MANILA, PHILIPPINES - While developing Asia must build a firewall against possible escalation of the global financial crisis, it must not veer from long-term structural reforms already underway to further its economic transformation, delegates at the Governors' Seminar at the 45th Annual Meeting of the Asian Development Bank (ADB) heard today.
"While authorities continue to strengthen macroeconomic resilience to shocks, we also need to reinvigorate focus on the region's long-term development goals," ADB President Haruhiko Kuroda said. "The ultimate challenge is to continue transforming economies in a way that promotes peoples' welfare and reduces poverty."
The region must update its growth model to accommodate a "new normal" - prolonged restructuring in advanced economies - and surmount obstacles to sustained and equitable growth in developing Asia, according to the How Can Asia Respond to Global Economic Crisis and Transformation report presented at the seminar.
Asia can weather a renewed financial crisis and weakened export demand from developed markets, but long-term prosperity hinges on relying more on domestic and regional markets as well as expanding ties with Latin America and Africa, the report says.
Currently, the national focus is on containing crisis risks from potential financial contagion and weaker trade. Regionally, there is need for a strong, effective and adequately resourced financial safety net to complement national and global financial arrangements, the report said.
This year could prove crucial. Financial tensions in Europe could escalate further. And there remains concern over the fledgling economic recovery in the United States.
The report urges policymakers to keep monetary policy flexible to respond to extreme exchange rate volatility and use fiscal stimulus to support domestic demand if needed.
The greatest challenge for policymakers is to manage these near-term issues while maintaining Asia's successful, ongoing economic transformation as a global growth engine. Specifically, growing inequality between rich and poor will eventually threaten the region's growth and stability, the report warns. To counter this, Asia must invest more in human development and social services to better equip its people to benefit from the opportunities of rapid growth. Key medium to long term measures to support this transformation include:
- Rebalancing growth toward domestic sources- consumption and investment;
- Strengthening finance, deepening markets, and fostering financial inclusion;
- Improving the business and investment climate;
- Preparing people for future jobs, upgrading industry, and environmentally sound urban planning;
- Boosting intra-regional trade and expanding "South-South" links;
- Deepening regional cooperation and integration.
The global crisis is a wake-up call for Asia. The region's policymakers not only have to boost Asia's resilience to external shocks in the near-term but also tackle the risks posed by ongoing global rebalancing and overall structural transformation. The report notes that although authorities in the region have begun addressing a number of these challenges, there is no room for complacency and more needs to be done.