Transcript Rebalancing for Sustainable Growth

A Joint Conference of ADBI and RIS on
Sustainable Growth and
Enhancing Integration in Asia
Masahiro Kawai
Dean and CEO
Asian Development Bank Institute
New Delhi
15 September 2010
Kawai - Rebalancing for Sustainable Growth
Outline
1. The Challenges for Asia
2. Asian Growth and the Global
Imbalance
3. Crisis Impacts
4. Balanced and Sustainable Growth
5. An Agenda for Rebalancing for
Sustainable Growth
6. The Path to Sustainable Growth
Kawai - Rebalancing for Sustainable Growth
1. 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?
Kawai - Rebalancing for Sustainable Growth
2. Asian Growth and the
Global Imbalance
• The global payments
imbalance
• The imbalance and the crisis:
A causal link?
Kawai - Rebalancing for Sustainable Growth
(i) Global current account imbalance
2.5
2.0
1.5
United States
Japan
1.0
Russia
0.5
PRC
Middle East
0.0
Other emerging Asia
-0.5
Other industrial countries
Rest of the world
-1.0
-1.5
Note: (1) Data for 2009 and beyond are IMF projections
(2) Unlike the original IMF data, other emerging Asia includes Asian NIEs
Source: IMF, World Economic Outlook database
20
10
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
-2.0
Kawai - Rebalancing for Sustainable Growth
(ii) The imbalance and the crisis:
A causal link?
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 risk
Regulatory 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 longterm interest rate too low
Kawai - Rebalancing for Sustainable Growth
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)
Kawai - Rebalancing for Sustainable Growth
3. 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
Kawai - Rebalancing for Sustainable Growth
Asian exports plunged, then rebounded
Export Growth in East Asia (in %)
60
40
20
0
-20
-40
-60
Jan- Apr- Jul06
06 06
PRC
Oct- Jan- Apr- Jul06
07
07 07
Oct- Jan- Apr- Jul07
08
08 08
Japan
Oct- Jan- Apr- Jul08
09
09 09
NIEs
Oct- Jan- Apr09
10
10
ASEAN 5
Source: CEIC database
Kawai - Rebalancing for Sustainable Growth
Asian real GDP growth pattern similar
Real GDP Growth in East Asia (in %)
20
15
10
5
0
-5
PRC
Source: CEIC database
Japan
NIEs
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
-10
ASEAN 5
Kawai - Rebalancing for Sustainable Growth
4. Balanced and Sustainable
Growth
• 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
Kawai - Rebalancing for Sustainable Growth
(i) Demand side policy
Stimulating 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)
Kawai - Rebalancing for Sustainable Growth
(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
Kawai - Rebalancing for Sustainable Growth
5. An Agenda for
Rebalancing for Sustainable
Growth
• Improving macroeconomic
stability
• Rebalancing production
• Enhancing social protection
• Deepening the financial sector
• Forging regional cooperation
Kawai - Rebalancing for Sustainable Growth
Improving macroeconomic stability
Objectives
Policy measures
• Improve the
effectiveness of
macroeconomic
policies
• Promote
macroeconomic
stability
• Facilitate global
rebalancing
• 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
Kawai - Rebalancing for Sustainable Growth
Rebalancing production
Objectives
Policy measures
• 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
• 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
Kawai - Rebalancing for Sustainable Growth
Enhancing social protection
Objectives
Policy measures
• Strengthen social
protection programs and
provide support to the
vulnerable
• Improve targeting of
social protection
programs
• Ensure sustainability and
adequacy of social
benefits
• 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
Kawai - Rebalancing for Sustainable Growth
Social protection expenditure as % of GDP
Japan
Marshall Islands
Uzbekistan
Kyrgyz Republic
Mongolia
Korea
Tuvalu
Nauru
Sri Lanka
Bangladesh
Azerbaijan
ASIA
PRC
Kazakhstan
Armenia
Viet Nam
India
Malaysia
Cook Islands
Fiji Islands
Nepal
Philippines
Indonesia
Pakistan
Maldives
Cambodia
Bhutan
Tonga
Lao PDR
Vanuatu
Tajikistan
Papua New Guinea
16.0%
13.5%
11.1%
11.0%
9.8%
7.5%
6.9%
6.5%
5.7%
5.3%
5.3%
4.8%
4.6%
4.6%
4.5%
4.1%
4.0%
3.9%
3.6%
2.9%
2.3%
2.2%
1.9%
1.6%
1.5%
1.4%
1.4%
1.3%
1.3%
1.1%
1.0%
0.3%
Source: ADB, Social Protection Index for Committed Poverty Reduction,
Volume 2: Asia, 2008
Kawai - Rebalancing for Sustainable Growth
Deepening the financial system
Objectives
Policy measures
• 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
• 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
Kawai - Rebalancing for Sustainable Growth
Forging regional cooperation
Objectives
Policy measures
• 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
• 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
Kawai - Rebalancing for Sustainable Growth
6. The Path to Sustainable
Growth
• 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
Kawai - Rebalancing for Sustainable Growth
Thank you
For more information:
Dr. Masahiro Kawai
Dean& CEO
Asian Development Bank Institute
[email protected]
+81 3 3593 5527
www.adbi.org
Kawai - Rebalancing for Sustainable Growth