ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC

Fifty-fifth session
22-28 April 1999
Bangkok

Part Two of the Economic and Social Survey of Asia and the Pacific, 1999

Asia and the Pacific into the Twenty-first Century: Information Technology, Globalization, Economic Security and Development

VIII. CONCLUSION: FROM PASSIVE FOLLOWERS TO ACTIVE PARTICIPANTS

From the discussion in chapters IV to VII, it is clear that, for most governments of developing countries in the region, coping with an avalanche of ICT applications and developing an appropriate policy response present a new and complex challenge that they cannot afford to ignore. This challenge is multidimensional and multidisciplinary, involving several ministries at once. It is also dynamic in nature as the development or refinement of ICT applications gallops ahead of the internalization of their implications for economies and for policies. The growing convergence of computer and communication technologies has effectively modified the roles of various stakeholders in the development of the national ICT infrastructure, splitting the work between the public and the private sector and so has created important ramifications for public investment decisions. Difficult policy options which affect the acquisition, adaptation and diffusion of ICT products and services need to be considered. These encompass not only ICT policies themselves, but also trade, investment and financial sector policies; education, training and employment policies; national information access policies; public sector procurement policies; policies to standardize specifications for ICT connectivity and interoperability; and laws and regulations concerning the validity of contracts. In this chapter, an attempt is made to draw the attention of policy makers to the main elements of these policies and regulatory frameworks at the national, regional and international levels. Details on specific policy areas can be found in the earlier chapters of this theme study.

IMPLICATIONS OF ICT FOR ECONOMIC SECURITY

As the world enters the next millennium, the development of new applications of ICT has become a principal driving force behind the increasing globalization of economic activity. As such, the policies adopted to harness these new applications have far-reaching implications for the economic development of developing countries. As indicated in chapter IV, the widening scope of ICT applications has created three major complications directly affecting the perception that a government may have on the degree of security that its economy enjoys.

First, ICT is changing the basic development paradigm for all countries as more factors of production (financial capital, technology, skilled labour and ICT) become increasingly mobile and footloose, both within a country and across borders. This puts pressure on a government to recognize that immobile factors (land, infrastructure, the regulatory and legal system) need to be of a sufficient quality to attract and hold the mobile factors. In fact, ICT-intensive industries themselves are among the most mobile and, at the same time, the most modern and competitive. This emerging situation suggests that significant changes are needed in the policies of most governments affecting the promotion of competitiveness and economic governance. It also alters the very concept of economic security for a country which now has to define its role explicitly in a borderless world.

Second, the widespread application of ICT in the context of participation in the globalization process by a country implies that its production enterprises, investors and individuals are significantly exposed to risks of change in many areas, particularly prices, over which they have little control. Most developing countries are, in fact, very small actors in terms of the share of their GDP in the global economy or in comparison with the financial size of a major TNC or the value of daily global financial flows. Thus, any one country's degrees of freedom in terms of macroeconomic policy independence are limited and the country is increasingly exposed to buffeting from changes in the policies and performance of others. The reactions to increased risk exposure can be either to retreat behind protective barriers or to develop appropriate risk management instruments and gain sufficient experience to use them efficiently and effectively. For example, the use of ICT-based applications has increased the vulnerability of domestic financial markets to large swings in financial flows. This indicates that governments have to take a new, ICT-based, approach to monitoring these flows and supervising the related institutions and markets, but not necessarily to interfere in their day-to-day functioning. Direct interference can be interpreted that a government is speculating that it knows better than the market, and so it can be subjected to increased pressure from market participants. Such an interpretation of ICT-related globalization calls for the enhancement of the economic security of countries through the universal adoption and enforcement of codes of business conduct and of financial market regulation so that companies do not flee to the least-regulated haven to escape discipline.

Third, as economies which do not adjust to the ICT-intensive global structure will be increasingly marginalized and left behind, it is incumbent on governments and the international community to set the ground rules through a proper and equitable framework for economic and financial activities. Such a framework will need to rely on the use of ICT as a basic tool for information dissemination and monitoring. The hesitancy of governments to move ahead with liberalization in the aftermath of the recent financial crisis provides a good opportunity for stocktaking and new thinking. It is well recognized that the clock cannot be turned back and that policies which seek to limit or delay the spread of ICT, and the ensuing effects through globalization, will also limit opportunities to reap benefits. Nevertheless, liberalization efforts also need to be supplemented by ICT strategies and structural measures at national, regional and international levels aimed at safeguarding economic actors against the undesirable consequences that arise.

It was suggested in earlier chapters that the increased application of ICT can make an important contribution to stimulating economic growth, that it can be applied across a very broad range of economic activities and income groups and that it is not restricted by geography. A holistic strategy towards ICT is therefore desirable to maximize its potential. As the widespread use of ICT is possible only with a permanent upward shift in the acquisition of skills, human capital has to be enhanced in a way that allows for greater flexibility and mobility of the workforce. This, in turn, suggests government support for the training of human resources in ICT skills, as well as for improvements in the quality of basic education to include this dimension.

ICT APPLICATIONS FOR SOCIAL DEVELOPMENT

It has been convincingly argued that increased applications of ICT can provide a major opportunity for tackling problems of endemic poverty and inequality in income among persons and nations. This is because ICT has the potential to provide solutions for the seemingly intractable problems of unequal access to economic opportunity, education and employment. In developing countries, a strong case can be made for public promotion of the use of ICT in these areas. In fact, ICT is already being actively used to address problems of poverty, as the example of the Grameen Bank village phones programme in Bangladesh presented in the annex to chapter V demonstrates. There are many other such initiatives in the region where mobile phones, fax machines, computers and Internet links have been used to assist local communities with marketing information and market access, price information for their products on a timely if not real-time basis, access to banking facilities, etc. ICT can also be used to alter the geographic location of production in a country, including through componentization, subcontracting and outsourcing, and a more dispersed distribution of enterprises and factories. This can ameliorate urban congestion and provide employment and income in more remote areas. ICT is assisting services sectors such as banking and finance, tourism and transport to be more dynamic, accessible and tradeable. In addition, ICT can be used to provide better supervision and regulation of sectors of the economy, especially the financial and commercial sectors, by facilitating reporting and monitoring, and by alerting authorities to potential problems in a timely fashion.

It is recognized that, in order to cope with the social conflicts that can arise and are arising from globalization, countries need to pay closer attention to the credibility of their economic policies, regulatory and legal systems, investment climate and related institutions. As transparency and accountability tend to improve with the application of ICT, its active use can facilitate this process. For example, the number of Web sites linked to government departments and programmes is spiralling in many countries, as illustrated by the ICT policy statements on the Web listed in the annex to this chapter. Public service delivery and the implementation of social development programmes, including those undertaken in response to the recent economic crisis, are becoming increasingly dependent on information about potential target groups, networking among public agencies and NGOs, close monitoring and evaluation, and improved experimentation and social learning. These are all ICT-intensive activities. Thus, the usefulness of ICT applications to an economy is much wider than those applications relevant to trade, investment and finance which are the focus of this study.

POLICIES AT THE NATIONAL LEVEL

The policy requirements at the national level are multifaceted and interrelated. The annex to this chapter outlines some of the essential considerations for the development of basic national ICT policies. However, an ICT policy in itself is not sufficient; it needs to be supplemented by supportive policies spanning a wide range of sectors. It appears from the experiences of countries to date that several obstacles are encountered in the application of ICT, such as problems in learning processes, social and cultural barriers, policy-related or institutional limitations, including the legal and regulatory environment, and market imperfections. The following four sections outline the broad contours of national policies in respect of ICT itself, trade, investment and finance.

ICT policies

The development of a national ICT policy has reached an advanced stage in very few countries of the region. Without repeating the discussion in the annex to this chapter, which presents the objectives of such a policy and the common problems which create a gap between the desired goal and reality, and outlines a number of major constraints facing developing country governments, it needs to be emphasized that it is important for a government to set its priorities clearly, to promote the related technical skills, to improve the conditions of access for all segments of the population, to develop the infrastructure and to construct an appropriate legal framework. In implementing such a policy, it is almost inevitable that local ICT markets will need support to encourage competition and to reduce the costs of connectivity for the whole population. These costs are known to be relatively high in most developing countries and so inhibit the more extensive use of ICT by individuals and firms. Encouraging the use of ICT by SMEs, for example, will not be successful unless costs of access are sufficiently low.

It is important that the introduction of applications of ICT should be driven by needs and national priorities, not by technologies, no matter how dazzling these technologies may be. A supply-driven approach could imply that the adoption of ICT in an economy is fragmentary, with limited application in more disadvantaged sectors or population groups, mainly because of lower purchasing power and perceived lower returns to investment. Policies therefore need to pay attention to facilitating the use of ICT within and across sectors, organizations, and production and marketing units of varying sizes. One approach in addressing this problem is to facilitate the active participation by users of all sorts in policy dialogues, to obtain an expression of their needs and to incorporate these into national priorities, and then to undertake efforts to absorb their specific requirements and circumstances into the national ICT network.

The experiences of several countries, including the NIEs, point to the fact that, when countries become major exporters of mass-produced ICT products, they tend to acquire technological capabilities that support the requirements of local user industries. Countries which are not producers of ICT products still need to develop such capabilities. In this regard, governments can provide incentives (tax breaks, subsidies) for collaboration between ICT firms, research institutes (including national laboratories) and training institutions to provide for skills development and to foster the adaptation of ICT applications to local circumstances.

Governments should take the lead and promote the application of ICT in a systematic manner for their own operations and administration. Beyond having a clear demonstration effect for the entire economy, such a policy can cut costs, improve efficiency and enhance moves towards transparency and accountability. ICT applications used by government include those in the production, trade and finance areas outlined in chapters V to VII, as well as those needed to meet national requirements for defence, weather monitoring or air traffic control.

Electronic commerce policies

National governments are beginning to appreciate the importance of an effective policy to facilitate the use of electronic commerce by their enterprises for both domestic and international markets, complemented by an appropriate regulatory and legal foundation. They also recognize the need to increase the awareness of the business community of the opportunities, benefits and risks arising from the use of electronic commerce. In undertaking these trade policy tasks, governments usually encourage the participation of the private sector, including representatives of SMEs, in the process of policy design and in the implementation of any pilot projects to ensure that their needs and constraints are considered.

Governments have an important role to play in continuing to simplify and speed up trade procedures through trade facilitation measures, including expanding and modernizing the use of EDI by their customs authorities for both exports and imports. Measures to reduce clearance times include the introduction of automated customs clearance, green channel rapid clearance procedures and one-stop clearance. Other ideas include the concept of authorized traders who meet criteria linked to compliance and efficiency; the filing of customs and other documentation in locations different from the point of export or arrival of goods; and the creation of a unified comprehensive trade procedure database accessible through the Internet. All of these are preconditions for instituting seamless integrated transactions which would increase efficiency and reduce the costs of international trade.

Many countries in the region have shown an interest in using Internet commerce. This is most often approached through pilot projects to provide the scope for learning and the sorting out of technical, organizational and legal problems, as well as to provide experience in the associated rule making. This is accompanied by a review and redesign of national laws and legislation when these are not conducive to the use of electronic commerce or are missing key aspects to protect the security of domestic users, including rules concerning the validity of electronic signatures or the validity of contracts established over the Internet.

Government activities to promote trade and investment for their economy can be enhanced through the increased application of ICT, such as using the Internet to match trade and investment opportunities (this may be particularly relevant for SMEs); developing electronic catalogues and advertising products, especially those from SMEs and micro-enterprises, through the Internet; and eventually establishing virtual exhibition centres.

Given the need for international agreements on many technical and legal aspects concerning electronic commerce, governments must be prepared to take an active role in the ongoing discussions and decisions in international forums and to represent substantively the interests of their business communities. Without this, developing countries will be on the receiving end of decisions made elsewhere. In this regard and in relation to other issues enumerated above and made more explicit in chapter V, governments should be vigorous in seeking advice and technical assistance from regional and international agencies, and in learning from each other's experience.

Investment-related policies

Investment policies in developing countries need to take into account the influence of applications of ICT on the location of production. This influence comes primarily through the increased ease of dispersion of the production and marketing units of a TNC or of a domestic enterprise to any or many locations. As a consequence, governments are being obliged to put increased emphasis on creating an investment climate which will be attractive to those establishing units for production or delivery of services, in terms of laws and regulations, infrastructure and transparency.

In addition, governments have a responsibility to encourage their enterprises to modernize in terms of their use of ICT in areas such as production and marketing systems, financial management and administration, and to create information networks within and between enterprises to enhance efficiency and reduce costs. These developments may be easier and cheaper in countries such as the NIEs, members of ASEAN, China or India, where there are ICT industries producing for the local and/or the export market. Thus, consideration should be given to modalities for supporting a modern telecommunications equipment sector and the domestic provision of ICT services. A crucial element must be the provision of support for appropriate training for ICT skills.

Financial sector policies

It is quite clear that the modernization of banking services through the increased application of ICT to decrease costs, increase efficiency, improve customer services and so augment the opportunities for raising much-needed capital must be vigorously pursued alongside better regulation and supervision of the financial sector so that both domestic and foreign customers have confidence in and the desire to use these services. ATMs and other ICT-based forms of deposit and payment can be used throughout a country, including remote rural areas, only when the ICT infrastructure is in place and there is assurance of security in their use. Also, regulations governing the types of charges that banks can levy for ATM cards, interbank automatic teller facilities, and so on, as well as those requiring a geographic spread of bank facilities within a country, need to be reviewed to encourage innovation and competition.

ICT-intensive modernization of basic back-office operations of banks is lagging in practically all the countries in the Asian and Pacific region. Yet, this is a necessary step in improving the efficiency of their lending operations, minimizing corruption in lending decisions, and assisting central banks in supervising the sector efficiently and quickly. All of these would enhance confidence in banking systems, which has been considerably eroded in many countries as a result of the financial crisis. Governments, through their central banks, can make the use of ICT-based reporting systems an obligation for banks and other financial firms, and encourage this by means of licensing procedures, rating systems, regulatory reform and tax incentives.

Central banks themselves need to apply ICT to their monitoring mechanisms, reporting systems with IMF and development of financial instruments and markets. This would help them to have current information for the conduct of monetary and exchange rate policies and to be able to conduct open market operations, an essential ingredient in an open economy, in an efficient and effective manner.

The recent turmoil on financial markets (stock, bond and futures exchanges) around the world, as well as the apparent contagion transmitting volatility from one economy to another, raises the question of the role of the enormous and rapid increase of the use of ICT by the financial markets, traders and investors in the transmission process. While financial markets are, in general, already quite ICT-intensive, some of the shortcomings, especially those connected with programme trading by institutional investors and hedge funds, were partly attributed to ICT-related problems. These have already been addressed by the enhanced use of circuit breakers, on-line clearing and settlement, open lines of communication and improved networking. Further modernization of these exchanges, their rules and regulations, and monitoring and supervision can be accomplished through ICT-based solutions. In addition, making the stock markets more electronic can allow for screen-based trading by players in all parts of a country and outside, and can enhance the links among the markets of countries within the region and overseas, thus increasing their depth and breadth and so their viability. It would also allow these markets to deal with problems associated with electronic off-exchange trading of stocks through the Internet.

Governments have a responsibility to be an active partner in the intensified use of ICT in the financial sector as the health of this sector is crucial to the country's economic development. It can exercise this responsibility through several modalities, including establishing licensing procedures which require a demonstration of a certain level of computerization of operations, providing specialized training, enforcing supervisory reporting requirements which involve the use of ICT to meet them, and investing in the development of electronic capital markets for, inter alia, the conduct of open market operations.

POLICIES AT INTERNATIONAL AND REGIONAL LEVELS

Partially because the extensive use of ICT is very recent, the development of international policies related to it has been undertaken to date in a rather piecemeal fashion, dominated by the more advanced countries and market-leading firms. However, because of the close relationship between ICT and globalization, there is a need, in parallel to its increased application, for internationally accepted codes of conduct and assurance for developing countries that the content and enforcement of these codes will be supportive of their development efforts. This is an area where there is a need for competition and for coordination simultaneously. An international framework must therefore cover both aspects and include the broad issues of acceptable business practices, trans-border data flows, international trade in information services, standards of both a technical and a regulatory nature, access to information technology know-how and markets, intellectual property rights, and donor coordination in informatics assistance. The codes should aim to make the best and most practical uses of ICT available (locally or otherwise) and be flexible enough to absorb the rapid pace of innovation and complexity.

Many developing countries are concerned about the possible effects of ICT on the degree of control that they can exert over their own social and economic development, but, at the same time, developing countries are dependent on a free flow of information to provide them with access to research findings and technological information, access to FDI and international capital flows and access to world markets for their imports and exports. Much regional and international discussion and cooperation are needed with developing countries as full participating partners in order to address their security concerns and yet preserve the advantages that ICT brings to development.

One of the most important areas of international cooperation is coordination of standards and regulations on the use of the Internet. Without agreements in these areas, connectivity between countries and interoperability among systems cannot be assured. Breaks in the system may negate the advantages of diffusion of information and of rapid communication. Cooperation is also important in the area of transparency and trans-border data flows so that access to information is not blocked at national borders. This is vital if trade and financial markets are actually to be global in nature. Information on regulations of all sorts, market requirements and product information, and so on, must be accessible to all parties, as must price information and stock/bond values. Since Internet commerce relies to a large extent on trust among the parties, international agreement on modalities for the recognition of the legal validity of electronic signatures and contracts is essential. As doing business over the Internet is a new and still extremely limited exercise, it might be preferable to start with some regional agreements to facilitate such trade deals and gain experience and confidence. This might help to overcome some of the technical problems in a substantive and iterative manner.

International cooperation on financial markets and the global financial architecture is under discussion in several forums (see chapter I). Most of the proposals would have to rely heavily on the use of ICT as a monitoring and regulatory tool. One item that should be on the agenda is more cooperation between supervisory authorities on the implications of Internet-based, off-exchange trading, use of networks, the new alliances among stock and derivative exchanges across countries, and the blurring of distinctions between financial markets and instruments of various types. There is an urgent need to develop international modalities for the regulation of these new global cyberspace markets as they may easily fall between jurisdictions.

One proposal to address the volatility and uncertainty in country-level financial markets, given their lack of breath and depth, is to develop a regional integrated electronic financial market that can provide a sufficient volume of business and number of listings to counterbalance at least partially the power of institutional investors. A first step towards this, which would also help to alleviate speculative attacks and enhance market efficiency, would be to develop ICT-based standards for the region for rules and regulations on stock markets and for supervisory authorities.

Regional cooperation holds promise in several areas such as common training facilities, standards for interoperability, infrastructure, legal approaches, and regional software development for common problems or languages. Scope exists for regional efforts in developing cooperation in technology capability, transfer and innovation. In addition, efforts to implement ICT-related trade and finance practices could start from regional or subregional exercises and exchange of experience.

Of particular importance to developing countries is the issue of access to ICT as technology-exporting countries may attempt to restrict the flow of advanced technologies to the developing countries on security or competitive grounds. Developing countries must therefore take an active role in WTO negotiations on trade in information services and be well briefed on the possible implications of the decisions taken for their own development efforts.

International and regional agencies have an important role to play as adviser, referee or supervisor in assisting developing countries. As advisers, they can help in articulating interests and concerns in various international forums and in shaping their national responses to these issues. By assuming this role, they can also accelerate the learning process within and among countries and help to diffuse the lessons of experience and best practices in the acquisition and use of ICT. In fact, regional exchange of experience and coordination could play a crucial role in facilitating more informed and more active participation in international negotiations. As referees, they can provide information and influence to strengthen the negotiating capabilities of developing countries in technology acquisition in a supplier-dominated market. In addition, international agencies can be assigned the role of international supervisors and enforcers of agreed codes of conduct.

CLOSING REMARKS

The broad challenge for governments in the twenty-first century is to find a new balance between an ICT-dominated highly competitive and quite ruthless global market and the preservation of local societies, one that will continue to unleash the creative energies of private entrepreneurship without eroding the social basis of cooperation. The tensions between globalization and social cohesion are real, and they are unlikely to disappear of their own accord. As ICT is a crucial parameter in this new balance, it is important to recognize that countries, economies, enterprises and individuals will, in fact, be more threatened and marginalized by not joining in the diffusion of ICT than by participating actively in its development and its varied applications. ICT is a tool; it is not a threat in itself. Rather, its application determines whether it is an advantage or a problem. ICT may be currently viewed as part of the problem, but its imaginative use is also a large part of the solution. Enlightened policy initiatives can enhance the economic impact of ICT to reduce the marginalization of developing countries in the Asian and Pacific region, regardless of their size, and to minimize disruptions to economic security. This may sound like an overly optimistic scenario. The tasks ahead are not easy, but there is very little alternative.

Annex. Considerations for ICT policy formulation in developing courntries