"The Global Recession, ASEAN, and Aid for Trade:
An Opportunity for Recovery"
Speech by
Haruhiko Kuroda
President
Asian Development Bank
At the Regional Meeting on Aid for Trade for Asia and the Pacific
28 May 2009
Siem Reap, Cambodia
I. Introduction
Director-General Lamy, Honorable Ministers, distinguished guests, ladies and gentlemen:
I am honored to be here today in the shadow of Angkor Wat, a living symbol of Asia's long history of vibrant civilizations. We are at the center of a country that has reconnected globally, and is a fine example of how economic integration and regional cooperation can foster growth and prosperity. I would like to thank the Government of Cambodia for providing such a congenial setting for this important event. I would also like to thank Director-General Lamy and his team for co-hosting this conference, and the International Trade Center for organizing two panels for tomorrow's technical sessions.
The world of trade and finance has dramatically changed since Aid for Trade was first broached in December 2005; since our initial regional meeting on Aid for Trade in Asia and the Pacific at ADB Headquarters in September 2007; and since the first WTO Global Aid for Trade Review Meeting in November the same year.
As Director-General Lamy has been telling us, world trade is expected to contract by 9% in 2009, the first drop in over 25 years. While the spillover from the financial crisis has hit all of us hard, we must concentrate our efforts on both countering the downturn as best we can, and preparing to take advantage of the inevitable up-cycle to follow in its wake.
That is why this review meeting on the region's Aid for Trade Initiative is so timely. While battling the twin risks of rising protectionism and dwindling trade finance, we need to use the opportunity provided by fiscal stimulus to channel development spending where it does the most good. We need to keep the flow of goods and services moving within and across subregions, increase trade intraregionally, and build trade-related infrastructure and capacity to satisfy global demand when it returns.
This evening I would like to discuss some key elements needed to make Aid for Trade work for the region, and how ADB is supporting the initiative. But first, as we are meeting in an ASEAN country that has benefited much from open trade, let me take a few moments to review the effects of the global recession on ASEAN.
II. Global recession and ASEAN Trade
Clearly, ASEAN's real economies are suffering. Due to the region's high degree of openness, the synchronized slowdown has brought about a precipitous drop in ASEAN exports, seriously affecting growth prospects. The three economies with the largest percentage of merchandise exports to GDP-Singapore, Malaysia, and Thailand-are all expected to contract this year, recovering somewhat in 2010. Those that earn well from commodity exports are also being affected by the drop in commodity prices. Intraregional trade has also fallen dramatically, bringing factory closings, layoffs, supply chain disruptions, slower remittance inflows, and the threat of increased poverty. While credit conditions in ASEAN are not as tight as in North America or Europe, the costs of trade finance, for example, have increased with fewer funds available.
ADB is currently forecasting a deceleration in ASEAN's aggregate GDP growth to less than 1% this year, with a return to a growth rate of about 4% next year. Much of that recovery will depend on some resurgence in external demand from G3 economies, which many economists believe will begin in 2010.
From the perspective of trade, the relatively large fiscal stimulus packages being introduced around the region should also help enhance intraregional trade. Trade within developing Asia is a significant part of overall ASEAN trade-about 53%. As most economists now believe Asian economies will be the first to pull out of the global recession, trade within the region will be important, not just for reigniting growth, but also in rebalancing that growth toward greater domestic and regional demand.
This is not to say that the export-led growth model, which has done so well for ASEAN over the past 25 years, will diminish. What it implies is that the region's own demand through its supply chains and production networks will be ramped up. And this will continue to bolster the importance of intraregional trade as a percentage of total trade. It is actually part and parcel of strengthening developing Asia's approach to open regionalism.
III. The Importance of Aid for Trade
We need to acknowledge, however, that the two faces of Asia and the Pacific still remains a sordid reality. One reflects the advances made by newly-industrialized economies, and by China and India; where a tripling of their share of world exports since 1980 has helped raise both growth rates and living standards. The other face of Asia still lags behind. The region's 22 least-developed and small state economies, together, account for just 0.3% of world exports-a figure that has barely increased over the past quarter century. Underlying their poor performance is the high concentration of exports in a narrow range of commodities or services sensitive to even small changes in external conditions. We see this in the smaller ASEAN countries such as Cambodia and Lao PDR, and even in Viet Nam, for example, where we expect to see major declines in exports. Not surprisingly, sluggish exports translate into lower economic growth and an associated continued high incidence of poverty.
Increased development assistance for trade-led development is more relevant than ever to mitigate these effects on ASEAN economies, particularly the newer, smaller ASEAN economies. Aid for Trade is vital for future recovery and to prepare ASEAN economies for long-term development and structural change.
In the present global financial crisis, many countries have expressed concerns over protectionism. In order for Asia to significantly contribute to the world with its open regionalism and growth, each Asian country should refrain from taking protectionist measures. To counter these protectionist instincts, it would be good for ASEAN to reaffirm its commitment to free trade and regional economic cooperation.
IV. ADB's Role
As many of you know, ADB has been involved in trade-related activities through sub-regional cooperation programs for well over 20 years. We have been supporting Aid for Trade well before the term was coined. ADB has worked with ASEAN itself and has been a prime mover and constant partner with the Greater Mekong Subregion (GMS) Program since its inception in 1992. We also support various subregional groupings like BIMP-EAGA (the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area), among others. The success story of the GMS Trade and Transport Facilitation program, for example, and continuing development of East-West and North-South Economic Corridors is an important pointer towards the value of our contribution to sub-regional trade and investment.
The Aid for Trade initiative has become even more relevant in mitigating the negative impact of the current economic downturn. Developing countries, particularly least-developed countries and small states, need Aid for Trade not simply to weather the crisis, but more importantly, to prepare for longer-term development and structural adjustment.
As the region's development bank, ADB is a natural platform for helping mobilize and channel Aid-for-Trade funds effectively. And in times of crisis, expectations rise significantly. We are very heartened that, following the April meeting of the G20 in London, our general capital increase was swiftly approved, tripling our capital base. We also intend to frontload some ADF operations and will utilize $400 million from the ADF liquidity reserve, providing $3.4 billion in new resources to ADF countries in 2009. These will help us ramp up our assistance to $32 billion over 2009 and 2010 from the $22 billion during the 2007-2008 period, particularly to mitigate the most severe effects of the crisis. With this increased assistance, we are also expanding programs for trade finance, guarantees, private sector investment, and technical assistance. We will expand co-financing as well. Through these operations, we are prepared to help foster Aid for Trade as best we can.
This can be done initially in three ways:
The first is through infrastructure. Much of our national lending already involves trade-related infrastructure, and virtually all of our subregional and regional programs have trade components.
The second is by helping to coordinate the many players and facets of Aid for Trade as secretariat for the newly-created Regional Technical Group on Aid for Trade. I am pleased that Japan and Cambodia have agreed to co-chair the regional technical group as we continue to promote regional ownership of the Aid for Trade Initiative.
And third, as we work to deepen regional economic cooperation and integration, we will naturally pass on our cross-border experience and technical acumen throughout various policy dialogues. The region's success stories have much to pass on to those just beginning to show rapid economic expansion. Right here, within ASEAN, we are seeing this cooperation within the GMS program. Similarly, the Central Asia Regional Economic Cooperation, or CAREC, is showing well how multi-donor cooperation can ignite substantial positive development work, much of which involves Aid for Trade-related activities.
I would also like to mention two major studies we have recently published with significant relevance to Aid for Trade. First, at our recent Annual Meeting in Bali we launched Infrastructure for a Seamless Asia, which discusses how to develop regional infrastructure through fostering regional cooperation. We have also just launched Pan-Asian Integration: Linking East and South Asia which proposes better physical connectivity for the region and a free-trade agreement covering China, India, and their neighbors.
V. Conclusion
The review meeting this evening and tomorrow is critical for assessing recent trade-related developments and Aid for Trade flows, particularly to small states and our least developed partners. It will help identify future Aid for Trade programs, develop an integrated approach to operationalizing Aid for Trade; and importantly, provide a regional forum for discussing needs and priorities, and sharing good practices.
I am very much looking forward to your deliberations and recommendations, which I intend to transmit to the July Global Review meeting in Geneva.
Thank you very much.
Media Center 
Top of page
