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China Daily E-paper
Op-Ed Contributors
Asia's recovery - 'Exit' to where?
By Jong-Wha Lee (China Daily)
Updated: 2010-04-14 08:21
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Second, they should allow greater flexibility in exchange rates, and develop an institutional framework that accommodates a concerted appreciation of regional currencies, as well as increased intra-regional exchange rate stability. It is clear that developing Asian economies, especially the PRC, cannot keep exchange rates stable against the US dollar and continue to amass international reserves. Regional cooperation in foreign exchange reserve management-such as the multi-lateralized Chiang Mai Initiative (CMIM), a regional reserve pool of $120 billion-should also be strengthened to defend against future financial crises.
Third, developing Asia must maintain fiscal discipline. Authorities should avoid political pressure to spend more (when not needed), and give more weight to rules rather than discretion in determining fiscal policy. Sufficient fiscal space should be ensured during high-growth periods by keeping public debt levels low enough to leave room to adjust during crisis periods. Over the medium term, stronger institutional capacity and governance are needed to ensure effective fiscal policy and sustainability.
Fourth, leaders must encourage greater domestic and regional demand and reorient the supply side of the economy toward domestic demand. Export-led growth served Asian nations well. But it also increased economic vulnerability and introduced substantial economic distortions; its benefits now look much diminished, especially amid sluggish global demand. Asian authorities should also deregulate and encourage investment in growth areas of the service sector, including health, education, information, and telecommunications. In addition, small- and medium-sized enterprises can play an important role in supporting industrial clusters and creating domestic value-added.
Fifth, they should strengthen social protection in the areas of health insurance, unemployment insurance, and pensions to bolster social resilience. Effective social programs can encourage consumers to spend more, stimulating domestic demand and contributing to post-crisis rebalancing. Governments also need to increase public spending on education and health to support productivity growth. Targeted social assistance programs to address extreme poverty and basic nutrition and health needs are also needed.
Alongside these policy prescriptions, regional and global efforts must be enhanced to pursue policy cooperation and coordination. Key elements of regional efforts include: setting up an Independent Surveillance Unit for CMIM which can grow to be an Asian Monetary Fund and establishing a region-wide economic partnership agreement to encourage intra-regional trade in goods, services, and investment. On the global stage, developing Asia must actively participate in major international forums and policy dialogues to support strong and sustainable global growth.
This is the way out, and a stronger, balanced, and more resilient Asian economy can help lead the way.
The author is Chief Economist of the Asian Development Bank.
(China Daily 04/14/2010 page9)
