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HONOLULU (July 14, 2008)—The next American president will face an Asia Pacific region enjoying a “long peace” but threatened by turmoil and uncertainty in health, the environment and particularly the international economy.

These were among the central conclusions of a group of policy experts, academics and current or former government officials who gathered in Honolulu last week for the East-West Center’s annual Senior Policy Seminar.

“In terms of security, we are in the best of times of the new century,” said Wu Jianmin, a veteran Chinese diplomat who serves today as Honorary President of the International Bureau of Exhibitions and Executive Vice-President of the China National Association for International Studies. “But in economic terms,” Wu said, “we are facing tremendous challenges.”

The seminar offers front-line experts a chance to exchange views and formulate policy on core issues facing the Asia Pacific today. High on the agenda of this year’s gathering, held July 8 at the Center, were environmental, economic and security concerns for the region and – critically – how those issues will impact the next U.S. president.

There was strong agreement that the nation-to-nation security situation in Asia has rarely been better. “The arms are silent in Asia,” said one participant with a strong military background. But that good news was tempered by the sober realization that the region faces serious health threats such as the near-certainty of a global pandemic at some time, sweeping environmental problems including climate change and – most critically – a fragile international economy.

The economy was particularly troublesome to the group. Some worried that a continuing focus on growth and development in a region “still fighting the last war” (the Asian economic meltdown of 1997) would leave officials unwilling or unable to cope with new challenges such as inflation.

Inflation presents a different challenge in Asia than it does in the United States today, said University of California, Berkeley professor Barry Eichengreen. But because Asian economies (and economic thinking) are so closely coupled with the U.S., the wrong choices are being made.

“Cuts in interest rates are appropriate for the United States, but they are not appropriate for Asia.” Eichengreen said. “A better prescription now would be modest preventative raising of rates in Asia.”

In 2007, with the U.S. economy slowing while most Asian economies were growing “full out. The last thing Asia needed in 2007 was lower interest rates, but that’s what it got,” Eichengreen said.

Ideally, Eichengreen said, Asian banks should tighten credit and raise interest rates. But for the most part, that hasn‘t happened. “Asian central banks are wedded to the status quo,” he said. “They don’t want to raise rates.”

“We are about to find out whether (Asian) central banks are up to the task,” he said. “If they do not tighten more now, they will have to do far more later.”

Several participants agreed that the mortgage and lending meltdown in the United States will inevitably spread to Asia, largely because economies there are “coupled” to that of the U.S. Barry’s bottom line projection: If the American economic slowdown infects Asia and if policymakers make serious mistakes, growth rates throughout Asia will be cut in half.

Compounding those economic concerns, the Conference agreed, is a growing shortage of key resources, particularly oil and energy.

In fact, said Wendy Dobson, Director of the Institute for International Business at the Rotman School of Management at the University of Toronto, the resource crunch will hit in just about every sector: energy, food, water and even the air Asia breathes, because of the impact on air quality due to global warming and the grey pollution that comes with industrialization.

The No. 1 resource issue for Asia, the conference agreed, is energy, discussed in the form of oil. And the plain truth, according to East-West Center Senior Fellow Fereidun Fesharaki, is that the world is running out of useable and available supplies of the stuff.

As a practical matter, Fesharaki said, the world is capable of producing around 95 million barrels of oil a day. Today, we are at 87 million a day and demand continues to grow. Once demand outstrips supply, today’s high oil prices will become but a memory.

Fesharaki’s prescription is to have governments impose taxes now to bring the per-gallon price of motor fuel up to its inevitable level. It is better (although politically difficult, he admits) to have government tax fuel to the limits of demand rather than letting the market impose the tax. That way, at least government will have additional resources to provide services and research alternative forms of energy, he said.

Oil is ultimately a nonrenewable resource. Food, water and air are renewable, but they pose their own challenges. The recent round of food shortages and higher prices for basic commodities such as rice represent a warning of what is to come if policymakers in Asia and in the United States do not come to grips with the implications of food security, the conference was told. In many ways, conferees agreed, food scarcity is as much a matter of delivery as it is production.

The place where commodity scarcity, economic insecurity and global interdependence come together is on the issue of trade, conferees said.

The next president, whether it is Democrat Barack Obama or Republican John McCain, will have difficulty forging a strong and forward-looking trade policy, several conferees agreed. In part this is due to domestic politics, with some in Congress pushing for strong trade barriers and others more concerned with what might be called neo-isolationism than they are with global issues.

“I believe there is a deteriorating environment for trade policy in the United States,” Dobson said, in part due to economic and social insecurity within the country. When people are deeply worried about whether they can afford or maintain their health insurance they become focused on jobs, she said, which means that if the next president can fix the health system in America he will ease the way toward broader open trade agreements between the United States and the rest of the world.

This implies a new “grand bargain,” she suggested.

“The business community would have to pay for an enhanced social safety net in the United States to pave the way for liberalization to get open markets abroad,” she said.

It will be up to the next president, Ambassador Wu said, to focus on common interests it shares with the rest of the world rather than concentrating on differences. “Maybe this is based on your culture,” he said. “The United States likes to transform others into an American-style democracy. This will fail. The world is too diverse.”

And finally, Wu said, “please make peace with Islam. No one can afford to alienate 1.6 billion people.”

The EAST-WEST CENTER is an education and research organization established by the U.S. Congress in 1960 to strengthen relations and understanding among the peoples and nations of Asia, the Pacific, and the United States. The Center contributes to a peaceful, prosperous and just Asia Pacific community by serving as a vigorous hub for cooperative research, education and dialogue on critical issues of common concern to the Asia Pacific region and the United States. Funding for the Center comes from the U.S. government, with additional support provided by private agencies, individuals, foundations, corporations and the governments of the region.

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