Crisis and Beyond: Shaping Asia's New Development Paradigm
Address by
Haruhiko Kuroda
President, Asian Development Bank
At the Opening of the 42nd Annual Meeting of the Board of the Governors
4 May 2009
Bali, Indonesia
I. Introduction
Excellencies, distinguished guests, ladies and gentlemen:
It is my great pleasure to join the Chair, the Honorable Sri Mulyani Indrawati, Minister of Finance of Indonesia, in welcoming you to the 42nd Annual Meeting of the Asian Development Bank. We are honored by the presence of His Excellency, Dr. H. Susilo Bambang Yudhoyono, President of Indonesia, at our meeting this morning.
I would like to extend our deepest appreciation to the Government of Indonesia for hosting our meeting in beautiful and historic Bali, and to the Balinese people for their warm and gracious hospitality. I am also pleased to welcome our many development partners, private sector participants, civil society, NGOs, and the media. And I thank all of you for joining us today.
As we meet today, two powerful and unfolding global issues threaten to set back our progress on poverty: the global economic crisis and the daunting challenge of climate change.
No country remains untouched by these phenomena. We need to recognize that our destiny is a shared destiny. We must pull together to survive; we must work together to thrive.
Despite the difficult global scenario, today marks a historic and momentous occasion for our region-and for our institution. The tripling of ADB's capital resource base, confirmed just days ago, is a resounding vote of confidence in this region's ability to overcome obstacles on the path to economic growth and poverty reduction. It will empower our strategies to address the development priorities of all borrowers-smaller as well as medium-sized to larger economies-in partnership with other development agencies and the private sector. And it will allow our response to the global financial and economic crisis to be swift and proactive, protecting Asia's poor and most vulnerable people.
For ADB, this increase is nothing short of transformative. It challenges us to be bolder, more innovative, and more responsive in our mission to reduce poverty and improve the lives of the poor. On behalf of all of us, I offer sincere thanks to our shareholders, and my personal commitment that we will rise to the challenge.
II. Responding to the Global Crisis
There is no doubt that the global downturn has hit Asian economies hard. Access to finance has tightened. And a sharp drop in export demand seriously affects the region's production networks, bringing factory closings, massive layoffs, disrupted supply chains, and reduced remittances.
As a result, growth in developing Asia and the Pacific is expected to plummet to 3.4% this year-the lowest since the Asian financial crisis and a significant drop from the record 9.5% growth in 2007.
Asian governments have acted quickly to shore up economies and protect their most vulnerable citizens. Fiscal stimulus is center stage, with a focus on infrastructure, small and medium-sized enterprises, rural economies, social safety nets, and tax reductions. Regionally, ASEAN+3 has moved to expand and multilateralize the Chiang Mai Initiative, and is working on a credit guarantee and investment mechanism to help strengthen financial stability.
ADB stands firmly behind these efforts. We have committed an additional $10 billion to supplement our assistance over 2009 and 2010 to member countries in need of extra support.
Up to $1 billion of this funding will support trade financing and is expected to generate up to $15 billion in much-needed trade assistance by the end of 2013. An expanded trade finance program is critical to fill the gaps left by a weak international financial sector to build public-private partnerships and to promote regional integration.
Subject to Board approval, we will also establish a fast-disbursing $3 billion Countercyclical Support Facility to meet urgent needs stemming from the crisis. The facility will support the expansion of domestic demand and production, strengthen social protection, and facilitate trade to protect against job losses in the region.
The poor and the vulnerable must remain our utmost concern. Under our current projections, 60 million more people in the region will remain trapped in poverty this year, to about 100 million next year-an alarming setback to our vision of an Asia and Pacific free of poverty. Had economic growth continued at precrisis levels, these individuals and families would have broken through the $1.25-a-day poverty line and begun to experience a better quality of life.
In low-income countries, we will increase our assistance to $3.4 billion this year by front-loading available Asian Development Fund (ADF) resources, including an additional $400 million from ADF liquidity. And we have initiated the Pacific crisis support program to provide integrated and comprehensive crisis assistance to small and fragile Pacific island economies.
During these difficult times, it is critical that governments maintain and increase public expenditure programs for financing education, health services, and public safety nets, especially for poor and vulnerable families. We cannot afford to lose the momentum in our efforts to achieve the Millennium Development Goals or to lose another generation to poor health and illiteracy.
III. Toward a New Development Paradigm
With strong national and regional efforts, and a mild recovery expected in the global economy next year, developing Asia and the Pacific should bounce back to about 6% growth in 2010.
These are positive signs. Therefore, this should not be a time of despair. Our region continues to grow, and will remain a touchstone of dynamism and hope, contributing substantially to global growth and poverty reduction.
While the challenges are huge, I believe the crisis is also an opportunity-an opportunity for our region and the world to fundamentally restructure our approach to development and bring about a more sustainable global balance; an opportunity for Asia to become not only a major source of goods and services but also a major destination.
Rebalancing Growth
With global imbalances now unwinding, Asia needs to adjust. The transfer of savings from one part of the world to another worked well when advanced economies could absorb production from developing economies. But the current state of the global economy suggests that era has passed. By rebalancing export-driven growth with a greater reliance on domestic demand and consumption, Asia can lead the way in charting a new, globally beneficial development course.
Asia's export-led growth has delivered enormous benefits and will continue to do so.
Protectionism-within the region or elsewhere-must be avoided at all costs. But let us also recognize that a stronger and more resilient regional economy, with multiple sources of growth, will also contribute to a stronger, more vibrant, and more resilient global economy.
To rebalance growth, developing Asian countries need to reinforce domestic demand and revitalize their domestic economies. They need to spend more on health, education, and social security to reduce household needs for precautionary savings. They need strategies to transfer more corporate savings to households to encourage greater consumer spending. And they also need the policies that promote small and medium-sized enterprises and service industries to better align domestic production with domestic demand. In designing our country-level operations, ADB will work closely with governments in the true spirit of partnership to find effective and concrete solutions.
Rebalancing also requires a stronger and more stable regional investment climate to channel savings into effective and efficient investment within the region. Over the past several years, ADB has worked with the Asian Bond Markets Initiative to enhance transparency, remove obstacles to investment, broaden the investor base, and improve related institutions.
To further strengthen the investment climate, Asia needs a seamless infrastructure, which includes physical assets and the enabling policies, regulations, and institutions. ADB's infrastructure investments last year totaled more than $5 billion in transport and energy alone. But with financing needs estimated at $750 billion a year, much more needs to be done. Our Asian Infrastructure Financing Initiative, unveiled last year, is a step in that direction. Later today, we will launch an important new book entitled Infrastructure for a Seamless Asia, focusing on major issues in regional infrastructure to the year 2020.
Greater exchange rate flexibility with the world's major currencies will ease the change in the region's production structure. In the current global economic environment, the exchange rates of economies with excess savings will tend to appreciate under more flexible management, encouraging greater consumption.
Concrete steps to promote regional trade will speed up the rebalancing process. A larger Asian market will allow for economies of scale, encourage greater specialization, and increase the scope for trade in finished goods. In these uncertain times, a push for more openness within the region will also keep the forces of protectionism at bay.
Ultimately, the correction of global imbalances requires a concerted global effort. All countries must take into account the spillover effects of their policies on the rest of the world. It is also important to create a financial architecture that gives developing countries a voice more commensurate with their share of world output and trade.
Climate Change: Investing in Low-Carbon Growth
As Asia assumes a larger role on the world stage, it must also assume its responsibility for other pressing global problems-like climate change. Simply put, we must ramp up our efforts to put the region on a path of low-carbon growth. At a time when investment is desperately needed to stimulate economies, we need to target those investments to clean energy to mitigate climate change.
This is not an option; it is an imperative. Access to energy is essential for growth, poverty alleviation, and achievement of the Millennium Development Goals. As developing Asia grows, its share of global carbon emissions could rise to more than 40% by 2030. Unless proactive steps are taken to make growth environmentally sustainable, the region will quickly become the main driver of climate change. Moreover, producing and using energy efficiently lowers costs for business and enhances economic competitiveness. Thus, it is not only the right thing to do; it is also the smart thing to do.
We cannot allow funding for climate change responses to be held captive to the economic downturn. Given the lifespan of energy infrastructure, our actions today will lock in the region's greenhouse gas emission patterns for the next several decades. Action is needed now-on both mitigation and adaptation-to ensure a safe and healthy world for future generations.
ADB has made climate change a top priority. Last year, we provided nearly $1.7 billion for projects with clean energy components, far exceeding our $1 billion target. Among others, our initiatives include wind power projects in the People's Republic of China and India, power transmission enhancement in Azerbaijan, green power development in Bhutan, and energy-efficient lighting for low-income households in the Philippines. With transport a major area of concern, we are supporting the improvement of energy-efficient mass transit systems in several Asian cities. And we support several initiatives that integrate forest protection and sustainable land use while capturing benefits from carbon sequestration. Several of our developing member countries have adopted national action plans on climate change, and we look forward to seeing more.
We also have a rapidly growing adaptation program to help our developing member countries cope with climate-related risks. Here in Indonesia, for instance, we are supporting a comprehensive, integrated water management program for the Citarum River Basin. Citarum is the most important river basin in the country-one on which over 20 million people depend for water supply and electricity. And it will be the first river basin in Indonesia with a comprehensive strategy for adapting to climate change.
Climate change also brings a higher risk of natural disasters. To supplement the Climate Change Fund established last year, we have created a $40 million Asia Pacific Disaster Response Fund. And we invite contributions from all our development partners.
The transfer of new, low-carbon technologies is a particular challenge in Asia, and we are committed to ease this process. We are actively pursuing the establishment of a low-carbon marketplace to bring together technology holders and users in our member countries to facilitate rapid technology diffusion.
There is much yet to do in the region. To deal with these complex issues, I am pleased to announce that I have established an advisory group of internationally recognized climate change experts to help us develop programs relevant to the region in the medium and long term.
But we must continue to stress that such a massive global challenge can only be addressed through a concerted, cooperative global effort. The clock is ticking and we must make every possible effort toward a successful conclusion to negotiations at Copenhagen in December of this year.
IV. ADB as an Effective Development Partner
Ladies and gentlemen, these are just a few of the challenges facing our region in the years ahead. With Strategy 2020, the replenished Asian Development Fund, a substantial capital increase and our ongoing commitment to institutional effectiveness, ADB is well positioned to play an expanded role in the region's future development. And we are committed to being fully accountable for the results of our efforts.
We have now adopted a new corporate results framework. And I am pleased to report that we have produced our first Development Effectiveness Review, which provides a baseline to measure future progress.
To be fully effective, we must also consciously and actively blend knowledge with financing. We will focus on developing, capturing, and sharing knowledge in all our work, ensuring that ADB serves an intermediary role for both financing and knowledge.
We have also taken several steps to further improve human resource management and have adopted a detailed, time-bound action plan. We have taken steps as well to further strengthen the effectiveness of our Independent Evaluation Department. In the coming months we will upgrade our risk management capacity. And we will further align our private sector operations with country partnership strategies, emphasizing development effectiveness as key to all our operations.
One critically important ongoing initiative is the review and update of ADB's social and environmental safeguard policies. We seek a broad consensus among our shareholders. And I take this opportunity to assure you that there will be no dilution of our standards protecting the environment and the people affected by ADB projects.
V. Concluding Remarks
Ladies and gentlemen:
Our annual meeting is an opportune time to reaffirm our collective commitment to the people we serve-the poor of Asia and the Pacific. The results of our efforts are clearly visible. They can be seen in Bangladesh, where ADB projects are drawing women more fully into the development process and bringing new opportunities to lift themselves out of poverty. They can be seen in Afghanistan, where mobile telephones are improving the quality of health care, as well as access to finance, education, and other critical services; in Papua New Guinea, where poor villagers are improving their prospects by protecting their marine resources; and here in Indonesia, as part of the Coral Triangle Initiative to protect reefs and fisheries against the grave threat of climate change.
There are countless success stories across developing Asia and the Pacific. Our region still faces many challenges and must work hard to address the stark inequalities and hardships facing the poor. Yet it continues to be a region of great hope and tremendous opportunity. With the full confidence and support of our shareholders, ADB will work hand in hand with all partners to help the region through these difficult times, and help build a more vibrant, prosperous, sustainable, and inclusive society for Asia and the Pacific, and the world at large.
Thank you.
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