An integrated South Asian dream

A two-day regional economic conference in Dhaka last week concluded that political will and firm commitment of governments were a must for bringing about an integrated South Asia, a prerequisite for economic prosperity of the region. Organised by the Centre for Policy Dialogue (CPD), a civil society think-tank at a city hotel, the roundtable on Fourth South Asia Economic Summit was participated in by the representatives from the governments, private sectors and civil societies from eight South Asian nations. The participants reached a broad consensus on building a new region to help each other grow together. In the past, effective cooperation could not be built up in the region for lack of political will and bureaucratic complexities. The dream of an integrated South Asia remains elusive always. Such integration requires the political will and firm commitment of governments in a way it would not cause political tension, but enhance and insulate regional economic cooperation. Henceforth, South Asian leaders have to make a set of bold decisions in the upcoming SAARC summit to show their ability to realise the dreams of their peoples. Among many recommendations, leaders put emphasis on energising and invigorating SAARC and engaging the civil society of the member countries with its multiple activities. Dealing with the global financial crisis, food shortage and the impact of climate change in an integrated way also came up for intense discussions. For energy cooperation, the meeting advised setting up of a regional framework and institutional mechanism. But on the whole, the South Asian economy is set to suffer due to the global debt crisis that is spreading fast and taking the shape of a double-dip recession. The region was largely insulated from the 2008 global financial crisis because of fiscal stimulus. But this time all regional economies face some difficulties including soaring inflation, depreciation of local currencies, slowdown in export and remittance, hike in interest rate and climate change. Experts forecast that global economy is unlikely to return to pre-crisis level soon. Therefore, people should be mentally prepared to live with it for two-three years. The ongoing debt crisis in Europe and the deceleration of growth in the US have created widespread uncertainty and nervousness in the global economy. Export growth of India, China and Pakistan is slowing down with depreciation of local currencies against the dollar for the debt crisis. The devaluation causes a rise in inflation and invites tightening of monetary policy that increases costs of capital and hurts investment. As the global economy entered a danger zone, South Asia is not totally immune to its volatility. The region requires rebuilding of fiscal space for countercyclical policy and dealing with urgent social and infrastructural needs. Adverse impact on the global economy may be felt due to crises of energy, food or other commodities. And the transmission of the effect of such crises may vary from country to country. Global grain prices will remain high and Bangladesh will be vulnerable to price shocks. There is no denying that the crisis was going to hurt South Asia. It would be much more difficult to put in place a response mechanism. A double-dip recession is building up very rapidly. The slowdown has already started affecting exports of many countries including the South Asian nations. The current crisis is different from the previous one in 2008, as the policy options for developed economies are much more limited now. It prevents the government from spending. However, South Asian countries could not improve efforts significantly at the outset of the global recovery processes, which might put some countries in trouble. As such, people in the region must rejuvenate the SAARC processes to fight poverty together and achieve strengths regarding economic stability. Recent volatility in capital flows and depreciation of local currencies against the dollar also affect the South Asian economy, including India. There should be greater transparency and regulation of futures and derivatives markets as well as regulation of conversion of food into bio-fuels. The rise in prices is not for demand pressure only, but also for increasing financialisation of commodity markets and speculative activity. As for Bangladesh, now is the time to boost connectivity, regional cooperation in power sector and joint management of river basin. The most important one is the transport connectivity and how to create an infrastructure, which will support trade and investment growth. Bangladesh had achieved significantly better in fighting poverty by executing social protection policy. The country had recently moved beyond bilateral relations and developed fresh ties with Nepal, Bhutan and India. Although the relationship between the two nations remained strained on several occasions in the past, India and Bangladesh recently enhanced efforts to establish connectivity. Commodity price was the biggest problem for countries like Bangladesh and other SAARC nations in the days to come. Governments of the South Asian countries and other countries in the world should take a strong stand on the affordability of commodity prices. However, additional demand that has been generated over the years in the region could minimise the impacts of sluggishness on the developed countries. Experts say foreign exchange reserves in the Asia-Pacific region, which now stand at more than $5.0 trillion, can be mobilised for the region's development needs, especially for reducing infrastructure gaps. A deepening regional cooperation and fraternity among the countries in South Asia are required to tackle all these challenges. The agreements that had already been signed between the countries in the region should be implemented in right earnest. At the same time, new ideas should be taken for actions to materialise the potential benefits the region has. However, if the crisis hits again, the poor would be affected badly. Poorer people are affected more than others for having fewer buffer stocks. They also lack assets to withstand price shocks. There are five areas of priorities -- food security, water and sanitation, connectivity, energy development, and trade and human aspects of migration -- in terms of regional cooperation and integration. It these areas of cooperation are explored full to their potential, the dream for an establishing an integrated South Asia can be fulfilled. Before that, all countries of the region should open their mind and souls to build an integrated South Asia. szkhan@dhaka.net