Kawai - Rebalancing for Sustainable Growth A Joint Conference of ADBI and RIS on Sustainable Growth...

Kawai - Rebalancing for Sustainable Growth

A Joint Conference of ADBI and RIS onA Joint Conference of ADBI and RIS on

Sustainable Growth and Sustainable Growth and Enhancing Integration in AsiaEnhancing Integration in Asia

Masahiro KawaiMasahiro KawaiDean and CEO

Asian Development Bank Institute

New Delhi15 September 2010


OutlineOutline

1.1. The Challenges for AsiaThe Challenges for Asia

2.2. Asian Growth and the Global Asian Growth and the Global ImbalanceImbalance

3.3. Crisis ImpactsCrisis Impacts

4.4. Balanced and Sustainable GrowthBalanced and Sustainable Growth

5.5. An Agenda for Rebalancing for An Agenda for Rebalancing for Sustainable GrowthSustainable Growth

6.6. The Path to Sustainable GrowthThe Path to Sustainable Growth


1. The Challenges for Asia1. The Challenges for Asia• Despite many improvements, Asia was still

vulnerable to the global financial crisis• The pre-crisis global imbalance may have

contributed to the global financial crisis• US and European demand for Asian export

products is likely to remain subdued• Asia needs to rely more on domestic and

regional demand for growth• What policies are effective in reducing a

large global payments imbalance?• How can Asia’s growth be made more

balanced, inclusive and sustainable?


2. Asian Growth and the 2. Asian Growth and the Global ImbalanceGlobal Imbalance

• The global payments imbalance

• The imbalance and the crisis: A causal link?


(i) Global current account imbalance(i) Global current account imbalance

Note: (1) Data for 2009 and beyond are IMF projections (2) Unlike the original IMF data, other emerging Asia includes Asian NIEsSource: IMF, World Economic Outlook database

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

United States

Japan

Russia

PRC

Middle East

Other emerging Asia

Other industrial countries

Rest of the world


(ii) The imbalance and the crisis:(ii) The imbalance and the crisis:A causal link?A causal link?

Three major causes of the crisis:Three major causes of the crisis:Macro policy mistakes in crisis economies (US,

Europe)• Failure of monetary policy, to contain a buildup of

domestic financial vulnerabilities and systemic riskRegulatory failures in crisis economies• Flaws in financial regulation and supervision• Weak global financial architecture

* IMF, “Initial Lessons of the Crisis for the Global Architecture and the IMF” (February 2009).

Global payments imbalance• The arguments by Greenspan (“conundrum”) and

Bernanke (“savings glut”) suggested that East Asia supplied ample liquidity to the US and kept the US long-term interest rate too low


The importance of the third cause is less:• The current account deficit was concentrated

in the US while there were many surplus countries

• The financial crisis was concentrated in the US and Europe

• Not all countries had housing bubbles or crises (eg, Australia and Canada managed well)


3. Crisis Impacts3. Crisis Impacts• Export collapse due to the excessive

dependence on the US and European markets for exports, particularly in Japan, Asian NIEs, and export dependent middle-income ASEAN countries (like Malaysia and Thailand)

• Some notable financial contagion, particularly in Korea, which almost had a currency crisis

• Loss of business and consumer confidence• GDP contraction or slowdown• But quick reaction with countercyclical fiscal

and monetary policy


Asian exports plunged, then reboundedAsian exports plunged, then reboundedExport Growth in East Asia (in %)

Source: CEIC database

-60

-40

-20

0

20

40

60

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

PRC Japan NIEs ASEAN 5


Asian real GDP growth pattern similarAsian real GDP growth pattern similar

Real GDP Growth in East Asia (in %)

Source: CEIC database

-10

-5

0

5

10

15

20

Mar

-05

Jun-

05

Sep-

05

Dec-

05

Mar

-06

Jun-

06

Sep-

06

Dec-

06

Mar

-07

Jun-

07

Sep-

07

Dec-

07

Mar

-08

Jun-

08

Sep-

08

Dec-

08

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

PRC Japan NIEs ASEAN 5


4. Balanced and Sustainable 4. Balanced and Sustainable GrowthGrowth

• Balanced growth that reduces large current account surpluses through less dependence on exports to advanced economies

• Inclusive growth that reaches all segments of society, expands access to opportunities, and also contributes to poverty reduction

• Environmentally sustainable growth that is consistent with long-term environmental and resource constraints, including climate change


(i) Demand side policy(i) Demand side policyStimulating household consumption• Raising the level of household income

- Redistribution of retained earnings (or corporate savings) towards households- Rural sector development to raise farmers’ income

• Raising the propensity to consume (time preference)- Redistribution of income towards low-income households whose propensity to consume is high- Strronger social sector protection to provide greater security thereby stimulating propensity to consume

Promoting corporate & infrastructure investment• Improvement of investment climate• Infrastructure investment with public sector support

(enhancing physical connectivity)


(ii) Supply side policy(ii) Supply side policy• Deregulation of the nontradables sector (health

care, education, social services) as well as business supporting services (with IT) to promote productivity growth

• Reduction of domestic distortions in factor markets (energy, resources, labor, land, credit, etc) particularly in China

• Free trade and investment agreements• Improvement of financial systems for better

financial intermediation• Promotion of the green industry (energy efficiency,

clean energy, environment)• Support of SME development & investment• Investment in human resource development and

knowledge


5. An Agenda for 5. An Agenda for Rebalancing for Sustainable Rebalancing for Sustainable

GrowthGrowth

• Improving macroeconomic stability

• Rebalancing production • Enhancing social protection• Deepening the financial sector • Forging regional cooperation


Improving macroeconomic stabilityImproving macroeconomic stability Objectives• Improve the

effectiveness of macroeconomic policies

• Promote macroeconomic stability

• Facilitate global rebalancing

Policy measures• Secure sufficient policy

space; strengthen coordination of monetary & macroprudential policies to achieve both price & financial stability; and enhance automatic stabilizers

• Exit from easy monetary and fiscal policy when recovery takes hold; accept currency appreciation in response to persistent capital inflows

• Use regional cooperation to provide liquidity in the event of a crisis


Rebalancing productionRebalancing production Objectives• Enhance human capital

investment, technological innovation, and productivity

• Promote the service sector and green growth

• Liberalize trade and investment globally and regionally

• Improve cross-border infrastructure connectivity

Policy measures• Provide workers with high

quality education and marketable skills and invest in R&D

• Remove obstacles to investment, entry, and businesses; and promote energy efficiency and environmental protection

• Support the World Trade Organization Doha round and regional FTAs

• Invest in regional infrastructure


Enhancing social protectionEnhancing social protection

Objectives• Strengthen social

protection programs and provide support to the vulnerable

• Improve targeting of social protection programs

• Ensure sustainability and adequacy of social benefits

Policy measures• Design cost-effective

social protection programs and reform pension systems

• In low-income countries, focus on extreme poverty, basic health, and nutrition

• Provide capacity building to improve governance and administrative efficiency


Social protection expenditure as % of GDPSocial protection expenditure as % of GDP

0.3%1.0%1.1%1.3%1.3%1.4%1.4%1.5%1.6%1.9%2.2%2.3%

2.9%3.6%3.9%4.0%4.1%4.5%4.6%4.6%4.8%

5.3%5.3%5.7%

6.5%6.9%

7.5%9.8%

11.0%11.1%

13.5%16.0%

Papua New GuineaTajikistan

VanuatuLao PDR

TongaBhutan

CambodiaMaldivesPakistan

IndonesiaPhilippines

NepalFiji Islands

Cook IslandsMalaysia

IndiaViet NamArmenia

KazakhstanPRCASIA

AzerbaijanBangladesh

Sri LankaNauruTuvaluKorea

MongoliaKyrgyz Republic

UzbekistanMarshall Islands

Japan

Source: ADB, Social Protection Index for Committed Poverty Reduction, Volume 2: Asia, 2008


Deepening the Deepening the ffinancial inancial ssystemystem

Objectives• Broaden and deepen

financial markets while maintaining financial stability

• Increase the ability to prevent and manage financial crises

• Improve efficiency of regional financial intermediation

• Enhance financing for SMEs

Policy measures• Create effective frameworks

for financial regulation and supervision, including adoption of macroprudential supervision and resolution regimes

• Promote local-currency bond markets; and improve market infrastructure

• Develop credit databases; and raise accounting standards and services


Forging Forging rregional egional ccooperationooperationObjectives• Strengthen regional

liquidity provision, surveillance and macroeconomic policy cooperation

• Integrate regional markets

• Initiate exchange rate policy coordination

• Contribute to reform of global economic and financial architecture

Policy measures• Strengthen the Chiang Mai

Initiative Multilateralization & the ASEAN+3 Macroeconomic Research Office, leading to the creation of an Asian Monetary Fund; establish an Asian Financial Stability Dialogue

• Implement a region-wide FTA, including services and investment

• Create an Asian currency unit to facilitate policy dialogue and bond market development

• Increase Asian voice on global economic & financial institutions


6. The Path to Sustainable 6. The Path to Sustainable GrowthGrowth

• In the longer run, East Asia needs to develop a new growth paradigm:- A shift away from external (US&EU)-demand driven growth to domestic and regional demand led growth- A greater focus on inclusive growth (equity, access to opportunities) - A greater focus on environmentally sustainable growth: a shift from a high- to low-carbon economy

• This requires structural reforms in both the supply and demand sides of the economy- National level measures- Regional cooperation and integration- Asian contribution to reform of global economic and financial architecture


Thank youThank youFor more information:For more information:

Dr. Masahiro Kawai Dean& CEO

Asian Development Bank [email protected] +81 3 3593 5527

www.adbi.org

Kawai - Rebalancing for Sustainable Growth A Joint Conference of ADBI and RIS on Sustainable Growth...

Documents

Transcript of Kawai - Rebalancing for Sustainable Growth A Joint Conference of ADBI and RIS on Sustainable Growth...