Address by Sadakazu Tanigaki on 'The Asia and Pacific Region in the Coming Decade - Challenges in the Region, Japan?s Commitments and Tasks for ADB'
H. E. Sadakazu Tanigaki,
Minister of Finance of Japan
Governor for Japan, Asian Development Bank
1. Introduction
President Chino, Distinguished Members of the Board, Ladies and Gentlemen: It is a great honor for me to speak about Asia and the Pacific and the Asian Development Bank at the bank's headquarters here in
Before starting my talk, I would like to express my deepest condolences to the bereaved families of the many who were tragically killed by the earthquake and tsunami in the Indian Ocean two weeks ago.
As for disaster relief, I fully endorse the declaration by Heads of the State in
Japan will provide assistance to the maximum extent possible in three ways: financial resources, human resources, and knowledge and expertise. Japan has pledged, for the time being, to extend up to US$ 500 million of grant money as emergency assistance to cope with the damage. Furthermore, Japan will call on other countries to jointly apply moratorium on public debt services for a certain period of time, when any disaster-stricken country so wishes. Japan dispatched specialists to devastated areas to provide medical assistance. In order to prevent the repetition of the tsunami disaster, Japan will make vigorous efforts to expeditiously establish a Tsunami early-warning mechanism for the Indian Ocean countries.
The G7 Finance Ministers have already agreed that the ADB should make the strongest efforts possible to provide financial assistance with other multilateral institutions. Japan will also assist in reconstruction and rehabilitation works of affected countries in every possible way. In this regard, I would like to announce that Japan has decided to provide an additional US$ 20 million through the Japanese trust funds at the ADB for supporting relief measures in devastated areas. I also communicated the same decision to the World Bank. Proactive and timely use of Japanese trust funds in the ADB should be encouraged to prompt the ADB's operations. In addition, the Japan Bank for International Cooperation has already started working with the ADB and the World Bank.
Today, I would like to talk about four megatrends that surround us, four challenges the region faces, four commitments Japan makes to the region, and four tasks the ADB must take up.
When Tadao Chino assumed the presidency of the ADB in 1999, he designated poverty reduction as the ADB's overarching goal and the ADB has committed itself to reform under his strong leadership. I would like to commend the ADB for its contribution to the region's development by responding to the various needs of the borrowing member countries. During this period, the Asian economy has recovered from the currency crisis of 1997 and has continued to record strong growth. The high growth enjoyed in East Asia, particularly in China, has now been witnessed in South Asia as well. Moreover, economic interdependence in the region has rapidly deepened.
2. Four Megatrends
While congratulating the ADB for these achievements, I would like to point out four megatrends that surround us.
First, the vortex of globalization which has forced the region's policymakers to think about how to sequence policies and institutional reforms in trade and capital transactions;
Second, the expansion of regional cooperation to strengthen linkages among the economies of the region, thereby enhancing the synergistic effects of the merits of scale and highlighting the diversity in the region's economy;
Third, the issue of urbanization and the various problems caused by the massive migration to urban areas, while striving to achieve balanced growth between city and rural areas and preserve the environment; and
Fourth, the demographic challenge of aging societies, which requires each government to take early policy actions to address the rising pressure on social security expenditures.
3. Four Challenges Faced by the Asia-Pacific Region
Even amid these megatrends, the Asia-Pacific region is expected to be the heart of global development throughout the twenty-first century, if we overcome the following four challenges.
Poverty Alleviation
The first challenge is poverty alleviation. Income poverty has been reduced in the region as poverty incidence has declined from 32% in 1990 to 22% in 2000. The Asia-Pacific is thus likely to satisfy the income-related Millennium Development Goals, or MDGs, for the region as a whole. However, the region still has about 700 million poor people which are the largest number in the world. Disparities in income have become a serious issue in several countries. In addition, non-income-related MDGs, such as reducing the child mortality rate and ensuring universal primary education, are unlikely to be achieved at the current pace of progress. To tackle these issues, it is important to maintain sustainable economic growth and adopt an inclusive approach to extending its benefits to the poor.
Infrastructure Development
The second challenge is infrastructure development. Although many Asia-Pacific countries have attained remarkable economic progress, many of them still lag behind in private-sector development. Infrastructure to support vigorous private-sector activity is the foundation of sustainable growth. Furthermore, poverty reduction cannot be achieved without this sustainable growth. The mid-term estimate for infrastructure demand in the region is US$250 billion per year according to the ADB. To secure sustainable funding for infrastructure investment while maintaining sound fiscal policy, it is absolutely essential that we attract private-sector funding in addition to that from the public sector. We must consider how to secure an appropriate fiscal space for high-return investment and how to attract the private sector to invest in infrastructure.
Human Resource Development
The third challenge is human resource development. Asia's high work ethic and the high priority placed on education have played an important role in the prosperity of the region. This is reflected in the fact that the East Asia and Pacific region almost satisfies the MDG to ensure all children are able to complete a full course of primary schooling. On the other hand, there are still many children in the region who do not have the opportunity to receive education due to poverty or gender discrimination. It is also essential to strengthen secondary and tertiary education to keep up with globalization.
Enhancing Governance
The last, but not least, challenge is to enhance governance. Economic development requires that the people trust the government and that effective and consistent policies are implemented. Public trust is necessary for the judicial system to function optimally as well. To build up public trust, it is equally important that corruption is combated and disciplined policies and adequate institutions are established. Good governance is the key for inclusive development and for successfully dealing with globalization.
I would also like to add that political and social stability is a prerequisite for tackling these challenges. There unfortunately remain quite a few post-conflict countries and politically or socially unstable spots in the region. I believe that a positive cycle should be created, where sustainable economic growth leads to political and social stability which in turn creates new dimensions of economic growth.
4. Japan and the Asia-Pacific: Japan's Four Commitments
Next, I would like to turn to the Japanese economy and its relationship with the Asia-Pacific region. Japan makes four commitments in this respect.
Further Strides in Structural Reform
First, Japan commits to making further strides in structural reform at home. As a member of the region, Japan must address the challenges it faces domestically, especially through fiscal and structural reforms. Japan has made every effort to overcome its prolonged deflation and to revitalize its economy by implementing financial-system, regulatory, expenditure, and tax reforms. These efforts are gradually paying off. Economic recovery led by domestic private demand is continuing. Japan views the current recovery as a good opportunity to make further strides in structural reforms, including the reform of government expenditures and the tax system, to ensure sustained growth in the future. I hope our accelerated structural reforms and the resulting recovery will contribute to economic growth in Asia overall. I also hope it will offer useful lessons for other countries in the region about how to cope with such challenges as reducing non-performing loans and revitalizing the manufacturing sector.
Prevention of Financial Crisis
Second, Japan is committed to preventing the recurrence of a financial crisis in Asia. The relationship between Japan and East Asia has become closer and closer in recent years, and the stability of the Asian economy is becoming more important for Japan. Under these circumstances, Japan has been actively promoting monetary and financial cooperation in East Asia. For instance, a network of bilateral swap arrangements has been established under the Chiang Mai Initiative, or CMI-a regional arrangement under which the ASEAN+3 countries provide foreign currency to a country in a currency crisis by swapping with its local currency. The working groups have been thoroughly reviewing the CMI to enhance its effectiveness based on an agreement reached by the ASEAN+3 Finance Ministers last May.
Mobilization of Long-term Funds
Japan's third commitment is to mobilize long-term funds in the region. The Asian Bond Market Initiative, or ABMI, is designed to eliminate mismatches of currency and maturity in regional financing and to utilize the domestic savings in Asian countries for regional investment. Concrete outcomes already have been achieved, such as the issuance of ringgit-denominated bonds by the ADB in Malaysia last November, and the issuance of baht-denominated bonds with a partial credit guarantee by the Japan Bank for International Cooperation and Nippon Export and Investment Insurance in Thailand in the second quarter of last year. The Korean Primary Collateralized Bond Obligation, the so-called Pan-Asian Bond, was also formulated with a guarantee by the JBIC last December.
Another important element in this aspect is to optimize the benefit of tax treaties in order to attract more foreign direct investment. Japan is ready to revise its income tax treaties with regional member countries.
Promotion of Economic Partnership Agreements
Japan's fourth commitment is to promote economic partnership agreements, or EPAs, which are comprehensive agreements which cover far more elements than free trade agreements. Japan has strengthened bilateral relations with Singapore by concluding an EPA with the nation, and has reached an agreement on key matters for a future EPA with the Philippines. Full-fledged EPA negotiations are currently underway with Korea, Malaysia, and Thailand, and negotiations with ASEAN as a whole will start this April. Moreover, Japan has agreed with Indonesia to establish a joint study group with a view to commencing EPA negotiations.
By fulfilling these four commitments, namely, making further strides in structural reform, preventing financial crisis, mobilizing long-term funds, and promoting EPAs, Japan shall act together and advance together with the countries of the Asia-Pacific.
5. Four Tasks of the Asian Development Bank
Now, I would like to touch upon the tasks of the ADB.
As President Chino has mentioned on several occasions, Asia was the poorest region in the world before the establishment of the ADB. The average per capita GNP in 1964 in developing Asia was only US$90, less than the average in Africa, which was $150 at the time. Forty years later, the Asian region has today developed to a high level. Some extremists even argue that the ADB has completed its mandate. I would like to emphasize, however, that many challenges still remain, as I pointed out at the outset, and we need the ADB to continue to implement its mandate. I look forward to the ADB, as the sole international financial institution based in Asia, playing a pivotal role in supporting developing member countries, or DMCs. In this regard, the ADB must tackle following four tasks.
Attention to the Voices of the Region
First, the ADB must pay attention to the voices of the region. The most fundamental and important role of the ADB is to diagnose the individual situations of the DMCs as the region's "home doctor," based on the mutual trust developed with the DMCs' governments. Based on the diagnosis, the ADB can then formulate appropriate strategies and offer proper policy advice for individual DMCs' needs. The ADB is also required to respond to these nations' needs in a more flexible and timely manner and to formulate more analytical and focused country strategies. To achieve this task, the ADB needs to strengthen its policy dialogue with DMC governments.
Clear Prioritization of Operations
Second, the ADB must clearly prioritize its operations. I would like to reiterate that sustainable growth is essential for poverty reduction in low-income countries. I understand that the ADB has consistently and strategically supported infrastructure development for sustainable growth. Given the successful economic outcomes of the region, the ADB should continue this strategy, giving it a high priority among its activities.
As I mentioned before, to link these positive outcomes to poverty reduction, it is indispensable that the ADB adopts an inclusive policy in its assistance and places priority on governance.
I hope these policy priorities are effectively implemented through the ADF-IX.
Another priority should be to deliver more effective support to middle-income countries. In particular, by utilizing ordinary capital resources, the ADB should strengthen private-sector operations and designate them as priorities in country strategies and programs.
Leadership in Regional Cooperation
Third, the ADB must demonstrate leadership in regional cooperation. The interdependency of trade, investment, and finance within the region has increased substantially. Promoting regional cooperation is a unique mandate of the ADB as a regional development bank. International financial institutions like the ADB are well positioned to handle cross-border issues which cannot be solved by one country alone. The ADB is currently supporting cross-border cooperation initiatives in the Greater Mekong Subregion, or GMS, as well as in South Asia and Central Asia. These initiatives have been making significant contributions to the region. I congratulate the ADB on its recent contribution to the implementation of the GMS Cross-Border Trade Agreement which was signed by the six Ministers of the GMS on December 16 last year.
In addition to cross-border projects, it is important for the ADB to contribute to the knowledge dimension of regional cooperation. The ADB has been playing an important role in the Asian Bond Market Initiative and in policy dialogue regarding regional issues and the economic situation in individual countries by providing information via its Regional Economic Monitoring Units. Such contributions should be commended. Looking ahead, the ADB should boost such support to the region by strengthening its knowledge base.
Aid Effectiveness
Fourth, the ADB must enhance its aid effectiveness. For this, the ADB's culture must be made more results-oriented, and each individual staff member must deliver better outcomes. In this context, it is crucial to firmly implement a new human resource strategy. Another important element in raising the efficiency and effectiveness of the aid community as a whole is to enhance coordination among donors. Countries borrowing from the ADB are also nations to which Japan extends assistance. To improve aid effectiveness, the ADB and Japan need to enhance coordination of their assistance efforts. A good example appeared last month in Cambodia where Japan pledged a yen loan for the telecommunications sector to enhance the ADB's reform strategy that was focused on this sector. I hope to continue to develop our cooperative relationship in this way.
Japan will strongly support the ADB's efforts in tackling these tasks. Japan committed to contribute 35% of total resources of ADF-IX despite a tight budget situation. Japanese trust funds will enhance the ADB's strategic focus. Japan will intensify efforts to enhance synergy between Japanese bilateral assistance and the ADB's operation.
6. Conclusion
I would like to conclude by expressing my sincere appreciation to President Chino. Mr. Chino has demonstrated excellent leadership in formulating the ADB's Poverty Reduction Strategy and Long-Term Strategic Framework. He also has vigorously pursued the comprehensive reform of the ADB in terms of its operations and organizational structure. His efforts have strengthened the effectiveness of the ADB's assistance to DMCs. I would like to express my great respect and gratitude to him, once again, for his contribution.
The eighth president, Mr. Haruhiko Kuroda, will assume office next month. Japan hopes that the ADB will play an even more prominent role in poverty reduction under its new president. Japan pledges its continuing support to the ADB and its activities.
In this context, Japan hopes to invite the ADB to hold its Fortieth Annual Meeting in
Thank you very much.
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