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"From Crisis to Opportunity: A Time for Decisions"

Opening Remarks by
Haruhiko Kuroda
President
Asian Development Bank

At the High-Level Meeting on the Impact Of The Global Economic Slowdown On Poverty And Sustainable Development In Asia And The Pacific

28 September 2009
Ha Noi, Viet Nam

I.  Introduction

Excellencies, Distinguished Guests, Ladies and Gentlemen;

I would like to thank and congratulate His Excellency Nguyen Sinh Hung, Standing Deputy Prime Minister, and the Government of Viet Nam, for hosting this important conference. I would also like to extend my appreciation to the other conference sponsors – the State Council Leading Group Office of Poverty Alleviation and Development of the People's Republic of China (PRC), and the ASEAN Secretariat. In addition, I wish to recognize many bilateral and multilateral development agencies that have collaborated in the organization of this event.

The English dictionary defines "crisis" as a time of intense difficulty or danger. And this is certainly a time of intense difficulty for Asian countries. However, the Chinese character for crisis refers not only to danger, but also to opportunity. This is what I would like to focus on in my brief remarks: how the global economic and financial crisis can be used as an opportunity to make Asia's future growth more inclusive and sustainable.

II.  Evidence of a crisis

Over the past two years, the world has witnessed multiple crises – soaring food costs, the rising price of oil, and, finally, the economic and financial crisis. These developments have produced significant and unprecedented economic and social consequences.

• World trade – important to so many Asian countries – plunged dramatically, contracting by more than at any time since the 1930s.
• In just two years, the number of people suffering from chronic hunger in South Asia has increased by about 100 million.
• The crisis has caused up to 41 million workers to lose their jobs in the PRC.¹
• The crisis will keep more than 60 million people in developing Asia trapped in absolute poverty this year, and nearly 100 million more in 2010. These people would have been freed from the shackles of poverty had economic growth continued at pre-crisis levels.

III.  Evidence of recovery?

Fortunately, some signs of worldwide economic stabilization are beginning to emerge. It appears that the global economy has turned a corner thanks to unprecedented stimulus measures. Economic activity is picking up, with leading indicators broadly confirming the recovery in progress. In the US, ISM manufacturing index climbed to 53 in August, suggesting the industry is in positive expansion for the first time in 19 months. Housing market has been stabilizing and consumer confidence is up. Reflecting such optimism, stocks surged, with S&P 500 hovering over the 1000 mark--more than 50% up from its March low. Many of region's stock prices have also increased rapidly this year.

ADB's Asian Development Outlook Update 2009, released just last week, concludes that developing Asia is leading the recovery from the global downturn. Average growth in the region is now expected to come in at 3.9% in 2009 - compared to the 3.4% that we forecasted in March of this year. We presently foresee a stronger regional growth rate of 6.4% for 2010. For the PRC, we expect its economy to expand by more than 8% this year, and India's by 6%. Here in Viet Nam, we now forecast growth of 4.7% for 2009, and 6.5% for 2010.

Economic recovery in Asia is underpinned by prompt fiscal and monetary stimulus responses, relatively healthy financial systems prior to the crisis, and a rapid turnaround in larger economies.

However, the regional outlook remains uncertain. In particular, a protracted global slowdown will delay the region's full recovery. It is unlikely that the region can revert to its long-term growth potential without the support of a firm global rebound.

In the longer term, the key challenge for developing Asia will be to enhance its resilience to external shocks. It can do so through policies aimed at broadening the scope and structure of the region's openness and strengthening national systems that support human development. Practical steps include fostering intra-regional trade, managing financial globalization, maximizing the benefits of labor mobility, and investing more in education, health, and social protection.

IV.  Turning Crisis into Opportunity

This crisis should also be seen as an opportunity to take proactive measures that lay the groundwork for inclusive and sustainable development over the long-term. Governments can use counter-cyclical stimulus packages not only to reinvigorate the economy, but also to put in place measures that promote more robust growth and reduce vulnerability. Crises such as this one provide the chance to initiate structural reforms for social development.

For example, the PRC is expanding basic health insurance for poor people. With a reduced likelihood that illness will lower incomes, poor people will have less need for large "precautionary savings." They are then likely to increase consumption, or save and invest more productively. Either response will benefit the Chinese economy and contribute to its rebalancing from investment-led economy to consumption-led economy.

The health care insurance reform not only generates positive macroeconomic impacts, but also protects people against catastrophic health expenditures, thereby reducing poverty directly. A study of eleven Asian countries showed that 78 million people fell below the poverty line as a result of paying out-of-pocket for health care expenses.²

In recent years, Indonesia has reduced general fuel subsidies and, in July 2007, rolled out a conditional cash transfer program providing targeted payments to very poor families. Beneficiaries receive cash payments if they adhere to certain health and education requirements, such as immunizing children and ensuring their attendance at school. The program is expected to reach approximately 6.5 million chronically poor families, and could serve as the basis of a future social security system.

Lower income countries have particular challenges in addressing the social needs of their populations. In Mongolia, the government is working to reduce its fiscal gap to limit social sector expenditure cuts in 2009 and 2010. Policy measures are being planned to improve the long-term sustainability of social spending through better targeting and rationalization of budgets dedicated to health, education, and social welfare.

While governments are central to the quality and sustainability of inclusive economic growth, development partners can be very helpful. For our part, ADB is among the institutions providing financing and technical advice to Mongolia in its reform efforts. More generally, we have launched a countercyclical support fund to assist our developing member countries in meeting their financing needs during the crisis.

We also continue to support our developing member countries in ways that play to our comparative advantages and core business areas, such as infrastructure, trade facilitation, education, financial reform, and regional public goods - all supplemented by advice, analysis and knowledge sharing.

V.  Conclusion

Ladies and gentlemen, I noted at the outset that the Chinese character for "crisis" also means "opportunity." We may also consider that the origin of the word "crisis" is derived from the Greek word krinein [pronounced “kri-nee-in”] which means "to decide."

The current crisis provides an opportunity to decide on actions that put the region's countries on more sure footing. Let us seize this chance to lay the groundwork for more inclusive, sustainable growth.

Thank you.