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2010/HLRT/024

Promoting Balanced Growth in Asia and the Pacific

Purpose: Information

Submitted by: ADB

/ APEC Growth StrategyHigh-Level Policy Round TableBeppu, Japan
7-8 August 2010

Remarks by

President Haruhiko Kuroda

Asian Development Bank

At the

APEC Growth Strategy High-Level Policy Round Table

"Promoting Balanced Growth in Asia and the Pacific”

7 August 2010

Beppu, Japan

  1. Introduction

This afternoon, I would like to add to the discussion by addressing balanced growth in Asia.

Building a consistent APEC Growth Strategy is anenormous challenge, involving global, regional, and national issues and institutions. These include cross-regional forumssuch as APEC. At the same time, ultimately, it is each sovereign nation that must decide what is best for itself. Thus, I believe the best way of approaching multilateral issues like balancing growth is to think globally, coordinate regionally, and act nationally.

There are many avenues open to Asia for achieving better balanced growth. Let me touch briefly on five essential steps to be taken.

  1. Maintainingmacroeconomic stability and rebalance economic growth

The first step is to maintain macroeconomic stability and rebalance economic growth. To improve macroeconomic stability over the longer term, individual economies and the region as a whole need to establish an effective framework for monetary, fiscal, macro-prudential, and exchange rate policies. This will also help facilitate global rebalancing.

Now is a very good time to begin this process. The firm V-shaped economic recovery in most of developing Asia means that, with a few exceptions, governments in the region should now be unwinding stimulus measures. Timing, policy mix, and pace are key.

Timing depends on the strength of recovery, the narrowing of output gaps, inflationary pressures, and evolving risks. In some countries, such as the Republic of Korea, Malaysia, Thailand, and Viet Nam, tightening has already begun, and should continue at an appropriate pace. Building on recent measures to slow credit expansion, the People’s Republic of China should accelerate policy normalization by, among other things, letting the currency appreciate at a pace appropriate to domestic economic conditions. And in Indonesia and the Philippines, unwinding policy stimulus may need to start soon. Normalizing monetary policy—using the proper mix of currency appreciation and policy rate hikes—should precede fiscal consolidation in most cases.

Sustainable growth will also be strengthened byrebalancing the sources of economic growth more toward domestic and regional demand. While the export-led model has underpinned Asia’s impressive growth, slowing or uncertain demand from advanced economies implies that the region must strengthen its domestic and regional demand to fill the gap. This could involve demand-side policies that encourage household expenditure and increase private sector investment, as well as supply-side policies that promote small- and medium-sized enterprises and service industries catering to domestic demand. The emphasis will differ from one country to another. The People’s Republic of China, for example, needs to boost consumption, while ASEAN needs a better investment climate.

More broadly, Asian authorities should continue to remove remaining barriers to the ever-expanding intraregional trade, particularly behind-the-border obstacles to freer trade in goods and especially services. This is particularly important if Asia is to be the ultimate consumer and producer of its own products. Rebalancing will not detract from providing quality products for export to advanced economies. It will only expand the market to include increasingly affluent consumers within the region.

  1. Deepening financial systems

The second step is how to channel more Asian savings into Asian investment, without shunning its responsibility as an open, globally-integrated partner.

Across emerging Asia, authorities are working to broaden and deepen financial markets, while building regulatory oversight to maintain financial stability. Their aim is to help recycle Asia’s high savings for investment within the region, increase the ability to prevent and manage financial crises, and improve the efficiency of regional financial intermediation.

Authorities need to continue on the path toward creating effective frameworks for financial regulation and supervision, including the adoption of macro-prudential supervision and resolution regimes. There is also a need to continue promoting Asian local currency and regional bond markets, and to improve market infrastructure and efficiency. The ASEAN+3 Asian Bond Markets Initiative is establishing a pilot Credit Guarantee and Investment Facility (CGIF), which will help bring investment grade corporate bond issuers and public-private partnerships to market. This will be an important financing tool for cross-border infrastructure development.

  1. Enhancing social protection

Third, the region must enhance social protection. A major reason for the high savings rate in Asia is the lack of adequate social protection, and inadequate access to affordable and reliable health care and education. While the situation is improving, Asia still needs to strengthen social protection programs and policies, and ensure that poor and vulnerable people are correctly targeted and provided adequate support.

Governments in many countries in the region are working to design effective, inclusive, and financially secure social protection policies and programs. They are reforming pension systems to offer financial protection to older men and women, and they are introducing innovative social assistance schemes – such as conditional cash transfers – to provide basic income support to poor people and increase their access to food security, health, and education. ADB supports these efforts through grants, loans, and technical assistance.

  1. Promoting Green Growth

Fourth, there is need to increasingly focus on “green” growth, while mitigating and adapting to climate change. One of the clearest actions is to promote clean energy, or more specifically, advance energy efficiency and expand the use of renewable energy sources. This can be done, for example, by setting energy efficiency targets, promoting renewable energy, and providing incentives for high efficiency power plants.

We must make our cities more livable while at the same time enhancing growth and resilience. Upgrading urban planning is essential, particularly in mass transit, land use, and water management. We must provide sustainable management of the large and critical ecosystems in the region.

ADB has rich experience in projects that spanrenewable energy, energy efficiency, waste management, and urban transport, to name a few. We also work hard on climate change. And we are helping build a climate resilient Asia, by supporting climate actions in country-led development processes.

  1. Enhancing regional cooperation

Finally, while actions must be taken nationally, regional cooperation is needed to keep everyone “on the same page.” From climate change to disease prevention to disaster preparedness to financial stability, regional cooperation is moving to the next level. Emerging Asia is now seeking ways to strengthen existing regional liquidity provisions and increase surveillance and macroeconomic policy coordination. Efforts are underway to integrate regional markets, initiate exchange rate policy coordination, and increase Asia’s contribution in reforming the global financial architecture.

In March, the ASEAN+3 multilateralized its Chiang Mai Initiative, which was organized following the 1997/98 Asian financial crisis. In essence, the multilateralized Chiang Mai Initiative is a foreign currency reserve pooling arrangement totaling $120 billion that aims to provide short-term liquidity support to any ASEAN+3 country in need. A critical element is the creation of an ASEAN+3 Macroeconomic Surveillance Office, which ADB is supporting in its initial stages.

ADB also actively supports regional infrastructure development and trade facilitation in Asia. We recently signed a Memorandum of Understanding with the World Customs Organization to strengthen the strategic partnership between the two organizations in facilitating and securing trade in Asia.

  1. Conclusion

Ladies and gentlemen, ADB’s forthcoming study, Rebalancing for Sustainable Growth: Asia’s Postcrisis Challenge, suggests that Asia should begin to focus on regional demand as a major source of growth. Asia should see itself as not only a producer and exporter of its goods and services, but also a consumer. Asia should tap its own large pool of savings for investments within the region, and pursue more socially and environmentally balanced growth. In doing so, Asia can further improve the welfare of its people, increase the resilience of its economy, and contribute to global realignment. These findings are well aligned with the basic directions of the APEC Growth Strategy.

A stronger and more resilient regional economy with balanced sources of growth is the foundation for a prosperous Asia, and a prosperous APEC. Thank you.