Indo-Pacific a vital global economic player, but it also faces major challenges: WEF panel

Many countries in the region face demographic challenges. While the region accounts for half the growth in working-age adults, many Indo-Pacific countries, including Japan and China, have ageing populations, Mr Froman said.

Shefali Rekhi

Shefali Rekhi

Asia News Network


ST editor Jaime Ho (left) moderated the panel discussion on Jan 17. PHOTO: WORLD ECONOMIC FORUM/ THE STRAITS TIMES

January 19, 2024

DAVOS – While the economic dynamism in the Indo-Pacific is encouraging, the region will need to grapple with the twin challenges of demography and climate change, delegates heard at a panel discussion at the World Economic Forum in Davos, Switzerland.

“For the last few decades, this region has accounted for half the global GDP growth, half the manufacturing growth, half the growth in trade, and almost half of all research and development spending, as well as half of foreign direct investment,” said Mr Michael Froman, president of the American think-tank Council of Foreign Relations, during the discussion on Jan 17, drawing attention to the significant role that the region plays globally.

But the Indo-Pacific’s dynamism does not mean it has no problems of its own, he added.

Many countries in the region face demographic challenges. While the region accounts for half the growth in working-age adults, many Indo-Pacific countries, including Japan and China, have ageing populations, Mr Froman said.

A paper published by Georgetown Security Studies Review in January 2023 noted that current demographic shifts in the Indo-Pacific will have far-reaching impacts on regional security and global economic dynamics.

As for climate challenges, an overwhelming share of global emissions growth comes from this region, and some of the most vulnerable countries – the island nations in the Pacific – are struggling with the fallout from climate change.

The United States has made it clear that it is a Pacific nation and remains committed to the region, even as it maintains alliances with Europe and strong engagements with the rest of the world, including the Middle East and elsewhere, Mr Froman said.

He referenced US President Joe Biden’s meeting leaders of the Indo-Pacific Economic Framework for Prosperity (IPEF) in San Francisco in November 2023, in support of his point. During that meeting, an agreement was signed on supply chain resilience and diversification in a move seen as a bid to reduce dependence on China.

While the Indo-Pacific as a concept has existed for some time, it took centre stage in 2022, when Mr Biden launched the IPEF in Tokyo with a dozen partners: Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

Together, they accounted for roughly 40 per cent of the world’s gross domestic product. Fiji joined as IPEF’s 14th member in May 2023.

Mr Froman said there has been more of a consensus within the region on the nature of the China challenge, which would have a bearing on geopolitical equations in time to come.

“Rather than asking countries to choose one or the other, we are all getting used to a world in which there’s not a China bloc, and there’s not a US bloc in the Indo-Pacific; but, in fact, it’s more polyamorous,” he said.

India is an example, he said, noting that the country “loves the United States for technology and for nuclear cooperation; it loves Russia for munitions, and it loves Iran for oil”.

“All that points to a more complex world and the need to be more sophisticated in how we engage in our relations across the Indo-Pacific,” he told the audience at the session.

The sentiment was shared by the other panellists at the discussion, jointly hosted with The Straits Times and moderated by ST editor Jaime Ho. Mr Froman was joined by three global leaders: South Korean Prime Minister Han Duck-soo, Peru’s Foreign Minister Javier Gonzalez-Olaechea Franco and the Netherlands’ Defence Minister Kajsa Ollongren.

The Indo-Pacific will be a region to watch, they said, given its dynamism and inherent strength. But much collective effort will be needed to deal with the challenges, of which there will be several, for its potential to be realised.

The region is getting renewed attention now, said South Korea’s Mr Han, drawing attention to recent announcements by European countries of their own Indo-Pacific policies.

Two things are clear, he said. This is the most economically dynamic region, and it has elements and characteristics of diversity that range from the very technologically advanced nations to those that think they are being left behind.

In globalisation, shifting supply chains as well as geopolitical developments will have their own bearing, and systems need to be in place for the region to accommodate those changes, “in a minimally frictionless way”, he added.

Climate change is another important issue faced by many countries in the region, Mr Han said.

A paper by Asia Society Switzerland and Swiss Re Institute in 2021 says the region is most vulnerable to the impact of climate change. By 2050, many parts of Asia will see increasing average temperatures, heat waves, extreme precipitation and droughts, it noted.

Mr Han said his country will be cooperating with Pacific island countries, for which climate change is an existential threat. Seoul will also increase its Official Development Assistance contributions, he added.

Geographically, the Indo-Pacific region holds strategic importance in global trade. As the Netherlands’ Ms Ollongren said at the discussion: “Free seas mean free trade.”

Indeed, the Indo-Pacific is a major transit route for international trade, with about 80 per cent of the total global trade by volume passing through the region, according to a paper published by The Hague Centre for Strategic Studies in October 2023.

Recent events around the world have shown how disruptions could occur.

Global food prices rose following the collapse of a landmark agreement in August 2023 to ship grain from war-torn Ukraine to the rest of the world. Countries in the Middle East and Africa, which account for much food imports from Ukraine, also faced the threats of grain shortages. All these happened after Russia’s navy blockaded the Black Sea ports as part of its ongoing invasion of Ukraine.

More recently, the attacks by Houthi militants in the Red Sea have hampered maritime trade, potentially disrupting supply chains for months to come.

“It was a wake-up call. We’re seeing it today in the Red Sea, as the vessels cannot pass through any more,” Ms Ollongren said.

For global economy and prosperity, “we need to uphold the principle of free seas”, she added.

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