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May 17, 2006

Leadership and Strategic Vision in East Asia
By KAWATO Akio
My speech will be more historical and philosophical than factual. I would like to talk about thegeneral framework in which we have to act. Also, I would like to say a few words on what Japanis up to. I do it to provoke a discussion on Japan's role in development of Cambodia.
Today, we live in a world after the end of the Cold War and Plaza Agreement in 1985. The endof the cold war brought about great political change. The Plaza agreement brought about
fundamental economic change not only in Japan but in entire Asia. Because of the depreciationof the dollar, because of the Plaza Agreement we had to move our production to China andASEAN countries, and also Taiwan began to invest a lot in China. Thus, we nowadays witness agreat surge of China and ASEAN economies. And this means the real end of the colonialist era
since 1400s. It took 600 years until the colonialist era ended.
But still we have to work with the West very closely. We have no reason to be too self-confident
about our own capabilities, because the West still matters in:・civic values
・military power・finance
・technology
・information
Japan has been trying to catch up with Europe and the United States, so as to not be colonized byourselves. Today Japan has become far more serious about Asia. In order to survive, we have toget back to Asia with far more attention.
How does the East Asia look like today. What are the salient features in the East Asia today?
Firstly, we notice that there is no absolute power or predominant power in the East Asia.
Perhaps we can talk about the United States, Japan, or China. But as you can understand, noneof them possesses an absolute power in the region.
And we witness greater and large propensity for the “status quo.” It is true that many people
tend to say that the reunification of the Korean peninsula is impending, or that the annexation of1

Taiwan can happen at any moment. But such views may be superficial. All interested parties ofthe Korean and Taiwan issues are interested in maintaining the status quo, and this sentiment isshared by Japan and the United States, too.
When we talk about East Asia we cannot help but notice a very important aspect. That is the“economic symbiosis” between Japan, ASEAN, China and the USA. Today there are many
automobile factories in Thailand. They produce automobile parts and then export them to thefactories in Guang Zhou, China. The Chinese assemble the parts and export automobiles abroad.
Such kind of horizontal trade generates far more added value and is very beneficial for allASEAN countries, including Cambodia.
The three points above indicate a need for “consensus-building.” As no one can dictate in theEast Asia, we need consensus-building. In this context, a forum such as this one is very
important.
But at the same time populist governments hamper formulation of consensus. Radical
nationalism and economic parochialism are the causes.
The next topic is “What Japan is up to”.

What Japan has been doing in the East Asia? First of

all we have to recall World War II in which we inflicted enormous damage and suffering to theAsian countries. Because of this Japan has been reticent and modest in implementing our Asianpolicy. A good incarnation of this is the “Fukuda Doctrine” which was announced in 1977. TheFukuda Doctrine in substance says that Japan:
・will not seek military supremacy
・attach importance to mutual trust・help ASEAN to consolidate
・facilitate friendship between ASEAN and Indochina
In implementing this policy we by large resorted to two means: direct investment and official
development aid (ODA). Japan’s direct investment to Southeast Asian countries is big with thetotal amount of approximately $120 billion dollars. Official development aid is no less important.
It is true that after the economic depression Japan had to substantially reduce the size of ODA,
yet we still allocate to Southeast Asian countries about $1 billion to $1.5 billion annually.

ToCambodia the accumulated amount of our aid is $1.1 billion. According to the research by Japan
Economic Research Center, Japan’s direct investment and ODA have pushed up the economy ofASEAN by 0.6% in 2004, whereas the American assistance and direct investment in this region
pushed up ASEAN's aggregate GDP by 1%. Japan stands here as the second most importantpartner.
Japanese ODA has been contributing in the dramatic improvement of economic and social

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infrastructures in the East Asia. Ports, telephone lines, railways, power station, steel mills andetc. And this has facilitated a dynamic inflow of foreign direct investment. Japanese companies
have built a large number of factories in ASEAN countries, gradually forming a “horizontaltrade” between Japan, ASEAN, China and the USA.
The above-mentioned horizontal trade would be a very important key for the further economic
development of Cambodia, because she is located in an ideal geographical position: just between
Thailand and Vietnam and not far from China.
That is all for the economy. Japan can sometimes be a viable political power. A good example isCambodia. Japan is the country that established diplomatic relations with North Vietnam in 1973,
even partly against the will of the American government at that time. I still remember King
Sihanouk made a transit in Tokyo en route from Beijing to New York in 1979. I followed myboss to meet King Sihanouk. After that we played a very active role in stabilization of Cambodia.
In tandem with Mr. Akashi, Special Representative of the UN Secretary General, the Japanese
government made every effort to bring the first general election to a success. Japan is abenevolent political force.
Coming back to the economic aspect I have to say some words about the economic and financial
crisis in Asia in 1997. I recall that the Japanese government pledged 30 billion dollars forfinancial rescue of Asian countries. Although this scheme was not much utilized by Asiancountries because of the too strict conditions, we have been generating and promoting ideas for abetter financial market in Asia:
1. currency swapping agreement
2. issuance of long-term bonds in local currencies- (Let us recall that the lack of long-term credit
market in Asia was the main reason for the financial crisis in 1997).
What should we do further in the East Asia? First of all we have to build the East Asian
Community gradually, but with strenuous efforts. Japan is seriously interested in building theEast Asian Community. At the same time Japan will maintain the alliance with the US, themainstay of security of Japan and stability in Asia. The Japan-US alliance has a character as acommon asset for the Asian Pacific area.
Up to now, the East Asia Community is considered to be a body which mostly addresses
economic issues. But in the future, we may establish yet another forum like CSCE in Europe
which confirmed the status quo in Europe and established confidence-building measures. In sucha multilateral mechanism no one country can be predominant and stability will be ensured by“check and balance”.
When we talk about Asia and the capacity about Asian cooperation we should not be too3

arrogant about our power. No “Asian parochialism” please. We still lack in several important
ingredients. First of all we have to set a moral standard on the question “For what do wedevelop?”
The authoritarian governments in Asia tend to promote an idea that we work for the state, for thegovernment. But I think we improve our standard of life for the benefit of ourselves, for thewelfare and happiness of each individual. We need to involve the USA and the EU, because they
have a better experience in finding a balance between individual freedom and public duty.
The official development aid and foreign direct investment have their own problems in Asia, too.
I would like to draw your attention to the following points:
1. Balance between generosity and discipline. From time to time donors are asked by recipientsto be more generous and give out assistance without cumbersome conditions. But the donors
have to pay attention to the accountability, because they are using people's taxes for ODA.
Private companies can not be so generous, either, because they are not operating forphilanthropy. Their profit-seeking activity stimulate the economy and enhance people’s life: thatis the principle of foreign direct investment. In Cambodia some may expect that the Japanese
government assert pressure on Japanese companies so that they come to Cambodia to invest. We
can talk to them, but we cannot force them. Private companies are not subjugated to thegovernment. They would not move without a prospect of making profit. Otherwise, they will getreprimanded by share-holders. So, Cambodia should further improve infrastructures until
foreign companies come in competition to invest here.
2. Talking about the donor countries, I notice that we have a growing bureaucracy in ODA.
Sometimes it takes years before we reach an agreement or decision on one or other ODA project.
We have to rationalize the growing bureaucracy on our part. The cost of economic assistance isrising. Sometimes more than 50% of ODA are spent for personnel expenses of the donor
countries.
In closing, let me compare Cambodia with the ex-socialist countries like Russia or Uzbekistan.
Working in Russia or Uzbekistan, I sometimes became desperate about the prospect of reforms
in these countries. They have a mixture of authoritarianism, corruption, large presence of state
enterprises which are hard to reform, and a lack of property rights.

These elements create astalemate for further reform.
But in Cambodia, I realize that she is in a better position than the ex-socialist countries.
Cambodia is not plagued by such negative traits as authoritarianism, rigidly planned economy
and large presence of state enterprises. I feel optimistic about future of Cambodia.
(This is the text of a speech delivered by Amb. KAWATO Akio, Member and Senior4Research Fellow of the Council on East Asian Community, in “The 2 nd Asia EconomicForum” on “Bridging Development Gaps in East Asia: Vision, Strategic Direction, andPlan of Action” held by the Asia Economic Forum and the University of Cambodia in
Phnom Penh, Cambodia on April 24-26, 2006)5