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View all search resultsDisaster and climate risks matter
While the subjects of the contagion effects from the eurozone crisis and regional security will no doubt top the agenda of world leaders gathering in Bali for the East Asia Summit, they should not ignore the imminent impact of disasters and climate change on their economies
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W
hile the subjects of the contagion effects from the eurozone crisis and regional security will no doubt top the agenda of world leaders gathering in Bali for the East Asia Summit, they should not ignore the imminent impact of disasters and climate change on their economies.
Indeed by the time the leaders meet, it is likely that floodwater will still inundate much of Thailand including its industrial estates that house many regional production centers. As of Friday, the Honda factory in the Thai province of Ayutthaya was still submerged. Similarly, the Toyota factory was also still engulfed by water, and only seven months ago the same company also suffered the devastating impact of the March 2011 massive earthquake and tsunami in Japan.
Because of the floods in Thailand, Honda factories in North America have already cut production targets by 50 percent and are experiencing occasional shut downs due to disruptions in the supply of spare parts.
With the regional economy increasingly integrated, thanks to the early success of the ASEAN Free Trade Area and other regional free trade arrangements, the East Asian economies are benefiting from each others’ complementary advantages as shown by their resilience to the on-going global economic crisis.
But, as many of the production bases in the region are naturally located in the low lying coastal areas and on the margin of active tectonic plates, the prospect for major catastrophic events, which could have devastating economic consequences, to occur is quite high.
According to a recent study by the World Bank, the ASEAN region alone suffers an annual loss of around US$4.6 billion. The study also estimated that for disaster events that occur in a 100-year cycle (i.e., there is one percent probability for the event to occur in any given year), the estimated loss could exceed $19 billion, more than the annual exports of Cambodia, Laos and Myanmar combined.
The impact of intense and prolonged rains, partly caused by climate change, may inundate low lying plains where most industrial zones and transport networks are located. The possibility of major disasters jeopardizing the region’s reliability as a major production base is quite serious.
The good news for the leaders is that many of their countries, such as Japan, Indonesia and the Philippines have had good experience in mitigating and responding to disasters albeit with still significant economic losses due to the higher intensity of the events and the increased value of their assets due to successful economic development.
Second, ASEAN and the East Asia region are geographically diverse in that the region is blessed with natural resources on one side of the coin and potential natural hazards on the other. The geographic diversity of the region should in fact be considered an asset.
At the regional scale, the risk of one single large disaster striking the entire region is very slim. Multiple disasters may hit, but they will most likely be of different physical types making the conditions perfect for a disaster-risk insurance market to develop.
A diversified risk profile in diversified economies is good for risk-transfer markets such as insurance, reinsurance or catastrophe bonds. But, for such a market to develop, a harmonized regulatory regime on disaster insurance and well coordinated policies on fiscal-risk management and disaster response are required.
The leaders could start with tasking their ministers and senior officials to work together to build a financial-protection mechanism against major disasters through a regional resource pool and risk transfers to help countries and regional factories mitigate the financial impact of disasters.
In the more medium-term, the region should of course invest more in reducing future disaster and climate risks by building more resilient infrastructure and greener economies.
While the eurozone is still not out of the woods and the Arab spring is still far from over, the East Asia region should build its resilience to maintain its status as the engine of growth for the global economy.
Security and defense are still important subjects for such a high-level summit of the East Asia leaders but investing in building a disaster and climate resilient regional economy should be included in their
discussions.
After all making the region a peaceful, prosperous and safer community of nations is a better defense strategy against the emerging global threats such as poverty-driven conflicts and extremism.
The writer teaches disaster management studies at the Indonesia Defense University, Ministry of Defense. The views expressed are his own.
