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Asia: The Unfinished Agenda
Address by Haruhiko Kuroda, ADB President, New Law School Building Foyer, University of Sydney, Australia
Distinguished guests, ladies and gentlemen:
On behalf of the Asian Development Bank, I wish to express my appreciation to our hosts—the University of Sydney, and in particular the Vice Chancellor Dr. Michael Spence and the Deputy Vice Chancellor Professor John Hearn,—for the gracious hospitality and fine preparations for this event. It is with great pleasure that I take this opportunity to share with you some thoughts about our dynamic region, and its "unfinished agenda". Allow me first to give you a broad overview of Asia's economic record and prospects, and then discuss the challenges and required actions moving forward.
II. Progress in Asia and the Pacific
Asia has been the fastest growing region of the world for several decades. The speed and extent of Asia's economic and social progress has been inspiring. Consider, for example, Japan's transformation, a feat followed by the Republic of Korea; Taipei,China; Hong Kong, China; and Singapore. Malaysia and Thailand, once among the poorest, have solidly established themselves as upper-middle income countries. And now two of the region's largest countries, the People's Republic of China (PRC) and India, are now advancing at an impressive pace as major global economic powers. Indonesia and Viet Nam are also growing rapidly, although Viet Nam has recently encountered some macroeconomic difficulties. The rest of Asia, and perhaps the rest of the world, now aspires to emulate these success stories.
Today, Asia1 accounts for more than a quarter of global output. In developing Asia, per capita incomes grew at around 9 percent annually over the last decade, reaching nearly $5,000 in purchasing power parity terms in 2010 – up from about $2,000 in 2000. Investment rates reached record highs, averaging 35 percent of GDP over the past decade. The average annual growth of exports in the region was 11.4 percent between 2001 to 2010. Net inflows of private capital averaged $83 billion a year. External debt fell to 14.5 percent of GDP, and foreign exchange reserves of $3.5 trillion were accumulated. These are truly remarkable achievements.
Developing Asia's growth has also shown significant resilience despite the slowdown in advanced economies. Recent available data shows that PRC's strong growth continued despite tightening monetary policies, with the economy expanding by 9.5% in the second quarter of this year. In the newly industrialized economies of Hong Kong, China; Republic of Korea; Singapore; and Taipei,China, growth has eased somewhat in the first quarter of 2011 but economic expansion is expected to return to more sustainable long-term levels. Growth in the ASEAN economies is likewise moderating but is expected to return to the average pre-crisis rates. Monetary policy tightening in some economies, which is intended to curb inflationary pressures, may lead to a slight downward revision to the region's forecasts. Nevertheless, robust growth in excess of 7% is expected in the region this year and the next2.
The dividends of economic growth have led to a significant decline in income poverty in the Asia and Pacific region. By some estimates, Asian countries reduced the number of people living on less than $1.25 a day by 513 million between 1990 and 2005 and contributed significantly to global poverty reduction. Collectively, Asia is well on track to slashing by half the proportion of people living in extreme poverty, although progress is uneven across countries.
A recent study commissioned by ADB entitled "Asia 2050" predicts that if Asia's growth momentum is sustained, the region could account for over 50 percent of global output, trade, and investment by 2050. By doing so, Asia would regain the dominant global economic position it held some 250 years ago, before the Industrial Revolution. Some have called this possibility the "Asian Century".
How does this matter to Australia?
You may ask yourselves, how does this matter for Australia? My response is simple. There is no doubt that Australia has been an important partner contributing to Asia's growth. In turn, Australia has benefited from its trade and investment links with Asia.
It was formerly said that, "when the US sneezes, Australia catches cold." Indeed, in the 1990s, the Australian and US GDP growth rates moved together very closely. In recent years, however, Australia's growth has become increasingly more correlated with that of China in particular and Asia, in general closely moving with PRC's in particular. Clearly, what happens in the Australian economy is now more affected by what happens in Asia.
Strong growth in Asia will mean continued strong demand for Australian resources. Asia now accounts for over 75% of Australia's exports and around half of Australia's imports. Australia's four most important export destinations are PRC, Japan, India, and the Republic of Korea. From 2005 to 2010, the value of Australia's exports to Asia grew by an average of over 15 percent per year. PRC overtook Japan to become Australia's largest trading partner in 2009. Growth in the value of Australia's exports of goods and services to PRC from 2005 to 2010 averaged over 27% per year, driven largely by exports of coal and iron ore.
Australia has received dramatically higher prices for its non-agricultural commodity exports since the early 2000s. These higher prices have been driven by increased global demand for energy and metals, particularly from Asia. Higher mineral resource export prices, combined with reduced import prices (especially of imports from low-cost producing countries in Asia) have improved Australia's terms of trade and led to an increase in Australia's national income and living standards.
The growth of a large middle class in Asia will also have a major impact on the Australian economy. As Asia's population becomes wealthier, the demand for Australia's services such as tourism and education may also increase. One prominent study3 estimated that the number of middle class consumers in Asia could increase by more than 1.2 billion by 2020. If this comes to pass, Asia would have more middle class consumers by the end of this decade than the rest of the world combined, with PRC surpassing the US as the world's single largest middle class market. By 2030, with India following PRC's lead, the world could be widely middle class, with two-thirds of the world's middle class consumers living in the Asia and Pacific region. Reflecting increasing ties with Asia, Asian investment in Australia is also growing strongly.
III. Asia's Unfinished Agenda
What I have told you about Asia's success and growing role at the global stage is only half the story. Let me now turn to the second part of my presentation – Asia's unfinished agenda.
Despite its remarkable progress, the Asia and Pacific region remains home to the majority of the world's poor. Moreover, in many areas, the region's progress in meeting the Millennium Development Goals (MDGs) is far too slow. Almost two billion people live without basic sanitation and nearly half a billion without safe drinking water. Infant mortality in some countries in Asia is more than 10 times higher than that in developed countries; and rising food prices are putting severe pressures on Asia's poor.
What does this tell us? While high economic growth is desirable, the task is not complete. Further efforts must be made to make the regionss growth more inclusive. This means ensuring that the benefits from high economic growth are distributed more broadly, and that people have equal access to opportunities and basic social services. ADB's assistance for transport, energy, water, and other infrastructure, and basic public services such as health care and education, help to widen the circle of opportunity so that all members of society can participate in and benefit from economic growth. To this end, we also promote financial inclusion and food security in the region.
Rising disparities within and across countries are another major source of concern, and could potentially destabilize the region and halt its growth momentum. One ADB study4 found that 14 out of 20 developing Asian economies experienced increasing Gini coefficients in recent years. Inequality in access to basic social services also persists, aggravating income inequality among Asian people. Income disparities among Asian countries are also increasing.
The region's environment also faces daunting threats. Developing Asia's rapid growth has come, in significant part, at the expense of the physical environment. Deforestation, land degradation, and water and air pollution are the "shadows" of this growth. They degrade living conditions even as incomes increase. With further economic growth, how we deal with the challenges it poses remains a key to economic resilience. There are many challenges in Asia and around the world, we are already witnessing rising sea levels, higher temperatures, extreme weather, and other climate changes, creating a chain of events that affects our lives and will hit the poor the hardest. A recent ADB study5 focusing on Southeast Asia estimates that if nothing is done, the total cost of climate change for Indonesia, the Philippines, Thailand, and Viet Nam could reach as high as 6.7 percent of their combined GDP each year by 2100. For Asia, as for all the countries in the world, policies for growth must therefore be designed in consideration of environmental sustainability. Asia's poorest, including women and children, remain the most vulnerable.
The challenges I outlined today are not exhaustive. But they can impact one another and multiply existing tensions, or even create new pressure points that threaten growth.
We must now prevent rising inequities and the risks that these pose, from hampering Asia's future progress. We must now dedicate ourselves to the task ahead to ensure that Asia not only continues to grow, but that growth is socially inclusive and environmentally sustainable.
IV. The Tasks Ahead
As a key partner in Asia's development, the Asian Development Bank has been a part of Asia's growth story. The official development assistance it has provided has played an important role in Asia's transformation, providing critical support for growth and poverty reduction. But given the major development challenges still facing the region, our task is far from over. Assistance will continue to be essential to ensure that the region can complete its transformation equitably and sustainably. ADB's concessional window, the Asian Development Fund or ADF, is a critical source of financing for the poorest and neediest countries in Asia.
Australia has been an important partner of ADB in this respect6. As a founding member, Australia has established a solid basis for cooperation with ADB, rooted in shared interests and a shared vision. In addition to being the fifth-largest shareholder and third-largest contributor to the ADF, Australia is active in helping ADB implement policies, programs, and projects, and provides technical advice to our developing member countries.
Australia's cofinancing partnership with ADB started with simple project financing in the Pacific. It has since flourished into a close partnership at multiple levels and in different regions, including major development programs in Southeast Asia and growing activities in South Asia.
In Southeast Asia, Australia has provided strong financial support and development expertise for ADB projects in the Greater Mekong Subregion. This has facilitated cheaper and faster border crossings by improving border management and transit procedures and physical transport infrastructure, especially road networks, bridges, and railways. Elsewhere in Southeast Asia, Australia is providing significant support to help Indonesia reform its primary education system.
In the Pacific, new and more flexible cooperation models between Australia and ADB are emerging. These include "umbrella arrangements" like the Pacific Region Infrastructure Facility and regional technical assistance programs like the Pacific Private Sector Development Initiative. Quick and efficient, such arrangements could serve as models for other donors to fully engage in cofinancing partnerships.
In South Asia, Australia has signaled its intent to expand development assistance through, for example, support for Bangladeshi education reforms and the recent Australia-ADB South Asia Development Partnership Facility.
Australia also channels considerable support to several ADB-administered trust funds, which provide an important mechanism for pooling resources in crucial development areas such as clean energy, gender and development, and water financing.
Together Australia and ADB aim to have a strong, effective, and transparent partnership to help Asia and the Pacific reduce poverty and work toward the Millennium Development Goals.
V. Closing Remarks
I began my presentation by highlighting the rising economic importance of Asia. Let me emphasize again that Asia's growth has brought significant benefits for the region, including Australia. ADB and Australia are part of Asia's success story, but we also acknowledge its unfinished agenda – the vast majority of the world's poor still live in Asia. The region is now at an important crossroads, and many challenges remain.
As Asia's regional bank, ADB shares the responsibilities of promoting a more inclusive and environmentally sustainable growth for the region. We know that Australia and ADB share common objectives, interests, and concerns, which could provide the basis for strong and lasting collaboration for the work ahead. By working together, we can build on our comparative strengths, reduce our shared vulnerabilities, and realize our common vision for shared prosperity, stability for our region.
1 Source: Asia 2050. The 49 economies covered are: Afghanistan; Armenia; Azerbaijan; Bangladesh; Bhutan; Brunei Darussalam; Cambodia; the People's Republic of China (PRC); Cook Islands; the Democratic People's Republic of Korea; Fiji; Georgia; Hong Kong, China; India; Indonesia; Iran; Japan; Kazakhstan; Kiribati; Kyrgyz Republi; Republic of Korea; the Lao People's Democratic Republic; (Lao PDR); Macao, China; Malaysia; Maldives; Marshall Islands; Federated States of Micronesia; Mongolia; Myanmar; Nauru; Nepal; Pakistan; Palau; Papua New Guinea; the Philippines; Samoa; Singapore; Solomon Islands; Sri Lanka; Taipei,China; Tajikistan; Thailand; Timor-Leste; Tonga; Turkmenistan; Tuvalu; Uzbekistan; Vanuatu; and Viet Nam.
2 ADO 2011.
3 Kharas, H., and G. Gertz. 2010. “The New Global Middle-Class: A Cross-Over from West to East.” Wolfensohn Center for Development at Brookings.
4 Zhuang, J., and I Ali. 2010. "Poverty, Inequality, and Inclusive Growth in Asia." In J. Zhuang, ed. 2010. Poverty, Inequality, and Inclusive Growth in Asia: Measurement, Policy Issues.
5 ADB. 2009. The Economics of Climate Change in Southeast Asia: A Regional Review. Manila.
6 Cofinancing with Australia from 1 January 1991 to 31 December 2010 comprised 19 investment projects in the amount of $176.7 million, and 78 technical assistance in the amount of $105.9 million. In addition, Australia provided Non Direct Value Added cofinancing of $1,111.4 billion for 23 projects from 1973-2010.