Regional: Sovereign Debt Crises in the US and the Eurozone: Potential Regional Impacts on Asia

Sovereign Project | 45291-001

Summary

1. Financial volatility has returned to the global marketplace amid escalating sovereign debt problems in the United States (US) and the Eurozone countries. Intense political wrangling over the US' debt ceiling, the subsequent downgrading of the US' credit rating, and fears of contagion in the Eurozone have created significant uncertainties in the market. The World Bank's Robert Zoellick has warned that markets are now entering a "new danger zone," while other analysts have raised the possibility of yet another global recession.

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Project Name Sovereign Debt Crises in the US and the Eurozone: Potential Regional Impacts on Asia
Project Number 45291-001
Country Regional
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7930-REG: Sovereign Debt Crises in the US and the Eurozone: Potential Regional Impacts on Asia
Technical Assistance Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Sector / Subsector

Public sector management - Economic affairs management

Gender Equity and Mainstreaming No gender elements
Description

1. Financial volatility has returned to the global marketplace amid escalating sovereign debt problems in the United States (US) and the Eurozone countries. Intense political wrangling over the US' debt ceiling, the subsequent downgrading of the US' credit rating, and fears of contagion in the Eurozone have created significant uncertainties in the market. The World Bank's Robert Zoellick has warned that markets are now entering a "new danger zone," while other analysts have raised the possibility of yet another global recession.

2. The US has recently committed to a fiscal consolidation plan, while the European Union has adopted a comprehensive package that features new financing as well as greater flexibility for the European Financial Stability Facility (EFSF). These efforts notwithstanding, the risk of debt crises and contagion remains very real, particularly with recent developments in Greece and Italy. For as long as concerns about achieving fiscal discipline and restoring growth in these economies persist, markets are likely to remain vulnerable to shocks in the near term.

3. A further deterioration in the debt positions of these economies will have serious regional spillover effects on Asia's macroeconomic management and growth prospects. Even if a full-blown debt crisis were averted, a further contraction in these economies as a result of weak fundamentals and fiscal tightening will have an impact on regional growth.

4. What are the short- and medium-term impacts on Asia of the sovereign debt crises in the US and Eurozone? Can Asia, as a region, withstand another downturn in these economies, and to what extent can Asia rely on its own internal strength for growth? How can Asia strengthen its own drivers of growth and that beyond its own border, for example, by emphasizing on efforts to strengthen trade within Asia (intraregional trade) and with other emerging markets? What are the short- and medium-term policy choices available, and what regional approaches should Asian countries take in mitigating these impacts?

5. This S-PATA will seek to answer these questions from a regional perspective by assessing how debt crises in advanced economies may be transmitted to Asia. While it will also explore national policy options to the extent feasible, it will focus on regional measures for managing the macroeconomic impacts of such crises.

6. This S-PATA will build on research being undertaken by the Office of Regional Economic Integration (OREI) on these issues, as part of its ongoing work on the Asia Economic Monitor and the Asia Capital Markets Monitor, and its research program for 2011 2012 on Growth Rebalancing (attached).

Project Rationale and Linkage to Country/Regional Strategy The main output of the S-PATA will be the identification of policy reforms and possible regional responses to manage the macroeconomic impacts of external sovereign debt crises. Its expected impact will be the adoption and implementation of these reforms in the short- and medium-term.
Impact Asian countries implement the proposed domestic reforms and strategic measures
Project Outcome
Description of Outcome Policymakers informed of policy options for managing the macroeconomic impacts of external sovereign debt crises.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs Domestic policy reforms and strategic measures identified
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services The advisers will be selected and recruited individually, in accordance with the Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers (2010, as amended from time to time). The scope of work and outlined terms of reference for the consultants and advisers/resource persons are shown in Appendix 4.
Responsible ADB Officer Jayant Menon
Responsible ADB Department Economic Research and Regional Cooperation Department
Responsible ADB Division ERCI
Executing Agencies
Asian Development Bank6 ADB Avenue, Mandaluyong
Metro Manila, Philippines
P.O. Box 789, 1099 Manila,
Philippines
Timetable
Concept Clearance -
Fact Finding -
MRM -
Approval 22 Nov 2011
Last Review Mission -
Last PDS Update 05 Dec 2011

TA 7930-REG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
22 Nov 2011 - 22 Nov 2011 31 Dec 2012 31 Dec 2013 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 0.00 0.00 0.00 0.00 225,000.00 22 Nov 2011 73,663.53

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