Kuroda, Haruhiko, The Wall Street Journal Asia" />
This week's agreement by the Asian Development Bank board of governors to triple the bank's resource base is timely, welcome and crucial. Amid the global financial crisis, the bank is a source of predictable and affordable financing that can leverage substantial funds for investment in economic growth and poverty reduction.
To appreciate the significance of this step, it is important to understand the current economic situation. Developing Asian countries have led global growth and the reduction of global poverty. But today, dragged down by an economic crisis not of their making, these same countries face massive factory closings, layoffs and supply-chain disruptions as their export markets dry up. Aggregate GDP growth for developing countries in the Asia-Pacific region is expected to drop to 3.4% this year, after peaking at a record 9.5% in 2007. Remittances from citizens working abroad -- a significant source of income for many Asian families -- have fallen steeply. In South Asia remittances will fall by between 4% and 7% this year, compared to growth of almost 27% in 2008.
This compromises poverty reduction. We estimate the crisis will keep more than 60 million people in developing Asia -- including 14 million in China and 24 million in India -- trapped in absolute poverty this year, and nearly 100 million more in 2010. Had economic growth continued at pre-crisis levels, these individuals and families would have broken through the $1.25-a-day poverty line and begun to experience a better quality of life.
Economic growth has a significant impact on achieving the Millennium Development Goals laid down by the United Nations in 2000, including those related to nutrition and health. A three-percentage-point drop in the region's GDP growth rate in 2009 will translate into around 10 million more undernourished people, more than 50,000 more deaths of children younger than five years old, and about 2,000 more mothers dying in childbirth. It also translates into a one-year delay in achieving targets relating to infant mortality and hunger.
Governments in the region face the stark challenge of stemming the impacts of the crisis without losing ground on their long-term development goals. Governments and central banks moved quickly to expand local demand, spur job creation and stabilize financial markets, easing monetary policy and implementing large fiscal policy initiatives.
But many developing Asian economies do not have sufficient domestic resources to provide an adequate package of stimulus measures or social protection, let alone recover ground on the millennium goals. Even before the global economic crisis swept onto Asia's shores, our developing member countries needed a total of $53 billion beyond their available government resources to meet the goals. In addition, the region's massive needs for infrastructure investment will not be met solely by its governments. Developing Asian economies need these investments, yet the world-wide flight from financial assets has set back their efforts to mobilize external resources to finance capital-intensive projects.
The bank's capital increase comes against this backdrop. The ADB is working with public and private partners and members to restore market confidence and economic stability, strengthen financial systems and trade regimes, protect the most vulnerable members of society against the worst impacts of the crisis, and minimize cutbacks in investments in infrastructure, education and health programs -- investments that are critical for long-term growth and social stability. The capital increase will dramatically enhance our ability to carry out this role. Every dollar of paid-in capital to the ADB has historically led to $15 in new lending.
However, we do not intend to rest on our laurels. Even with a 200% capital increase, our resources will be small relative to the region's huge development financing needs. To ensure long-term, sustainable growth, Asia will have to find ways to channel its substantial savings for investment in its future. Over the past several years, the ADB has worked with governments to develop regional bond markets so that savings in Asia can be channeled into effective investment within the region. The ADB also supports governments' efforts to spend more on health, education and social security to reduce household needs for precautionary savings.
The ADB will do all it can to prevent the reversal of our region's hard-won gains in social and economic development, and poverty reduction. Despite the current economic turmoil and its adverse impact on human welfare in the region, Asia is one of few regions in the world that continues to grow -- and thus, one that can help the world emerge more quickly from the crisis. With the continued commitment of the international community, both public and private, to this diverse and dynamic region, Asia will remain a beacon of hope for global prosperity and stability.