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Steering a New Course
Remarks by Haruhiko Kuroda, ADB President, at the 40th Pacific Islands Forum, Cairns, Australia
Excellencies, distinguished guests:
It is a great privilege for me to join you here today. I would like to thank Prime Minister Rudd for his warm hospitality and the Pacific Islands Forum for giving me this opportunity to share my perspectives with you.
II. The Global Storm
As we meet the global economy is starting to show some signs of stabilizing. The pace of economic contraction is slowing and the optimist in all of us would like to think that the worst of the economic crisis may be over. We must be cautious, however, since this may not signal the beginning of a sustained recovery. It is important to note that the key drivers of recovery-the, US, Japan and European economies-have yet to bottom out.
The crisis has hit our region quite hard. In Asia, most economies have seen their worst performance since the 1997/1998 Asian financial crisis. An open and outward approach to economic policy underpinned Asia's economic transformation. But this year, it has been the export-intensive economies that have faced the most pressure as external sales tumbled.
The outlook for Asia is now more encouraging. Many indicators show that most economies in Asia have bottomed out. Indeed, it is possible that Asia can lead the recovery of the global economy, if this trend continues.
III. Turbulence in the Pacific
In the Pacific, the global crisis has markedly slowed growth or caused economic contraction. Weaker revenues are constraining the ability of governments to finance much-needed basic services. Declining incomes, falling remittances and high inflation threaten the quality of life in the Pacific. Low wage female employees in tourism and the manufacturing sector are at particularly high risk as labor markets worsen.
Much of the burden of a policy response to the global economic crisis will fall on fiscal policy. An increase in government expenditure, where fiscally sustainable, may be needed in the worst hit economies. However, this must be supported by structural reforms to help economies sustain economic recovery over the medium term, and be combined with policies to protect the most vulnerable.
However, even with the best response now, the lagged effects of that action mean recovery could still be some way off.
IV. Plotting a New Course
I would now like to share some perspectives that I believe are particularly relevant to managing these challenges.
In times of economic stress, it may be tempting to put on hold efforts to correct the structural weaknesses that constrain economies. Yet times like these can instead provide us with our greatest opportunities.
Asia's experience following the 1997/1998 financial crisis provides useful insights. Asia learned important lessons from the crisis, and pursued deep-seated financial reforms to help build the resilience of the financial sector. This resilience has softened the impact of the current global economic crisis.
And the efforts towards regional cooperation and economic integration were at the heart of the rebuilding of the Asian financial sector following the Asian financial crisis. Efforts to improve regional cooperation and economic integration in other sectors have also helped protect Asia during the global financial crisis this time.
The third point is the importance of quick and decisive action in the face of serious economic stress. The early action taken this year by many countries to safeguard financial systems, to adjust the monetary policy stance and to pump-prime budgets, demonstrate this point. These early actions are helping the global economy stabilize and, for some economies, to begin the transition to recovery.
V. ADB'S Response to the Region's Challenges
The recent tripling of ADB's capital base and the replenishment of concessional Asian Development Fund (ADF) last year gave us much-needed resources to support prompt responses to the global financial crisis and address longer term development needs in Asia and the Pacific.
In the Pacific, ADF resources have been increased to $203 million over 2009 and 2010, from $130 million during the 2007-2008 period. Extra resources from ADF and other sources are helping ADB provide quick-disbursing budget support to the economies worst hit by the global economic crisis. Programs will help stabilize economies and facilitate the reforms that will aid recovery. Country-led responses are being supported by strengthened country dialogue and high-level technical assistance underpinned by enhanced monitoring and analytical work.
Extra resources are also helping ADB address other threats to the region. Most notably, we are active in addressing climate change, a threat that is contributing to the Pacific being one of the more economically and environmentally fragile regions of the world.
Earlier this year, ADB prepared the Climate Change Implementation Plan (CCIP) for the Pacific to identify climate change issues and options in the Pacific DMCs. CCIP identified adaptation as a priority area for the Pacific countries. We are already making a good progress in helping the DMC countries integrate adaptation measures in the national development plans and climate proofing infrastructure. We are also working with them in further integration with disaster preparedness and response.
As part of our mitigation effort, ADB has set an ambitious target of doubling clean energy investments such as renewable energy and energy efficiency to $2 billion per year starting in 2013. This will be of great relevance to the Pacific DMCs in terms of their contribution to climate change mitigation, but more importantly in addressing their energy security issue as renewable energy and energy efficiency investments would help ease Pacific DMCs' dependence to expensive imported fossil fuel.
I am also pleased to note the progress made by the Pacific DMCs and major development partners to establish in 2008 the Pacific Regional Infrastructure Facility. Last year, ADB conducted High Level Consultations with all major development partners, and with the Pacific Forum Island Secretariat and the Secretariat of the Pacific Communities. We will continue to work on these regional cooperation efforts to further strengthen coordination with development partners.
In these and other ways we are working closely with our development partners to strengthen our collective ability to assist the Pacific DMCs.
This Pacific Leaders Meeting provides a very timely opportunity to discuss these important issues and take early action to hasten the achievement of their development goals. Addressing the complex and, in many respects, unique challenges facing the region will require changes to how governments, the private sector and communities contribute to development. As you know from your own experience, visionary leadership that shapes practices and cultures to meet the aspirations of communities for a better future, is vital.
And, we, ADB, have been working closely with other development partners to provide harmonized assistance to the Pacific region. We stand ready to redouble our efforts to help address the impact of the global economic crisis, and the broad range of challenges facing the region.
Once again, I thank the Forum for the opportunity to address you today.