economy to operate below capacity.

Rebalancing the global economy is, however, not

a simple matter at all, and is not only about economics:

it is also deeply political. The rise of Asia is altering

the global power structure. Nothing expresses this

more than the complex relationship that now ties the

United States and China together. China, with its

reserves of over $2 trillion, is heavily invested in the

United States dollar, making it a major stakeholder in

the United States economy. Without continuing market

confidence in the United States dollar, not just the

United States economy, but the entire global economy

will be put at risk.

Looking ahead, however, it is not going to be a

bipolar world but a multi-polar world. Europe and

Japan will remain heavyweights. India, Russia, Brazil

and others will become more significant players. A

multi-polar world means a messier world with a

diversity of political systems, values and worldviews.

Non-State actors like civil society organizations must

increasingly be engaged. At the same time, we are all

members of the same human family sharing the same

planet. Looking ahead, we will need more effective

global governance across a wide range of issues from

protection of human rights and international financial

regulation to efforts to combat pandemics, climate

change and terrorism.

The greatest challenge confronting us today is

that of ensuring effective global governance. We do not

want a global Government but we do need better

coordination, cooperation and enforcement in many

areas. The reform of the United Nations, including the

United Nations Security Council, is going to take time.

Incremental rather than dramatic change is a more

practical approach.

In terms of world trade, the World Trade

Organization, while far from perfect, can still function

well with effective political leadership. Once that

leadership is supplied, the Doha Round of negotiations

can be concluded within the next few years. We are

fortunate to have in Pascal Lamy a strong Director-

General at the helm. But this is a dangerous period

because domestic politics in many countries favour

greater protectionism. At all regional and international

09-52598 42

forums, we must take a clear collective stand against

protectionism.

Climate change is a long-term challenge for

humanity which needs to be addressed with some

urgency. While we cannot be sure how much increased

carbon dioxide emissions will affect the global climate

in the coming decades and centuries, it would be

irresponsible for us in this generation not to start acting

now. The increased weather volatility we have been

experiencing in recent years could be a warning of

longer-term trends already under way. An international

agreement on climate change which aligns our interests

and efforts is absolutely necessary to preserve this

planet for future generations.

For that reason, we must redouble efforts to

conclude negotiations for an international agreement at

the Copenhagen Climate Change Conference at the end

of this year. It is good that caring for the environment

is increasingly becoming a moral norm in the world,

especially among the young. We must not fail them.

The strong political commitment expressed by many

leaders at the Summit on Climate Change, chaired by

the Secretary-General himself here last week, gives us

reason for hope.

The present economic crisis is a major challenge

to global governance. In November last year, then

United States President George W. Bush convened the

first summit of the Group of 20 (G-20). The second

meeting of leaders was held in London in April and the

third has just concluded in Pittsburgh under President

Barack Obama’s chairmanship. The G-20 has now been

designated the premier forum for international

economic cooperation, replacing the Group of Eight

(G-8).

This G-20 process and the swift, decisive actions

that it brought about have helped avert an economic

depression in the last year. The emergency measures

taken by various Governments in response to the

financial tsunami have bought us precious time to

restructure and rebalance the global economy. In

Pittsburgh, the G-20 leaders acknowledged that a sense

of normalcy should not lead to complacency. We

welcome their pledge to adopt policies needed for

strong, sustained and balanced growth. If the biggest

economies do not persist in that effort — and persisting

means pain for domestic constituencies in many

countries — the respite we are now enjoying will lead

to an even bigger crisis, this time possibly involving

foreign exchange markets as well.

In the coming months and years, it is important

for the G-20 process to develop greater legitimacy,

especially as it begins to deal with a broader set of

issues. That the establishment of the G-20 leaders

meeting was not blessed by the United Nations or other

existing international organizations should not hold us

back from giving it full support. Although the G-20

process is not ideal, it is the most important driver of

change that we have right now.

The United Nations itself is too intricate and not

structured to deal with issues such as a major financial

crisis. The old G-8 lacked representation, and the G-8

Plus was not acceptable because it put the additional

participants at a disadvantage. As for the International

Monetary Fund, it was never designed to tackle a crisis

of such scale. In any case, the Bretton Woods

institutions themselves need reform, which indeed is a

major subject on the G-20 agenda.

For the G-20 process to be effective and

legitimate, however, it is not enough for leaders to

confer and make general exhortations. Ministers and

experts must also meet and go into details. They should

not be confined to the same G-20 countries every time.

We need variable geometry in membership. For

different subjects, there could be different groups of

participants, including both G-20 and non-G-20

countries. The views of small States, which comprise

the majority of Members of the United Nations, must

not be ignored. The meetings should be transparent.

There must be wide consultations so that those not

included in specific meetings can still table their views.

Depending on the subject, those consultations can take

place at the United Nations or at one of the other

international organizations.

Mindful of the need to widen participation,

British Prime Minister Gordon Brown invited regional

representatives, such as the Chair of the Association of

Southeast Asian Nations (ASEAN), the Chair of the

New Partnership for Africa’s Development and the

Chairperson of the African Union Commission, to the

G-20 leaders meeting in London in April 2009.

President Obama followed this precedent in Pittsburgh.

We in ASEAN certainly hope that the inclusion of the

ASEAN Chair will become the norm at future G-20

leaders meetings. It is right that the United Nations

43 09-52598

Secretary-General was included from the very

beginning.

A balance has to be struck between effectiveness

and inclusiveness. If a meeting is too big, it becomes

unwieldy and unworkable. If too small, it lacks

representation and legitimacy. As most Members of the

United Nations are not in the G-20, it is important for

us to have a say on the role the G-20 should play as an

agent of change in global governance. While we should

support the G-20 process, we should do so in a way

that ensures that our own interests as smaller States are

taken into account.

A great power shift is taking place in the world.

The formal establishment of the G-20 as a new

international institution last week marks a momentous

new beginning. History shows that power shifts never

occur smoothly. Without a good system of global

governance, we can be sure that the power shift in this

century will also be a troubled one. Putting that system

in place requires the collective effort of all of us. We

should not be lulled by the temporary easing of the

global economic crisis into thinking that the worst is

behind us and that we can return to our old ways.