The year 2009 has turned out better than feared. Decisive responses by governments and coordinated efforts of the Group of 20, have succeeded in averting financial disaster and restoring confidence.
While the worst is behind us, global prospects will depend on governments drawing the right lessons from the crisis and taking effective and coordinated steps to address deeper, more difficult problems.
What have we learned from this year of ups and downs? First, we live in a completely global economy. All countries are linked together from Asia to Europe to the US. There is no haven to hide from global storms. But this doesn't mean countries, including smaller ones, can do nothing in a crisis. Governments can and must take steps to stabilise their economies, protect their citizens and prepare their countries for the recovery.
Second, Asia's dynamism is intact. Notwithstanding the crisis, Asian countries continue to transform themselves. China is re-orienting its economy toward domestic demand.
India too, has weathered the crisis reasonably well though its economic liberalisation is progressing much more cautiously. The countries in the Association of Southeast Asian Nations are benefiting from these two economic powerhouses. Its 10-member states are steadily fostering an economic community in order to participate fully in Asia's growth story. Third, protectionism remains a threat to recovery and future growth. In times of economic doubt and high unemployment, we must expect workers to feel anxious about employment and countries to seek to protect their own industries and jobs. The political mood in the US is hostile to free trade and Europe faces similar pressures.
Fortunately, so far countries have largely avoided self-defeating protectionist measures, or worse, trade wars. They must stay the course as unemployment stays high and muster the political will to revive the Doha Round of world trade negotiations. The US must exercise leadership and other major players must be prepared to close the last gaps and seal a deal.
Whatever their downsides, economic integration and free markets remain the best strategies for prosperity and growth, for developed and developing economies.
Fourth, governments and regulators clearly need to improve how they set the rules for a free market, supervise financial institutions and monitor risks to the system as a whole. We can't prevent crises from happening. We can only hope to reduce their frequency and the damage they cause.
Future regulations must seek to curb irresponsible behavior, but they must continue to allow and encourage financial institutions to innovate and take measured risks. As Asian countries strengthen their financial systems, they should gradually open them up and liberalise them, and work together to deepen regional capital markets.
What of the future? Next year should see modest but positive growth. We have to use this respite to tackle deeper issues in the world economy. As the US unwinds its reliance on consumption and debt, countries must find new sources of global growth and spread the benefits among their citizens. One important way is through education and skills training. Countries must also work together to meet major common challenges, including climate change. All must strive for an agreement to slow global warming and head off severe consequences that affect all countries.
China and US
Progress on these issues depends on global cooperation, and presupposes a stable international order. In the Asia-Pacific, stable ties between the US and China are critical. Elsewhere there are complex security concerns, especially the dangers of nuclear proliferation in North Korea and Iran, and the conflicts in Iraq and Afghanistan. These problems won't be solved in 2010. But they have to be managed, so countries can continue to devote their talents and energies to peaceful and productive purposes.
- Lee Hsien Loong is the Prime Minister of Singapore. The opinions expressed are his own
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