HONG KONG, CHINA - Developing Asia should rebalance growth to endure the global crisis and boost its resilience to large external shocks in the long run.
The Asian Development Outlook 2009 (ADO 2009), released today, says that the ongoing global financial and economic crises have underlined the risks of growth that is excessively dependent on external demand.
The report recognizes that export-led growth has delivered enormous benefits for the region, and will continue to do so in the coming years. However, developing Asia's large and persistent current account surplus is an integral part of the global imbalances that underlie the current global financial crisis.
ADO 2009 acknowledges that the region may have been paying a heavy price for its share of the global imbalances. The price is associated not only with the costs of consuming too little but also with the costs arising from failure to use savings more productively within the region.
"Rebalancing growth is fundamentally in developing Asia's interest," says Asian Development Bank (ADB) Acting Chief Economist Jong-Wha Lee.
However, given the diversity of the nature and the underlying causes of their current account positions, the optimal policy mix for rebalancing will necessarily differ from country to country.
The report lays down a set of policies to build strong demand and use resources more efficiently:
- Strengthening domestic consumption requires policies which transfer more corporate savings to households, as well as policies which reduce the precautionary motive for savings among households.
- Governments should give priority to enhancing the investment climate rather than quantitative expansion of investment.
- A more active fiscal policy can mitigate weak external demand in the short run as well as lay the foundation for a more robust domestic demand beyond the short run.
- Supply-side policies which promote small- and medium-sized enterprises and services industries will increase the relative importance of production that caters to domestic demand.
- Policies pertaining to financial development and exchange rate will ease the adjustment of both supply and demand toward a more balanced structure.
"Undertaking the required reforms will facilitate developing Asia's return to its high growth path, and help protect the region from future external shocks," says Dr. Lee.
A concerted global effort is required to tackle global imbalances. Greater regional cooperation will help buffer the region against even large external shocks such as the current crisis.