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Eurasia Emerging Markets Forum
Luncheon remarks by Haruhiko Kuroda, ADB President, Thun, Switzerland
Professor Josef Deiss, Mr. Michel Camdessus, Your Excellencies, Honorable Ministers, Mr. Roth, Mr. Kohli, Ladies and Gentlemen:
Let me join the two co-chairs in welcoming all of you to the first full meeting of Eurasia Emerging Markets Forum. I am most encouraged to see that we have many participants from Central Asia and the Caucasus.
I. History of the Eurasia Forum
It was almost exactly one year ago that I participated in the Inaugural Meeting of the Eurasia Emerging Markets Forum in Gerzensee. At that meeting we discussed whether the Emerging Markets Forum—which I had the privilege of co-chairing together with President Fidel Ramos and my good friend Michel Camdessus—should start a distinct forum focused on Central Asia and Caucasus, and, if so, how. Participants of that meeting, including many of you, unanimously endorsed the creation of such a forum. We also identified the topics and issues that should comprise its initial focus and agreed to hold the first full meeting in about a year's time.
I am pleased that the ideas we discussed in Gerzensee have been translated into concrete action. I would like to commend the staff of the Emerging Markets Forum for their hard work in fulfilling our expectations and for organizing this meeting exactly on schedule.
II. Impact of the Global Financial Crisis on Asia
Ladies and gentlemen, we are meeting in midst of an unusually challenging period for the global economy and for most countries, both developed and developing. Two weeks ago, the Asian Development Bank hosted in Manila a Regional Forum on the Impact of the Global Economic and Financial Crisis on Asia. Over 100 high level participants from 20 developing Asian economies and other parts of the world came together to share experiences to date and discuss longer-term implications for Asia.
Please allow me to share with you some observations. I note that this morning Mr. Ahmed had focused on the impact of the global economic crisis on Central Asia. My remarks will cover Asia and the Pacific as a whole.
Impact of the Crisis
The ADB Regional Forum reinforced our view that, overall, Asia has rebounded— especially China, India, and Indonesia. Heartening as this V-shaped recovery in many Asian countries is, the Regional Forum also noted that there are also countries that are still struggling. Global economic recovery remains fragile and governments in the region must remain mindful of the risks and challenges ahead. The Forum was unequivocal that assistance to mitigate the impacts of the crisis needs to continue.
The Manila meeting clearly brought out the varying impacts of the crisis on individual countries. The extent of integration into the global financial markets, reliance on external demand, and sensitivity to commodity price fluctuations are some of the key factors behind the variations.
I believe it is important to appropriately time the withdrawal of the stimulus packages. These stimuli have been key to resilience during the crisis and the emerging recovery we are now witnessing. I fully agree, as discussed in the Forum, that each country must consider the extent of the impact of the crisis, its fiscal space, and monetary situation in determining an appropriate timing for exiting from the stimulus programs. I also consider that there is a clear need for the region to boost domestic and intra-regional demand. The ADB Forum noted that rebalancing growth, which shifts the source of growth from external demand to domestic and regional demand, is also about strengthening financial systems in order to effectively intermediate the pool of high savings in Asia to finance investment.
The Forum pointed out, too, a number of other potential challenges. These include managing the rising public debt and domestic liquidity generated by the fiscal and monetary stimulus measures, and fluctuating exchange rates and asset bubbles in the wake of destabilizing capital flows.
Social Impact of the Crisis
The participants alerted that even if an economic recovery is underway, the adverse impact of the crisis on employment and its accompanying social impacts are likely to be felt for several years to come, especially in poorer countries. Emerging evidence seems to suggest that the crisis could have costly and long-lasting effects on human welfare, as families with few alternative employment opportunities and little or no access to credit are forced to reduce the quantity and quality of their food intake, withdraw children from school, or postpone health care.
Many developing Asian countries have expanded their social programs to counter these adverse social impacts, particularly to support and protect dismissed workers and enhance basic social services. There are also important lessons from the minimal social impacts in countries that had strong social protection programs in place even before the crisis.
The Way Forward
There was consensus on the need to do more to mitigate the economic, financial and social impact of the crisis, and to ensure a speedy recovery. No uniform policy can fit the needs of all countries. Each country must tailor its response to the nature and intensity of the specific challenges it faces. Nonetheless, let me note some key principles and common strategies to guide our way forward.
Strengthening Recovery Efforts
First, there was an overwhelming consensus on the need to maintain macroeconomic stability through well-orchestrated and effectively coordinated monetary, fiscal and exchange rate policies. To the extent that shocks influence countries in a sub-region in a symmetric manner, the results would be better if macroeconomic policies and management were coordinated at the sub-regional level. In particular, carefully designed and targeted fiscal programs to meet growth, human development and sustainability objectives can generate demand and protect vulnerable groups in the short run, while maintaining investments and progress on long-term development goals. The challenge is, of course, to strike a balance between quick demand creation and long-term fiscal sustainability. Fiscal programs should include investments in priority infrastructure facilities, which have been long neglected in many developing Asian countries.
Ensuring Inclusive Growth
Second, developing Asian countries must also protect and expand public expenditures in social sectors—particularly in education and health. This will help contain the adverse impact of the crisis on the poor and vulnerable, and build human capital for sustained and inclusive economic growth. Equally important, governments must help prevent millions of the vulnerable from sliding into poverty by building appropriate, effective and sustainable social safety nets, including existing community-based mechanisms. The poverty impact of the crisis should be carefully assessed and remedied through appropriate public action, so as to limit adverse effects on the progress towards achieving the MDGs. It is also important that MDG-related efforts and the development agenda be more broadly integrated into efforts to boost growth and rebuild the global economy.
Third, developing Asian countries need to maintain their commitment to free trade and an open economy. Clearly, rising unemployment and dimming economic prospects have increased the temptation of resorting to protectionism, which will only prolong the crisis and weaken the recovery. We need to recognize that while protectionist policies may bring short-run benefits, they also increase the risk of derailing the recovery and undermine longer-term growth prospects.
Fourth, developing Asian countries need to revisit their development strategies. The crisis has provided an opportunity to rebalance the sources of Asia's growth. Asia must work towards greater diversification in trade—including by promoting intraregional trade—if it is to regain to its growth potential. Domestic and regional demand also needs to be expanded to strike the right balance between domestic absorption and exports.
Greater Regional Cooperation
Finally, to bolster economic resilience and reduce vulnerability to external shocks, Asia's policy makers need to develop policies that can help build domestic capacity and enhance regional cooperation. Achieving this will require removal of barriers to intra-regional trade, particularly cross-border obstacles to trade; greater physical and cross border connectivity; and enhanced cooperation to institutionalize initiatives for easing intra-regional trade.
Also, effectively managing financial globalization can help maximize the benefits of capital flows and limit potentially destabilizing effects to the region's economies. Improving the investment climate will help shift the composition of foreign capital to less volatile longer-term inflows. Stronger domestic financial markets with requisite oversight mechanisms and appropriate levels of foreign exchange reserves, and the establishment of regional capital markets will also help ensure financial stability.
Ladies and gentlemen, I am convinced that now is the time for more, rather than less, regional economic cooperation.
III. Asian Development Bank and Central Asia and Caucuses Region
The Asian Development Bank attaches high importance to the Central Asia and Caucusus region. Recognizing the unique nature of your economies as well as social and institutional structures, two years ago, we created a separate Central and West Asia department. Today, ADB is the largest multilateral lender to Central Asia. We also have a large technical assistance program. While most of our assistance program is focused on the priority needs of individual countries, we also are giving high priority to supporting regional cooperation. Specifically, we are actively supporting activities under the Central Asia Regional Economic Cooperation (CAREC) program. CAREC multilateral partners anticipated investment approvals in 2009 of almost $4 billion in the priority areas of transport, energy, and trade. This is a significant increase from the $2 billion mobilized in 2008. In 2009, ADB approved about $600 million of assistance primarily to the transport sector. I welcome your ideas and suggestions as to how my institution can help you even more and better.
Finally, let me conclude by saying that our interest in and support for the Eurasia Emerging Markets Forum is a concrete illustration of ADB's desire to encourage open exchange of ideas and information between ADB's member countries.
Ladies and Gentlemen, let me say again that I am looking forward to our continued conversations this afternoon and tomorrow.