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Asian Development Outlook 2006 Update : 1. Developing Asia and the world
Overview
 The year 2006 is set to be another good one for developing Asia and the Pacific. The regional economy is expected to grow by 7.7%, an upward revision of 0.5 percentage points from the Asian Development Outlook 2006 (ADO 2006) forecast in April. Growth is also expected to be robust in 2007, though some easing is likely as demand from industrial countries slows. This Update projects growth for 2007 of 7.1%, up marginally from the ADO 2006 forecast of 7.0% (Figure 1.1.1).
Revisions to developing Asia's growth for 2006 have been significantly influenced by the acceleration in the People's Republic of China (PRC), where booming investment and exports lifted growth in January-June this year to 10.9%. Estimates for growth in South Asia have also been raised, due to better than forecast growth in Bangladesh, India, and Pakistan. But the outlook for Southeast Asia has weakened marginally: downward revisions for Malaysia and Thailand outweigh upgrades for the Philippines and Singapore.
A key message of this Update is that to contain future threats to growth, developing Asia should adjust now while domestic and external conditions remain favorable. Delay may require more painful changes later on. The Update highlights three general areas: completing the adjustment to high oil prices, picking up the pace of fiscal consolidation, and stimulating investment. Coping more effectively with potential shocks is also likely to require a more flexible approach to exchange rate management.
Adjusting to high oil prices
Developing Asia's growth has proven remarkably resilient to high oil prices so far, cushioned by strong growth in export revenues and capital inflows. Tightening by monetary authorities has helped tame the risk that price increases may seep through to underlying inflation, as has falling oil intensity (i.e., the volume of oil required for each unit of GDP output), albeit from a high base (Figure 1.1.2). But in some countries, the passthrough of higher crude prices to consumers and producers is still far from complete (Box 1.1.1), due to a combination of subsidies to retail prices and offsets through lower taxes and duties. As the likelihood recedes of oil prices retreating significantly in the short run, governments-especially those with fragile fiscal and external payments positions-need to adjust. Fuel subsidies are costly in terms of possible alternative uses of scarce public resources, threaten macroeconomic stability, misallocate capital, and encourage energy waste. Where there are legitimate social protection concerns, they are better served through direct targeting of the poor rather than through subsidized consumption of energy.
Expediting fiscal consolidation
Yet fiscal challenges in developing Asia transcend the financing requirements of fuel subsidies. Despite notable progress in bringing deficits and debt down (as a proportion of GDP) in recent years, these indicators remain stubbornly high. The fiscal challenges are probably most prominent in South Asia, but many countries elsewhere face difficult tests (Figure 1.1.3). If developing Asia is going to expand and improve its physical and social infrastructure, invest adequately in workers' skills, and provide affordable security and care for the elderly and the needy, substantial further fiscal strengthening will be critical. While a broader tax base and improved collection will help buoy revenues, durable improvements will require rationalization and better management of spending. When growth ultimately slows, disciplined spending policies will be necessary to fend off fiscal risks.
1.1.1 Subsidization of retail fuel prices in Asia
Recent months have seen no letup in crude oil price hikes, as persistent geopolitical concerns have fueled speculative demand amid continuing supply constraints. Since the last week of July 2006, the price of Brent crude has remained at over $70 per barrel, peaking at $78.74 in mid-August. Futures prices indicate that such high levels will continue through the rest of the year and into 2007.
Across many parts of the world, retail fuel price increases have lagged behind those of crude oil. In developing Asia, many governments have adopted measures, either individually or in combination, to limit the pass-through of higher crude oil prices into retail prices, including subsidy provision for certain users or consumers, tax reduction on crude oil and petroleum products, and regulation of pump price increases. These schemes aim to ensure that the burden of rising crude oil prices is shared, albeit unequally, among the government, consumers, and petroleum companies.
Displaying average pump prices per liter in developing Asia over 1-7 August 2006, the box figure shows the impact of these measures. For comparison purposes, it also shows Brent crude oil prices (marked by red vertical lines, 49 US cents); retail fuel prices in the United States (US) (shown by green vertical lines, 80 US cents for diesel and 85 US cents for gasoline); and retail prices in Luxembourg as a proxy for the European Union (EU) (designated by yellow vertical lines, 124 US cents for diesel and 151 US cents for gasoline).
Pump prices in the US represent the average cost-covering retail prices including industry margin and taxation of approximately 10 US cents for the two road funds (federal and state). This fuel price, as it has no other specific fuel taxes, may be considered the international minimum benchmark for a market-determined, unsubsidized road transport policy. In lieu of an EU-wide average, retail fuel prices in Luxembourg are used as a standard, as they reflected the minimum standard (including taxation) required by the EU for the 10 new EU accession countries in 2004.
As indicated in Asian Development Outlook 2006, only the two economies of Hong Kong, China and the Republic of Korea price their fuels close to the yellow benchmark lines of Luxembourg. The majority of economies charge pump prices that more than cover crude costs, hovering around the US benchmark.
More economies (23) had diesel pump prices below the US benchmark than they did super gasoline (17). Six of the 23-Azerbaijan, Bangladesh, Kazakhstan, Malaysia, Turkmenistan, and Uzbekistan-had diesel retail prices that did not even cover crude oil costs. Two of the six (Azerbaijan and Turkmenistan) also had gasoline retail prices that did not cover crude oil costs. In early 2006, Bangladesh was covering crude costs in its diesel prices, but as its June price rise was limited to 10%, the implicit subsidy for diesel in effect increased. In contrast, Myanmar, which used to charge retail diesel prices lower than crude costs, has raised diesel pump prices enough not only to cover crude oil costs but also to exceed the green benchmark line.
While many Asian governments regulate retail fuel prices, only a few provide direct subsidies-People's Republic of China, Fiji Islands, Malaysia, Sri Lanka, Turkmenistan, and Viet Nam. Other governments offer implicit subsidies in various forms. In cases where publicly owned national oil companies have been constrained from raising retail prices to recover costs, some governments have assumed a portion of oil companies' losses or provided guarantees for their debt.
In Azerbaijan, the state oil company can deduct from its tax payments its collectibles from energy distribution companies. The Government of Bangladesh has provided sovereign guarantees against borrowings of the state-owned Bangladesh Petroleum Corporation and refinanced some of its bank debt to ensure continued petroleum supply in the country. In 2005, the Government of Nepal provided a one-time loan of NRs1 billion to the state-owned Nepal Oil Corporation to settle dues with the Indian Oil Corporation. In Indonesia, the Government compensates Pertamina for its underrecoveries.
Many governments have reduced import taxes and duties to compensate for rising crude oil and oil-product costs. Bangladesh, India, Nepal, Philippines, and Viet Nam have all reduced import duties either on crude oil, on oil products, or both. In July 2005, Bangladesh slashed duties on crude oil to 7.5% and on products to 15%, both from 25%. At the same time, the Government abolished the 15% supplementary duty on products. Nepal cut the duty on diesel by NRe1 per liter in February this year but raised that on gasoline by NRs4 per liter to compensate for the revenue loss. Viet Nam removed its 5% gasoline import tax in April, the Philippines in May trimmed import duties on petroleum products by 1 percentage point to 2%, and in June India lowered the customs duty on gasoline and diesel from 10% to 7.5%.
Taxes on domestic consumption have been lowered in some countries. The levy on gasoline imposed by the Pakistan Government has been reduced to PRs12.50 from PRs17.18 per liter, while those for diesel and kerosene have been scrapped. In Sri Lanka, the value-added tax on diesel was removed in August 2005. Sales taxes for diesel and gasoline were slightly reduced (by Rs0.22 and Rs0.66 per liter, respectively) in New Delhi, India on 16 June 2006. Malaysia, meanwhile, has frozen road toll charges, after raising them in 2005, and reduced road taxes to help consumers cope with rising petroleum product prices.
Most of the subsidies, whether direct or indirect, have generally been concentrated on diesel, kerosene, and cooking gas (LPG), as the poor are presumed to be heavy users of these fuels. But with the unrelenting hikes in oil prices, these subsidies are bound to put a fiscal strain on many of the Asian governments using them, and may squeeze budgets for social and development expenditures.
The problem is more acute for net oil importers, as they do not have oil revenues that can be recycled to finance the provision of subsidies. In Sri Lanka, for instance, subsidy payments reached SLRs26 billion (1.3% of GDP) in 2005, higher than actual expenditures for education of about SLRs20 billion. In addition, the Government there has accumulated SLRs7.2 billion in debt (up to May 2006) to a private fuel retailer for unpaid subsidies. For 2006, subsidy costs are estimated at 0.7% of GDP.
Similarly, as of June 2006, outstanding liabilities of Bangladesh Petroleum Corporation to nationalized commercial banks were Tk105 billion (2.4% of GDP), about the same amount as the Government's total budgeted social sector spending (on education, health, labor, social security, and culture) for the fiscal year. At current retail prices, the Government's annual implicit subsidy is estimated at 1.3% of GDP.
As long as retail prices do not fully reflect crude oil price hikes, considerable risks to the fiscal sustainability of various Asian governments remain.
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Stimulating investment
Even after adjustments for a high (pre1997 Asian financial crisis) base effect and a decline in the relative price of capital goods, a variety of indicators suggests that, outside the PRC and Viet Nam, real investment in East Asia and Southeast Asia has been depressed (Figure 1.1.4). And although investment rates have been climbing in South Asia, they need to rise much further if enough jobs are to be created for the millions of new workers who are entering the labor force, and for the millions more who are underemployed. Only the PRC has a problem of over rather than underinvestment. Elsewhere, greater investment spending would not only broaden the base for current growth, but is probably essential to sustaining growth into the future.
Easing the constraints on investment spending presents different challenges across different countries. In the majority, investor perceptions of governance and public sector performance are weak, and the business climate offers much scope for improvement. Given the poor starting point in many places, steady concrete steps, such as simplified and quicker business licensing and registration procedures, could have big payoffs.
Poor infrastructure, which is endemic in most countries of developing Asia, deters private investment. Prospective returns on private capital are obviously low or at risk if, for example, power outages hit frequently or poor roads make it difficult to get goods from the factory gate to ports. Given the difficulties in raising capital for longterm and risky infrastructure projects, the role of the public sector remains crucial, though private markets will also have to be tapped. Governments therefore have the difficult task of creating (or assuring) the necessary institutional, policy, and organizational conditions to attract the private sector into infrastructure.
Managing the exchange rate
Much attention stays focused on the issue of exchange rate management in developing Asia (Figure 1.1.5). But even before the yuan and the ringgit exited their US dollar pegs in July 2005, regional currencies were becoming more flexible. Although some currencies have seen a sizable appreciation against the US dollar, Asian currencies have generally become cheaper when measured in real terms against a wider basket (Figure 1.1.6). Greater flexibility in exchange rates would help economies increase resilience to shocks and would also allow national authorities to diversify sources of growth more widely.
Risks
The balance of risks to a generally benign outlook may be tipping down, but not precipitously so. Consolidation of Japan's recovery has allayed one concern, but other risks are increasing.
The scenario of greatest anxiety to developing Asia is one in which financial markets force a disruptive resolution of global imbalances. A sudden and sharp drop in demand for US dollar assets would push up longterm interest rates, possibly leading to a painful end to the US (and global) housing boom and sharp corrections in expenditure growth. Box 1.1.2 shows the anatomy of global imbalances and their evolution over the period 1990-2005 and surveys views about their possible significance and implications.
Another worry is that rising inflation rates in both the US and the euro zone are appearing just as evidence is gathering of slower demand growth (see the section, Prospects for the world economy in 2006 and 2007, below). This increases the chances that policy errors could inadvertently weaken growth or tolerate an unwelcome inflationary buildup; or that speculative activity could amplify market volatility. This could foreshadow more difficult conditions for developing Asia in international capital markets.
As a net oil importer and a comparatively energyinefficient region, developing Asia remains vulnerable to the risks stemming from further rises in oil prices. This vulnerability would be magnified if global inflation accelerated and if growth in demand slowed. In such an event, the task of monetary policy would be doubly difficult as increases in policy rates (to prevent rising fuel prices from becoming embedded in inflationary expectations) could further tax growth. The dangers are most pronounced for those countries that have yet to fully pass through earlier price increases and for those with a weak external payments position.
Although burgeoning intraregional trade integration brings benefits, it also concentrates some risks. Tighter trade links would leave many countries exposed if growth in the PRC were to slow. A notable feature of closer integration has been a redirection in export shares from other markets to that country. Many of these exports are in the form of intermediate goods that are processed and assembled in the PRC, before being exported to final markets in industrial countries. But domestic demand in the PRC has also been growing rapidly and helping tighten trade links. Consequently, if the PRC brakes too hard in its efforts to cool growth, or phenomenal investment growth continues unabated and eventually leads to a supply glut that causes growth to stumble, the tremors would reverberate across other countries of East Asia and Southeast Asia.
Avian flu presents another source of uncertainty, and one with potentially severe consequences. Indonesia has now reported its 46th human death, among over 140 fatalities worldwide. The major economic impacts of the virus have so far been confined to poultry farmers whose large flocks have been slaughtered and rural households that have seen their small flocks destroyed.
Clearly, the likelihood and potential costs of a human pandemic cannot be predicted with any certainty, although if the virus mutates and becomes a human influenza it will take a heavy human toll (see ADO 2006, p. 16). The severe acute respiratory syndrome (SARS) outbreak in 2003 caused a major, albeit shortterm, economic shock in affected countries. The economic impact of avian flu would also likely be sharp but not long lasting, and would depend on a range of factors, including a country's economic structure and effectiveness of its contingency plans to ensure continuity of essential public, business, and financial services. On this count, some countries are better prepared than others, and those whose health and other public services are already under stress could face acute difficulties. A pandemic could also seriously undermine fiscal balances where these are already frail.
A retreat from multilateralism, as bilateral and regional free trade agreements (FTAs) seek to fill the void left by the failure of the Doha negotiations, may also blemish prospects, but further out. Margins of preference that are negotiated within FTAs-and that are not extended on a mostfavorednation basis to other third parties-may divert trade away from competitive Asian producers. The complex web of rules and exclusions that characterize FTAs raise trade costs, and are another source of concern. Smaller countries with limited commercial and political muscle are the most at risk, as larger "trading hubs" press for deals that favor their interests. (The outlook for the multilateral trading system is discussed in Suspension of Doha talks and emerging trade issues, later in Part 1.)
Finally, international terrorism poses a potential threat to globalization. The costs of intelligencegathering, security, and insurance are already escalating. If tensions rise to a point where security concerns constrict trade, travel, and international business, they could stymie opportunities for poorer countries seeking to integrate into global markets.
After Doha: Where now for Asia's trade?
This Update takes up several themes that may have implications over the longer term. The Doha Round of World Trade Organization (WTO) negotiations has been suspended indefinitely and prospects for a restart appear dim. But the countries of developing Asia can do a number of positive things on their own.
First, since the largest benefits from liberalization accrue to those economies that lower barriers to their own markets, governments should go it alone and liberalize on a unilateral basis, lowering tariffs and other barriers, including those that are "behind the border," such as licensing requirements. Second, the benefits of trade facilitation measures are potentially large and open to all countries, and investments in streamlining customs procedures or improving port infrastructure, for example, help move goods to market more quickly and at less cost. Third, within existing regional and bilateral agreements, frictions to trade can be lowered by paring back exemptions and expanding coverage-not just in manufactures but also in agriculture and services-and by simplifying and rationalizing crisscrossing and often incompatible rules of origin that are both costly to administer and to comply with.
1.1.2 Global imbalances: Consensus or dissonance?
Recent trends
The box figure shows current account balances as a percentage of global GDP for selected countries of the world, or country groupings, for 1990-2005. The tendency for divergence over time between consolidated surpluses and deficits is clear.
The bottom half of the figure illustrates escalating deficits and borrowing by the United States (US) as a share of global GDP. Since 1990, in one year only has the US not been in deficit. On the other side of the international payments ledger, as shown in the top half, Japan has consistently been a net saver and in surplus, but its surpluses have been broadly stable as a share of global income. For the other industrial countries, the picture is more complicated. As a group (outside Japan) these countries have typically been in surplus, but the surpluses have risen and fallen as a share of global GDP. (The overall balance also masks significant deficits in some industrial countries that are not shown in the figure, such as Australia, Spain, and the United Kingdom.)
At an aggregate level, the current account position for developing Asia-i.e., the People's Republic of China (PRC) and rest of developing Asia, together-is punctuated by the financial crisis of 1997-98. Before that, the region was in deficit, but then it swung sharply into surplus as demand reeled from the impact of financial dislocation and sharp currency depreciations.
But this general picture does not fit all countries. Even prior to 1997, the PRC was in surplus. These surpluses have since risen as net exports have helped propel upward the PRC's share of global income. Other regional economies, such as Singapore and Taipei,China, have also consistently enjoyed external payments surpluses. In contrast, South Asia has generally been in deficit, but had external surpluses in 1997 and in 2001-2003, moving back into deficit in 2004. Central Asia has also generally been in deficit, but high oil prices moved it into surplus in 2005.
The traditional large oil-producing countries of the world (most of which are included in the rest of the world category) have seen a steep growth of their surpluses as oil prices have climbed. In 2003-2005, the increase in their surpluses equaled about half of the widening in the US current account deficit.
Contrasting assessments
What is unsustainable must stop. External payments divergence is clearly unsustainable. Deficits that grow more quickly than income imply that debtor countries must eventually borrow just to cover their interest obligations. At some point, therefore, divergence must stop and is likely to reverse. Having said this, there is considerable uncertainty as to how and when corrections will take place and how painful they might be.
How might it stop? The consensus view highlights the risk of asset markets forcing an abrupt and painful correction. This scenario envisages a sudden drop in demand for US dollar assets leading to a sharp dollar depreciation, acting as a flashpoint for a steep rise in long-term US dollar interest rates and a sharp slowdown in the US economy (Roubini and Setser 2004 and 2005, Setser 2006, Bergsten and Williamson 2004). This would have powerful knock-on effects on the global economy, including developing Asia. To head off this risk, many have pointed to the need for coordinated policies to rebalance and transfer global demand. These would allow the US to increase its saving and move resources into the production of traded goods and out of the nontraded goods sector. To sustain global demand, surplus countries would at the same time need to stimulate domestic absorption and shift resources into the nontraded sector. Some estimates suggest that to facilitate such adjustments, the US dollar would need to depreciate by about 30% (e.g., Obstfeld and Rogoff 2005).
Can savings flow uphill? The "Bretton Woods 2" regime of Dooley et al. (2004), in which payments imbalances result from developing Asia's bent for export-led growth, and the US's need for cheap financing of its savings shortfall, suggests that imbalances may be sustained for some time. It is not clear, though, how stable this "regime" actually is as it seems to presume a level of tacit cooperation among the players that strains credibility.
Caballero et al. (2006) develop a model in which institutional asymmetries and divergent economic performance across global regions generate permanent payments imbalances. In their model, weak economic performance in one region (the European Union) and difficulties in establishing secure financial claims against real investments in another (mainly the Asian crisis countries and the PRC) cause these two regions to course part of their savings to an economy where institutions are robust and economic performance is strong (the US). Savings flow from poor (and poorly performing) countries to rich (and strongly performing) ones, drive down interest rates globally, raise consumption in the strong economy, and create sustained current account imbalances.
Does smart money help? It is a matter of record that the US earns more on its foreign assets than it pays on its foreign liabilities. This superior investment performance is akin to the concept of "privilege." Meissner and Taylor (2006) point out that privilege, or its absence, can critically affect the ability of countries to sustain external borrowing, and so influences the dynamics of their net foreign asset position. If total returns on assets (including capital gains) are greater than on liabilities, larger current account deficits can be sustained over a longer period. Even small amounts of privilege can make a big difference to sustainable payments deficits and eventual net asset positions. Meissner and Taylor's careful analysis points to the conclusion that privilege on asset yields (yield privilege) and capital gains have helped sustain the US current account deficit in recent decades. However, looking ahead, they caution that yield privilege is waning, probably as a consequence of growing competition from other financial centers. Also, as the exact source of historical capital gains on the US net asset position is poorly understood, they argue that it would be reckless to bank on such gains continuing to finance future deficits.
Are the data to be trusted? A related but distinct argument is that the US current account position is incorrectly measured. By adjusting for "unmeasured exports," Hausmann and Sturzennegger (2005) arrive at the conclusion that the US net asset position is positive and has been stable for the past three decades. But not all are persuaded by this argument. Buiter (2006), for example, contends that Hausmann and Sturzennegger's correction for these enriching but unmeasured exports (so-called dark matter) is greatly exaggerated.
What do we really know? The empirical record raises some intriguing questions and poses puzzles about payments imbalances. Backus et al. (2006) argue that, over different time periods, countries' current account deficits have shown no consistent tendency to cause subsequent currency depreciations (nor surpluses to cause appreciations consistently). They point out that exchange rate dynamics are insufficiently well understood to support the prediction that the US deficit will inevitably lead to a US dollar depreciation.
Meissner and Taylor (2006), looking at an earlier epoch of globalization (between 1880 and 1913), conclude that current account deficits then were often persistent and were generally associated with mild exchange rate changes and benign domestic adjustments. Today, such smooth adjustments might seem improbable with greater scope for contagion and capital market spillovers, but market sentiment is still as likely to be tightly linked to fundamentals as it was 100 years ago. Strong fundamentals, as reflected in robust and efficient institutions and fast productivity growth, are precisely what continue to attract capital to the US, according to Backus et al. (2006). Although these advantages may not last, they conclude that there is little cause for panic now.
Policy responses
Payments imbalances present a source of significant uncertainty about the outlook at a global level and for developing Asia. But many policy measures that make good sense anyway would help developing Asia brace against a downdraft, if it arrives. Strengthening both the efficiency and safety of domestic financial systems, bringing down public debt, and enhancing productivity, including through the opening of markets, should remain priorities. In many countries, a rebalancing of growth toward domestic demand would help improve overall efficiency and diversify sources of growth.
Steps toward greater exchange rate flexibility and the prudent opening of the capital account, for example by allowing greater freedom for entities to invest in overseas assets, would also help spread risks. For developing Asia's oil-surplus economies, the windfall gains from high prices need to be managed prudently to provide some cushion against the possibility of more blustery conditions ahead.
Finally, it is apparent that growing interdependence in the global economy and developing Asia's rapidly expanding economic mass mean that the region has to play a more active part, through international financial institutions and other mechanisms, in forging coordinated policy responses to problems and shocks that are global in scope.
References
Backus, David, Espen Henricksen, Frederic Lambert, and Chris Telmer. 2006. "Current Account Fact and Fiction." National Bureau of Economic Research (NBER) Working Paper (WP). New York University. Available: http://pages.stern.nyu.edu/~dbackus/CA/BHLT%20latest.pdf*.
Bergsten, Fred and John Williamson (eds.). 2004. "Dollar Adjustment: How Far? Against What?" Special Report 17. International Institute for Economics, Washington, DC.
Buiter, Willem Hendrik. 2006. "Dark Matter or Cold Fusion?" Goldman Sachs Global Economics Paper No. 136. New York. January, pp. 1-16.
Caballero, Ricardo, Emmanuel Farhi, and Pierre Olivier Gourinchas. 2006. "An Equilibrium Model of 'Global Imbalances' and Low Interest Rates." NBER WP No. 11996. Cambridge, Mass. Available: http://www.nber.org/papers/w11996.pdf*.
Dooley, Michael, David Folkerts-Landau, and Peter Garber. 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management of Interest Rates and Exchange Rates in Center Countries." NBER WP No. 10332. Cambridge, Mass. Available: http://papers.nber.org/papers/w10332.pdf*.
Hausmann, Ricardo, and Federico Sturzennegger. 2005. "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" WP, Center for International Development, Harvard University, Cambridge, Mass. Available: http://www.cid.harvard.edu/cidpublications/darkmatter_051130.pdf*.
Meissner, Christopher and Alan Taylor. 2006. "Losing our Marbles in the New Century? The Great Rebalancing in Historical Perspective." Federal Reserve Bank of Boston Conference, Chatham, Massachusetts. June. Available: http://www.bos.frb.org/economic/conf/conf51/presentations/meissner_taylor.pdf*.
Miller, Marcus and Lei Zhang. 2006. "Capital Flows, Interest Rates and Precautionary Behaviour: A Model of Global Imbalances." University of Warwick, UK. Available: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/miller/esrcproffellows/pub/gi.pdf*.
Obstfeld, Maurice and Kenneth Rogoff. 2004. "The Unsustainable US Current Account Position Revisited." NBER WP No. 10869. Cambridge, Mass. Available: http://www.frbsf.org/economics/conferences/0502/Obstfeld.pdf*.
Roubini, Nouriel and Brad Setser. 2004. "The US as a Net Debtor: The Sustainability of the US External Imbalances." Stern School of Business, New York University. Available: http://pages.stern.nyu.edu/~nroubini/papers/Roubini-Setser-US-External-Imbalances.pdf*.
---. 2005. "Will the Bretton Woods 2 Regime Unravel Soon? The Risk of a Hard Landing in 2005-2006." Paper presented in the Symposium on the Revived Bretton Woods System: A New Paradigm for Asian Development? Federal Reserve Bank of San Francisco and UC Berkeley, San Francisco, 4 February. Available: http://www.frbsf.org/economics/conferences/0502/Roubini.pdf*.
Setser, Brad. 2006. "Bretton Woods 2: Is It Sustainable?" Paper presented at "Global Imbalances and Risk Management: Has the center become the periphery?" Madrid, May. |
The future for commodity prices
Part 3 of this Update, Developing Asia's imprint on global commodity markets, examines developing Asia's rising influence in world commodity markets. Vigorous growth in the region has contributed to the fast runup in prices of energy, minerals, and soft commodities seen since 2001, and developing Asia's demand is set to increase further. Part 3 describes recent trends in world commodity markets and sets them in a longer historical perspective. It also looks ahead and asks what the implications of continued fast growth in developing Asia, particularly in the PRC and India, might be for commodity prices over the next decade. It finds that commodity prices are likely to come off the high levels of 2006, but are unlikely to revert to the low levels seen at the turn of the millennium. In fact, changing fundamentals, including fast growth in developing Asia, are driving the real prices of energy, minerals, and some agricultural products above their longterm trend.
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