Restarting Asian tourism will be harder than shutting it down

Tourism-dependent economies are taking a cautious approach to reopening

Call it an October surprise. Almost every day over the past two weeks countries across Asia have revealed plans to loosen pandemic-induced restrictions on inbound tourism. 

India went first, announcing on October 7th that it would at last resume issuing tourist visas for visitors from all countries on November 15th. 

Two days later Singapore expanded its quarantine-free travel lanes beyond just Germany and Brunei. 

Prayuth Chan-ocha, Thailand’s prime minister, said on October 11th that fully vaccinated tourists would be able to visit many parts of the country without quarantine from November 1st.

Several Indonesian islands, including Bali, opened up on October 14th. Malaysia’s prime minister hinted at a reopening in December. 

Fiji’s government said it wants people to spend Christmas there. 

Even parts of Australia, which has had among the harshest travel policies in the world, will welcome travellers again from next month. 

“For double-vaccinated people around the world, Sydney, New South Wales, is open for business,” said Dominic Perrottet, the state’s premier.

Yet India is an exception in throwing open its borders to all tourists. 

Most Asian countries welcoming travellers are doing so only for those from a carefully chosen list of countries, with acres of small print. 

Thailand initially planned to open its doors only to ten, mostly European countries. Bali is welcoming travellers from 19, half from Europe and none from its own region of South-East Asia. 

Singapore’s list has expanded from two to 11, with most in Europe, and even then only on designated flights. 

Scott Morrison, Australia’s prime minister, threw cold water over Mr Perrottet’s reopening a few days later when he said that it will at first apply only to Australian citizens, residents and their families.

Indeed, the more reliant a country is on tourism, the greater seems to be its caution. 

In 2019 tourism made up about half of Fiji’s exports, a fifth of Thailand’s, and nearly a tenth of Malaysia’s. 

India, by contrast, relied on tourists for just 6% of exports. The share for Singapore is smaller still, but the city-state’s economic model depends on being open to the world. 

The announcements are less an indication of enthusiasm for welcoming visitors back than of the sense that it would be especially damaging to delay longer: now is when people book their winter holidays.

That is one reason why the reopening is so limited. 

Many Asian economies desperately need a decent season of inbound tourism but do not feel fully prepared to welcome lots of visitors. 

Even in Thailand, where tourism accounts for a fifth of jobs, 60% of people said in a recent survey that November 1st was too soon for the country to open up. 

Yet that must be balanced against people’s livelihoods. 

On October 21st Mr Prayuth announced that Thailand would in fact open to 46 countries, more than half of them European. 

“If we wait until everything is fully ready, we’ll be too late. 

Besides, tourists may choose to go elsewhere,” he wrote on Facebook.

A phased approach allows locals to get used to the idea of tourists again. 

It will also help businesses, which must refill their swimming pools and rehire workers after nearly two years of closures. 

Taking things slowly is useful for governments, too, which are watching covid-19 case numbers and worry that they may need to throttle back.

“The first markets to open up will be vulnerable to overtourism,” says Liz Ortiguera of the Pacific Asia Travel Association, an industry body. 

The choice of European countries may in part reflect that concern. 

The vast majority of tourists in Asia come from other Asian countries, who tend to make shorter trips and therefore spend less per visit. 

Europeans and Americans, having travelled all the way, often stay longer and spend more freely, says David Vanzetti of the University of Western Australia. 

As countries re-open, they are trying to maximise profits while keeping visitor numbers manageable.

The near-total halt in travel and tourism caused by the pandemic is unique in being caused by a lack of supply rather than demand, says Xiang “Robert” Li of us-Asia Center for Tourism & Hospitality Research at Temple University in Philadelphia. 

People still want to travel, and will get back on the road as soon as they are allowed. 

After past crises, such as the sars outbreak in 2002-04, travel recovered domestically at first, then regionally and eventually across long distances. 

The same will be true this time, perhaps even more so after nearly two years of public-health messages that painted the outside world as a mortal threat. 

“We used to take travel for granted,” says Mr Li. But after 18 months of being grounded, “we realise that tourism is not just superficial fun. 

It actually is part of the contemporary lifestyle and has a lot to do with our well-being, who we are, and how to be happy." 

Be swift, be bold

The geopolitics of money is shifting up a gear

If Western countries and firms want to stay in charge of global payments they have to modernise how they happen

In the past few years the Western-led infrastructure behind globalisation has fallen into disrepair even as China has been building credible alternatives. 

The World Trade Organisation is in tatters, the imf and World Bank are struggling for relevance and tarnished by scandal, and no one can agree on global rules to govern technology.

There is an exception to this dismal picture: the global payments system that underpins the dominance of Western currencies, particularly the dollar. 

Over the past year one of its main networks, swift, carried $140trn of transactions, a record level and the equivalent of about 150% of global gdp. 

It is an impressive sum but more must be done to modernise the payments architecture if its pre-eminence is to last.

The way money flows around the world is still overwhelmingly under the control of liberal democracies. 

Payments typically happen in the dollar and to a lesser extent the euro, pound and yen. 

This is, on balance, good for the world, providing a reliable system governed by law. 

It is certainly good for Western countries, bolstering their legal norms, firms and influence.

Behind it lie myriad institutions, from banks to New York’s clearing-houses. 

Despite its importance, swift, owned by global banks and founded in the 1970s, is an obscure part of all this. 

It connects 11,000 banks in over 200 countries, providing a messaging system for transactions. 

Although it is based in Europe, it is an accidental linchpin of American influence, with JPMorgan Chase alone accounting for 24% of swift dollar volumes.

The threat to swift comes from several sides. 

Its own record is patchy. 

In 2016 North Korean hackers used stolen swift credentials to steal $81m from the Bangladeshi central bank. 

America is complacent about the dollar system. 

It has used swift to pursue politicised sanctions, giving countries an incentive to develop alternatives. 

In addition, America has been slow to upgrade payments systems at home or to develop a central-bank digital currency, and Congress is critical of the Federal Reserve’s stabilising global role.

Meanwhile big tech firms, credit-card networks and banks are keen to create alternatives. 

On October 19th Facebook launched its digital wallet. 

Innovation is welcome, but if only a few firms dominate, fees will rise and poorer countries suffer. 

And China is trying its own payments system, called cips, and a central-bank digital currency. 

It has just asked McDonald’s to adopt the e-yuan in its Chinese branches.

Rather than assume that the dominance of payments is their birthright, democracies should ensure their systems are faster, cheaper and safer so that they remain firms’ first choice on merit. swift has upgraded its network and says that 92% of large transfers on its high-speed pipes happen within a day. 

Not all kinds of financial-market transactions need to be settled at once but swift should aim for its payments to be instantaneous. 

Another goal should be to connect to more real-time domestic payments networks, which are live in 65 countries. 

This may cost money, but swift’s capital expenditure in 2020 was $56m, less than a fifth of the budget of payments giants such as Ant Group and Visa.

The hardest task will be to reform swift’s governance. 

Its board is packed with European banks, which was justifiable in the 1970s when they dominated cross-border finance, but now looks anachronistic. 

The board’s 25 seats include just two American firms and a single Chinese one. 

India and Brazil have none. America and Asia should be better represented, even as liberal democratic countries remain in control. 

When a house needs renovating a good place to start is the plumbing. 

The Inflation Catch-Up Game

As price increases accelerate, policymakers at leading central banks are slowly starting to move away from the narrative of “transitory” inflation that has already cost them the policy initiative. But the needed pivot is far from complete and not nearly quick enough, particularly at the US Federal Reserve.

Mohamed A. El-Erian

CAMBRIDGE – Inflation is now on the front page of newspapers around the world, and for good reason. 

Prices of more and more goods and services are increasing in a manner not seen for decades. 

This inflationary spike, accompanied by actual and feared supply shortages, is fueling both consumer and producer anxiety. 

By also threatening to worsen inequality and derail a much-needed sustained and inclusive economic recovery from the COVID-19 pandemic, it is also becoming a hot political issue.

For their part, policymakers at central banks in the United Kingdom and the United States have started to move away from the narrative of “transitory” inflation. 

(The cognitive transition at the European Central Bank is less pronounced, which makes sense, given that the inflation dynamics there are less pronounced.) 

But the pivot is far from complete and not nearly quick enough, particularly at the US Federal Reserve, the world’s most powerful and systemically important monetary institution. 

Delays in Congress approving measures to increase productivity and enhance labor-force participation are not helping, either.

The reasons for the rise in inflation are well known. 

Buoyant demand is encountering inadequate supply – a result of disrupted transportation and supply chains, labor shortages, and an energy squeeze.

While notable, this price surge does not herald a return to a 1970s scenario of double-digit inflation rates. 

Rigid cost-price indexing is rarer these days. 

Initial conditions regarding the formation of inflationary expectations are a lot less unstable. 

And central banks’ credibility is much higher, although it is currently facing its severest test in decades.

But inflation will nonetheless be much more pronounced than top Fed officials had thought when they repeatedly dismissed increasing price pressures as a temporary phenomenon. 

Even today, their inflation forecasts – despite having been revised up several times already – still underestimate what lies ahead.

Survey-based inflation expectations compiled by the New York Federal Reserve have risen above 4% on both a one- and three-year time horizon. 

Knock-on cost-push inflation tendencies are broadening. 

Quit rates among US workers are at record highs as employees feel more comfortable leaving their jobs to seek better-paying positions or strike a better work-life balance. 

There is more talk of labor strikes. 

And all of this is exacerbated by consumers and firms bringing forward future demand, mainly in response to concerns about product shortages and rising prices.

The current bout of inflation is part of a general structural change in the global macroeconomic paradigm. 

We have gone from a situation of deficient aggregate demand to one in which demand is fine overall. 

Notably, US retail sales increased by a higher-than-expected 13.9% year on year in September, indicating that there are still quite a few pockets of pent-up purchasing power being translated into effective demand.

Of course, this is not to say that there are no issues regarding the composition of demand that must be addressed. 

Inequality, not just of income and wealth but also of opportunity, remains an urgent concern.

Higher and more persistent inflation underscores such concerns, because its implications are multifaceted – economic, financial, institutional, political, and social. 

Those effects will prove increasingly uneven in their impact, hitting the poor especially hard. 

Globally, the fallout from the inflationary surge risks knocking some lower-income developing countries off a secular path of economic convergence.

All this makes it even more important for the Fed and Congress to act promptly to ensure that the current inflationary phase does not end up unnecessarily undermining economic growth, increasing inequality, and fueling financial instability. 

A marked reduction in monetary stimulus, still operating in hyper-emergency mode, is needed, notwithstanding the unlucky timing that governs the shift to the Fed’s new policy framework. 

And US lawmakers can assist by moving more forcefully on supply-enhancing initiatives, for both capital and labor, that fall squarely in their domain. 

That means passing measures to modernize infrastructure, boost productivity, and increase labor-force participation.

Policymakers should also strengthen prudential regulation and supervision of the financial sector, especially the non-bank system. 

And, given the greater pressures on corporate profit margins and the superior ability of large firms to navigate supply disruptions, they will need to keep a close eye on firm concentration.

It is good news that, after initially and persistently misreading US inflation dynamics, more Fed officials are now starting to come to grips with the situation. 

The Fed would be well advised to catch up even faster. 

Otherwise, it will end up in the midst of a blame game that will further erode policy credibility and undermine its political standing.

Mohamed A. El-Erian, President of Queens’ College, University of Cambridge, is a former chairman of US President Barack Obama’s Global Development Council. He was named one of Foreign Policy’s Top 100 Global Thinkers four years running. He is the author of two New York Times bestsellers, including most recently The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.