High-level Regional Policy Dialogue on "Asia-Pacific economies after the global financial crisis: Lessons learnt, challenges for building resilience, and issues for global reform" 6-8 September 211, Manila, Philippines Jointly organized by UNESCAP and BANGKO SENTRAL NG PILIPINAS Global Financial Crisis and the Asia-Pacific Economies: Lessons Learnt and Challenges Introduction of the Issues Presentation Global Financial Crisis and the Asia-Pacific Economies: Lessons Learnt and Challenges Introduction of the Issues by Mr. Nagesh Kumar Chief Economist and Director, Macroeconomic Policy and Development Division United Nations-Economic and Social Commission for Asia and the Pacific (ESCAP) September 211 The views expressed in the paper are those of the author(s) and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. This paper has been issued without formal editing.
Financial Crisis and the Asia-Pacific Economies: An Overview of Issues Dr. Nagesh Kumar Chief Economist United Nations-Economic and Social Commission for Asia and the Pacific (ESCAP) Outline Impact of global financial crisis on Asia-Pacific economies Policy responses and recovery Double dip and new policy challenges, circa 211 Policy lessons for reforms at national, regional and international levels
Global financial crisis Started as a crisis in US sub-prime markets Spread quickly across markets after the Lehman Brothers collapse Stock markets around the world fell over 3% between September-December 28 US$ 18 trillion of market capitalization vanished in the G7 economies World GDP contracted by -1.9% in 29 Asia-Pacific region also affected 2 15 1 Trade and capital flows as the principal channels of Impact Export growth of most Asian countries turned negative during September-December 28 Decline of exports was much more severe compared to the previous crises 4 Impact depended on the extent of trade dependence of the economy and exposure to short-term capital flows Net private capital flows to emerging Asia turned negative 5 3 Percentages -5-1 -15-2 -25 Percentage of GDP 2 1-1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21-3 -2-35 Bangladesh China India Republic Taiwan Indonesia Malaysia Philippines Thailand of Korea Province of China -3-4 Direct investment Private portfolio flows Other private financial flows Net private capital flows 28-29 global economic crisis 21 dot-com crisis 1997-1998 Asian financial crisis
Asia-Pacific policy responses Most governments quickly rolled out sizeable fiscal stimulus packages And pursued expansionary monetary policy lowering interest rates close to zero Global policy coordination through G2 also helped Percentage 1 9 8 7 6 5 4 3 2 1 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 China Hong Kong, China India Republic of Korea Malaysia Philippines Singapore Taiwan Province of China Thailand Assisting affected sectors such as SMEs, trade finance, unemployed workers, infrastructure spending, energy conservation, job creation etc. Robust and broad-based recovery in 21 1 Percentages 8 6 4 2-2 Asian and Pacific developing economies Asian and Pacific developing economies (excluding China and India) World developed economies 23 24 25 26 27 28 29 21 But new policy challenges emerge -4
Managing volatile capital flows A-P assailed by volatile capital flows from loose global liquidity Leading to dramatic asset price rises, eg. property, equity markets though with some signs of peaking out in mid-211 16 14 12 1 8 6 4 2 Equity market indices 28-211 (28=1) Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Singapore (SGX) Philippines (PSE) Korea (KOSPI) China (Shanghai Composite) Thailand (SET) India (BSE Sensex) Hong Kong, China (Hang Seng) Russia (RTS) Capital controls increasingly used, as advocated by ESCAP, and need to be encouraged where necessary Rising oil and commodity prices and inflation Index 25 USD / Barrel $14 FAO food price index Crude oil $12 2 $1 15 1 $8 $6 CPI in Emerging Asia-Pacific $4 5 $2 27 28 29 21 211 $ Impact on poor: ESCAP estimates additional 46 million people in poverty in Asia-Pacific region Policy responses in terms of monetary tightening which affects the pace of recovery
Coping with double-dip scenario for U.S. and Europe in 211 Growth of Asia- Pacific economies especially the export-oriented ones is affected. A key difference this time is that policy options for advanced economies are much more limited compared to 28 Policy lessons 1: Imperative of rebalancing of Asia-Pacific growth Challenge is to boost demand in the region to complement sluggish demand in developed countries Boosting consumption in East Asia and investment in Southeast Asia Focus on inclusive growth and narrowing development gaps Agriculture productivity and rural development Basic services and infrastructure Job-oriented growth Social protection Financial inclusion
Policy lessons 2: Exploiting potential of regional economic integration Intra-regional trade has grown faster than region s global trade since 1998 Estimates suggest that potential of intraregional trade is much higher and is growing fast Intra-regional trade is driven by presence of trade complementarities. 56 54 52 Share of Asia-Pacific Intra-regional trade in total trade (percentage) Modelled Actual Considerable complementarities exist within and across AP subregions Complementarities are generally higher across subregions than within subregions Case for broader cooperation across subregions 5 48 46 11 44 1993 1997 21 25 29 Policy Lesson 3: Recycle Asian foreign exchange reserves for closing infrastructure gaps Infrastructure Composite Scores in Asia-Pacific, 27 Asia-Pacific region is characterized by wide infrastructure gaps Huge investments to close them Region s foreign exchange reserves are larger than US$ 5 trillion Lack a well developed regional financial architecture does not allow them to be mobilized for region s development needs Important steps in monetary and financial cooperation are the Chiang Mai Initiative Multilateralization and Asian Bond Funds Need to develop the financial architecture beyond them to channel region s savings to infrastructure needs 12 Papua New Nepal Lao PDR Solomon Islands Cambodia Bhutan Vanuatu Mongolia Samoa Tajikistan Tonga Pakis tan Bangladesh Uzbekistan Philippines Indonesia Maldives Kyrgyz Republic Fiji India Viet Nam Sri Lanka Armenia Georgia Kazakhstan Azerbaijan Iran, Is lamic Turkey Thailand China Russian Malaysia Brunei Macao, China Hong Kong, A ustralia Korea, Rep. New Zealand Japan Singapore..1.2.3.4.5.6 Index score
Policy lessons 4: International cooperation for curbing volatility in commodity markets Food price volatility regulate commodity futures, discipline conversion of food into biofuels Oil price volatility Negotiating a benchmark oil price and a price band International strategic reserve Policy lesson 5: Development friendly financial regulatory regime Curbing excessive risk taking in the financial services sector International regulation of too-big-to-fail and systemically important financial institutions Banks capital adequacy norms Impact assessment for low income countries International financial transactions tax 14
Policy lesson 6: Complete long pending reform of International Financial Architecture Crisis prevention and management Reform of IMF conditionality New global reserve currency Enhancing the scale of development finance International cooperation on control of corruption Governance of international financial institutions Enhancing the inclusiveness of the G2 process 15 Thank you www.unescap.org/pdd