The Forty-Second Annual Meeting of Governors of the Board of the Asian Development Bank (Indonesia, Bali, May 4 (Monday), 2009) 1 Introduction Mr. Chairman, Mr. President, distinguished Governors, ladies and gentlemen, It is my pleasure to address the Forty-Second Annual Meeting of the Asian Development Bank (ADB). I would also like to express my sincere gratitude, on behalf of the Government of Japan, to the Government of Indonesia and to the people of Bali for their wonderful hospitality. I particularly welcome the holding of the annual meeting this year in Indonesia, a country with which Japan maintains very close relations. 2 Current conditions of the financial crisis and response (Financial crisis and Asian economy) The world economy is now faced with the worst crisis since the Great Depression. The financial crisis caused by the meltdown of the subprime loan market in the U.S. which has triggered a credit crunch all over the world spread by the globalized financial system. It has further spilled over to the real economy in other countries through a stagnation of trade, a reduction in consumption and a decline in employment, rapidly casting a shadow over the global economy. The Asian region is no exception. Asia has been the growth center of the world economy. Asia and the Pacific region achieved economic growth of over 8% annually during the five years since 2003, reaching a record high of 9.5% in 2007. During this period, high economic growth enabled Asian developing countries to make steady progress toward achieving poverty reduction goals and other MDGs. While the direct impacts of the financial crisis remained moderate, Asian economies were not immune from the effects of the deteriorating real economy. The growth rate plunged to 6.3% in 2008, and is now expected to take a further dive to 3.4% in 2009. The crisis is now having definite impacts on the economies in the region. 1
(Japan s Policy Package) In order to cope with the global deterioration of the real economy, it is essential to prop up aggregate demand of the world economy through the fiscal and monetary measures of the world s major economies. Japan has been implementing economic policy packages totaling 75 trillion Yen (approx. $750 billion), including 12 trillion Yen (approx. $120 billion) of fiscal stimulus since last October. In addition to this, Japan has announced a new policy package to address the Economic Crisis totaling 57 trillion Yen (approx. $570 billion), including 15 trillion Yen (approx. $150 billion) of fiscal stimulus, which is equivalent to 3% of its nominal GDP. Private capital flows which had been driving economic growth in the developing countries sharply declined from their peak of around $1 trillion in 2007, and are now projected to turn negative in 2009. We must assist the developing countries to mitigate the negative impacts of this precipitous drop in capital flows. Japan has introduced various assistance measures for developing countries since last year. In an effort to enhance confidence in the financial systems of developing countries, Japan led the way in lending to the IMF with a pledge of $100 billion. It further pledged $5 billion in support for environmental investment in developing countries for the next two years as well as $22 billion over the same time period to support trade finance, primarily for the Asian region. Japan further pledged to scale up its ODA to the Asian region to 2 trillion Yen (approx. $20 billion) from 1.5 trillion Yen announced at the Davos Forum this January. ADB s recent increase of its Trade Finance Facilitation Program to $1 billion was quite timely, and we welcome that a related MOU for trade finance support will be signed shortly between ADB and JBIC. In addition, as stability in Asian market is critically important for the region, Japan will continue its own bilateral assistance to Asian countries. We will offer swap arrangements to provide Yen in case of financial crises separate from the Multilateralised Chiang Mai Initiative (CMIM). The total amount of such Yen swap arrangements will be up to 60 billion US dollar equivalent. Combined with the contributions to the CMIM, Japan will provide in total about $100 billion of liquidity support through swap arrangements. Also, in order to maintain capital flows to Asian developing countries that are temporarily unable to raise funds through international bond issuance due to disruptions at the markets, we have decided to provide guarantees of up to 500 billion Yen, by JBIC (Japan Bank for International Cooperation) on yen denominated bonds, or Samurai bonds, issued in Japanese markets by such developing countries. 2
(ADB s Crisis response) ADB is expected to play an increasingly important role as the only regional development bank in Asia and Pacific region. ADB must take all possible measures to address the crisis, capitalizing on its accumulated wealth of knowledge on economies in the region and development policies. Mitigating the negative impact of the acute downturn in capital inflows and the drying up of liquidity should be the most urgent and highest priority issue for ADB. Private capital flows into Asian developing countries, peaked at over $300 billion in 2007, fell below $100 billion in 2008, and are projected to turn negative in 2009. ADB should play a leading role to cushion the impacts of such a brutal reversal in capital flows, and I welcome the timely expansion of ADB s Trade Finance Facilitation Program. ADB s crisis response should be tailored to the specific needs of its member countries identified through policy dialogues. In addition to quick-disbursement and front-loading of its lending, ADB should also diversify its lending instruments with increasing flexibility. (GCI) As developing countries in the region are likely to experience further difficulties from the spillover effects of the crisis, it becomes all the more important for ADB to fully meet the increasing capital needs of these countries. In this respect, we welcome the successful conclusion of the fifth General Capital Increase (GCI-5), which increases ADB s capital by 200%. This capital increase of ADB, agreed for the first time in fifteen years since the last general capital increase in 1994, reflects the strong expectations of the member countries towards ADB to assist in overcoming the current difficulties. I would like to express my respect to President Kuroda and the senior management of ADB who worked exceptionally hard to lead us to this agreement since the initiation of the formal consideration of a capital increase at the last annual meeting, and expect them to use the resources efficiently to meet the expectations of the region. First of all, ADB should dedicate all its energy to assisting emergency crisis response measures by effectively utilizing the financial resources provided by GCI-5. Considering the sheer size of the prospective private capital outflow from Asian developing countries, it is encouraging that President Kuroda has announced that ADB is going to increase its operations by $10 billion in the next two to three years. And I welcome the new initiative presented by President 3
Kuroda at this annual meeting to quickly provide countercyclical support to respond to the crisis. We expect that ADB will proactively mitigate the adverse effects of the contraction in the private capital flows, and continue to play an active role in responding fully to the demands in the region to support private sector activities that are the driving force of economic growth. (Japan s response to vulnerable groups) As the adverse effects of the crisis are expected to spill over into the real economy and expand their reach to the Asian region, it will be the socially vulnerable poor who will be hit hardest. Asia is home to more than 600 million people in absolute poverty. According to the Asian Development Outlook 2009 published by ADB, with the slow growth in the region due to the current crisis, more than 60 million people in 2009 and close to 100 million people in 2010 would remain trapped in absolute poverty. To protect human lives, livelihood and dignity, it is critical to promote a comprehensive human security approach, which not only protects individuals and communities, but also enhances people's ability to cope with crises through capacity development. To avoid wiping out the progress in poverty reduction achieved over the years, it is critical for ADB to protect the poor from further hardships by strengthening its efforts in supporting such activities that will directly benefit them, and also to implement all possible measures, including the front-loading of crisis response lending and the full utilization of resources under the Asian Development Fund (ADF). Japan established the Japan Fund for Poverty Reduction (JFPR) in 2000 as a trust fund managed by ADB, in response to the devastating impact of the Asian financial crisis on vulnerable groups. Since then, JFPR has accumulated ample experience and expertise by providing direct support to the most vulnerable segment of the population in Asian developing countries. In order to support the vulnerable ride through the crisis, Japan is going to provide $100 million over the next 3 years to provide technical assistances and implement small-scale projects to directly support the poor, making use of the accumulated experience and knowledge of JFPR. 3 Long term Issues for ADB The crisis that we face today is the most serious one since the Great Depression, and will undoubtedly be difficult to overcome. We nevertheless firmly believe that 4
the crisis will subside in the not too distant future, with the cooperation within the region and the leading role played by ADB. Once the crisis is behind us, ADB should continue to vigorously pursue the achievement of the long-term vision of the Strategy 2020, towards the realization of Asia and Pacific Free of Poverty, making full use of the resources made available by the GCI-5. As a part of its long-term effort, ADB should assist the regional member countries in rebalancing their economic structures, so that they can achieve long and sustainable economic growth supported by more balanced internal and external demand. As concrete policy measures taken by individual countries vary depending on their specific circumstances, ADB needs to tailor its assistance accordingly. For some countries it will be assisting the strengthening of social safety nets to enhance consumption, and for others it will be supporting investments in infrastructure to improve the investment climate. ADB should promptly initiate policy dialogues with its member countries to identify ways in which these countries can establish economic structures resilient to fluctuations in external demand, and how ADB can assist them. In addition, we expect ADB to continue its proactive participation in the activities for strengthening regional financial cooperation and integration such as the Chiang Mai Initiative. 4 Conclusion Mr. Chairman, Mr. President, distinguished Governors, ladies and gentlemen, The resurgence of Asia will undoubtedly be the key for the recovery of the global economy from the current crisis. Under the strong leadership of President Kuroda, ADB now has clear guidance provided by the long-term strategy approved last year, a strong institutional foundation firmed up by its organizational reforms, and together with the augmented resources provided by the capital increase, the ADB has an extremely important role to play. I strongly hope that the Asian region will have recovered from the financial crisis by the next annual meeting, and resumed firm progress towards economic growth and poverty reduction. Thank you very much for your attention. 5