«There is an opportunity to move to a much higher level of development for those who think globally, cooperate regionally and act nationally»
ADB’s President Mr. Haruhiko Kuroda answers questions of the Ekonomicheskoe Obozrenie (Economic Review), Tashkent, Uzbekistan.
– ADB’s Annual Meeting of the Board of Governors is an important event and the venue is carefully selected based on many factors. Why did ADB choose Tashkent?
– The venue for the Annual Meeting is traditionally rotated and hosting it is a major undertaking. It requires experience to handle an event of this size and to provide sophisticated hotel and air transport facilities for accommodating over 3,000 people.
The Uzbekistan Government has demonstrated that it is well equipped to meet these challenges.
– The Annual Meeting will discuss the progress made within the framework of Strategy 2020, ADB’s long-term development blueprint, which it adopted in 2008. The Strategy has three strategic agendas: inclusive economic growth, environmentally sustainable growth and regional integration. Could you briefly comment on how well ADB has been doing in each area?
– ADB has made a strong contribution to inclusive growth over the last two years, with almost two-thirds of all Project Completion Reports for 2009 demonstrating that we have helped to reduce poverty. ADB promotes inclusive growth by creating and expanding access to economic opportunities so more people can participate and benefit from the growth.
With respect to the environment, we have made tangible contributions to reducing carbon dioxide emissions, supporting clean energy, improving the environment and environmental management, and increasing environmental and health awareness.
On building closer regional ties, the proportion of regional cooperation-related operations in our overall operations rose to 10 percent in 2009 from 7 percent in 2008, nearing the 2012 target of 15 percent. Most operations focused on increasing connectivity through improved roads, railways and airport infrastructure. Investments in border facilities and tourism infrastructure have helped to expand trade and regional tourism.
– The Strategy was adopted at a time when markets and prices were growing all over the world. With the global crisis the situation is different. How has the crisis affected the implementation of Strategy 2020 and achievement of its planned benchmarks? Will any adjustments be made to the strategy given the changed situation in the world economy, and is it possible to detail them?
– Strategy 2020 has proven to be timely in addressing both the immediate impact of the crisis and the region’s longer term development needs. The strategic agenda, the drivers of change and the operational areas indicated in Strategy 2020 remain as relevant today as when the framework was adopted and in fact, some have become even more important in the aftermath of the crisis.
In particular, infrastructure investments—which generate employment stimulate economies and boost domestic demand and investor confidence—will remain a key policy priority in the coming years, as will reforms and improvements in the financial sector and education. Regional cooperation and integration will continue to be a key vehicle for promoting intra-regional trade, helping to diversify Asia’s sources of growth and providing much needed regional public goods to help economies recover from the impacts of the crisis.
– Going back to 2008 when Strategy 2020 was adopted, a number of observers, mostly Western ones, sharply criticized it as they felt it gave more emphasis to economic growth, private sector development and regional integration than to social protection of populations. Your comment?
– Actually, Strategy 2020 is anchored on the principal of inclusive economic growth, with two mutually reinforcing strategies, namely, creating and expanding economic opportunities, and, at the same time, ensuring broader access to those opportunities so that all members of society can benefit from growth.
The strategy recognizes that, without proper attention and planning, it will become increasingly difficult for growth to reach the impoverished who will remain excluded by circumstance, poor governance, and other barriers.
The strategy aims to help the region promote greater access to opportunities by expanding human capacities through investments in education, health, and social protection; by improving the poor’s access to markets and basic productive assets; by putting in place sound policies and institutions; and by strengthening social safety nets to prevent extreme deprivation.
Strategy 2020 did NOT leave out social protection in favor of economic growth, private sector, and regional integration, but, rather, it targeted inclusive growth for the benefit of all. We believe that the strategy remains valid and still provides the best approach to improve the welfare of people in the region and to reduce poverty.
– The issue of global financial system reform has been on the agenda for two years now, and has been discussed at several top summits but with no major progress reported to date. Can we expect the Annual Meeting in Tashkent to come up with a consolidated Asia and Pacific position on reforms to the global financial architecture, as well as real recommendations for change from ADB? Could we ask for your personal opinion on the direction in which global financial reform should be implemented?
– Restructuring the global financial system poses a huge challenge, with several proposals under consideration. The United Nations-sponsored Stiglitz Commission has called for a new global reserve system. There are several possible options to achieve this and each has its own merits. There is widespread acknowledgement that reforming the global financial system is a long-term process, but one that warrants examination at this point in time.
East Asia has come a long way since the 1997/1998 Asian financial crisis. In order to further bolster financial and monetary cooperation, the region’s authorities should work on three major areas. First is to further strengthen regional economic surveillance and we are delighted the ASEAN+3 countries have agreed on a permanent home for the multilateralized Chiang Mai Initiative (CMIM) surveillance unit – the Asian Macroeconomic Research Office (AMRO) – in Singapore.
We also need to hasten the implementation of measures designed to deepen regional capital markets. ADB has been supporting ASEAN+3’s Asian Bond Markets Initiative (ABMI) and the establishment of a credit guarantee and investment facility (CGIF), under ABMI, to develop local currency bond markets in its member countries. CGIF is to help channeling regional savings into long-term investments in the region. Its establishment will likely be officially agreed on during the upcoming ASEAN+3 Finance Ministers Meeting on the sidelines of ADB’s Annual Meeting in Tashkent. In addition, it is critical that Asia actively participates in and takes its rightful place at all levels of global discussion on any changes to the financial architecture.
– The global crisis has affected countries in different ways and their responses and strategies have varied. What’s your view on the effectiveness of those strategies, such as People’s Republic of China’s (PRC) fiscal stimulus measures which have helped support the export sector in Asia, even as demand for the region’s goods has decreased in the West?
– Asia’s fiscal and monetary responses to the crisis have in many cases been unprecedented but they were necessary, given the collapse of demand for the region’s goods in global export markets. It has to be remembered that countries in the region generally pursued sound monetary and fiscal policies in the years immediately preceding the crisis and this helped shield them from the worst effects of the downturn, and gave them room to maneuver with their responses.
Countries with the capacity to support increased public spending and personal consumption were much better able to offset the fall in national income as a result of plummeting external demand for exports.
PRC is perhaps the most striking example. It introduced a massive stimulus package amounting to more than 15% of GDP which included subsidies in rural areas for consumer products such as appliances, and tax cuts for buying more fuel-efficient cars.
Export losses caused by the global crisis were offset by timely fiscal and monetary stimulus measures, which helped support high levels of public investment and raised domestic consumption.
PRC’s outstanding economic recovery has not only benefited its own people but also allowed the country to contribute to the maintenance of international financial stability.
– Uzbekistan’s growth rate at the time of the crisis was around the same level as PRC yet the latter is considered to have responded to the downturn more effectively. How would you assess the current model of economic development being implemented by Uzbekistan and its anti-crisis policy, and what are the prospects for the country in the wake of the crisis?
– Uzbekistan has coped with the global financial crisis very well. The economy grew 8,1% last year, which is probably one of the highest rates in the region, and we expect it to recover further this year.
One of the reasons the Uzbek economy performed well is that it is fairly diversified. It has a strong mineral sector, agriculture sector, manufacturing sector and services sector. Secondly, it has managed financial globalization with appropriate caution, which helped to mitigate the initial impact of the crisis on its financial sector. Thirdly, the Government swiftly introduced a number of measures to support small-and-medium-enterprises, and accelerated infrastructure investment, so that reduced external demand was compensated for by an increase in domestic demand.
– Many European countries are facing the threat of sovereign defaults which may cause new financial disruption and a decline in aggregate demand. What would the impact of European instability be on Asian economies?
– Instability in European countries such as Greece remains a potential risk factor for the world economy. However, if proper measures, supported by the EU, are taken in due course, as we expect, stability in the financial markets will be maintained. We note that the spillover from Greece’s debt troubles on the rest of Europe has been limited, and we expect that any impact on developing Asian economies will be even more muted.
– Among the questions to be discussed in Tashkent will be development prospects for Asia after the crisis? How do you see them?
– After being hit hard by the global financial crisis, developing Asia is now leading the world back to economic recovery.
Based on recent data, developing Asia’s strong recovery is expected to continue over the next two years with our Asian Development Outlook 2010 forecasting growth of 7.5% in 2010, well up from 5.2% in 2009. This will be supported by a modest recovery in global trade as well as the ongoing effects of fiscal and monetary stimulus programs.
We see growth moderating slightly to 7.3% in 2011 as the impact of the stimulus measures dissipate.
– What problems and challenges are Asian countries likely to face in the post-crisis recovery phase, and how will ADB help them overcome those problems?
– The key challenge now is to convert the strong rebound into a sustained recovery.
The crisis has highlighted the imbalance between industrialized countries, particularly the United States, which have too much debt, and emerging economies, including those in Asia, as well as oil exporting countries, which have too much savings.
Asia’s excessive dependence on external demand from a narrow range of countries is a serious risk to its long term growth prospects. Rebalancing sources of growth toward greater domestic and regional demand is key to sustaining the region’s future development, and to resolving the large global payments imbalance which helped spawn the crisis. To do this, authorities need to continue with deeper, more comprehensive structural reforms, while further developing their financial sectors.
One of the most positive responses to the crisis has been the willingness of economies to pursue policy coordination and cooperation across the globe. The crisis actually provides an opportunity for deepening cooperation on trade, finance, economic surveillance, and monetary cooperation. And the chance to move to a much higher level of development is there for those who think globally, cooperate regionally, and act nationally.
ADB is working closely with its member countries to ensure this happens. It has taken a number of actions to help the region recover. ADB approved over $16 billion of assistance in 2009, including $2.5 billion for our Countercyclical Support Facility and $850 million for our Trade Finance Facilitation Program.
Our quick-disbursing Countercyclical Support Facility, to counter the immediate impacts of the crisis, has been tapped by several member countries, allowing them to channel stimulus support to where it is needed most.
ADB has also provided crisis-related support in the form of grants for policy analysis and capacity building.
I am confident that developing Asia is up to the challenges of the new decade and ADB will continue to work with its members to realize the region’s dream of becoming a regionally integrated yet globally connected economic community.
Victor Abaturov, Natalya Perevozkina