Download Phalla-Asia Economic Forum 20 Jan 2010 (modified)

The 6th Asia Economic Forum: “Maximizing Asia’s Strategic Roles in the
World: Opportunities, Challenges and Future Prospects”
January 20-21, 2010
Presentation by
PHAN Phalla, Ph.D.
Deputy Secretary General
Supreme National Economic Council (SNEC)
Plenary Session III: Sustaining Asia’s Economic Recovery: Challenges and
Opportunities
Your Excellencies, Ladies and Gentlemen;
Colleagues and Friends;
It is a great honor for me to share my humble ideas on how to sustain Asia’s economic
recovery with this distinguished audience. My presentation will include an assessment of
the challenges and opportunities we have been facing going through the crisis and what
kinds of mechanisms have been put in place to ensure the speedier and sustained
recovery including the regional collaborative efforts in that lights.
Let me start with the background of the global economic downturn that I believe you all
are very familiar with. The main channel by which the global financial crisis and
economic slump spread todeveloping Asia was the collapse of demand in major
markets, hitting the region's exports. With a large proportion of regional trade in parts
and components supporting supply chains, imports also buckled. Weakening regional
consumption and investments have further compounded these problems, resulting in
substantially reduced regional growth rates from the decade's peak of 9.5% in 2007.
The healing of global financial crisis must tackle its root, that we globally have shared
the cost. Historically, Asia development relied on the US and EU markets to advance its
economy, especially the export-oriented industrial policies. The crisis is an evolution of
the “over” reliance on external market and the new structure of production that is to
“invent in the west and produce in the east”, which has been facilitated by a virtual and
overstretched world financial market.
Despite the notable slowdown in growth in 2009 in most economies across developing
Asia, the region has proved to be more resilient than had been feared. The ADB
projects regional economic growth at 3.9% in 2009 and 6.4% for 2010. This is primarily
because of (i) regional governments' quick and decisive response through strong fiscal
and monetary stimuli; (ii) stronger financial systems in the region than elsewhere at the
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onset of the crisis; and (iii) a rapid turnaround in the region's larger economies (China
and Korea) with positive spillover effects in other countries.
To ensure the recovery of Asia economy, the region has maintained its resilience in
financial system, diversify its economy and promote regional integration, both in term
of export and trade.
Let then look at the opportunities and challenges coming out of this turbulent time:
Opportunities – some trends have been observed:
1) Regional outward looking policy
2) Integrate ad-hoc measures to strengthen resiliency to the future crisis
3) Diversify export market and build domestic demand
4) Promote regional investment
Challenges – nevertheless, they are awaiting us:
1) Exit strategy for stimulus package
2) Better economic integrate/connection in Asia, of which ASEAN is a connector
3) Inclusion of small-open economy
4) Climate change
Let me elaborate on those opportunities and challenges.
Opportunity 1: Global economic crisis spread very quickly, because it inter-dependent
to the US economy. The sever impacts are found in the countries where trade
concentrated too much to US and EU market. This is the case of Asia. Financial crisis in
Asia in 1997 has little impacts on US and EU, because their trades were diversified and
they were not at the epic center. In the current crisis, the epic center was in US, but it
spread wide to Asia. It prompts for an urgent need to change policy from exportoriented policy, which created Asia miracle, to establish a vibrant regional market. This
calls for and regional outward looking policy, which aims to enhance purchasing power
in the region and produce for regional demand.
Opportunity 2: During crisis period, governments in Asia timely introduce some policy
intervention to mitigate impacts. Some policies are good, such as expanding fiscal
stimuli to invest in infrastructure development, to increase connectivity within their
countries and the region. Some other countries relax their exchange rate policy, as well
as lower domestic interest rate. However, some were ad-hoc policy measures. During
the recovery, Asia economy needs to integrate those to their economic policy to
strengthen resiliency to the future crisis.
Opportunity 3: Diversifying export market and building domestic demand is a key to
the recovery of Asia economy. Unfortunately, the surge of domestic demand is artificial
created by stimulus package. Asia could opt to focus on the other part of World, for
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example middle east, Russia, Africa, or building its regional and domestic demand.
Excess saving in some economy create a thin demand, which could not trigger and
support production base. Changing the preferring of saving by creating secure future
earning environment and setting a right interest rate and exchange rate could improve
both domestic and regional demand. EU is a good example in creating a vibrant big
market that Asia should follow.
Opportunity 4: Asia is the main sources of saving, but it is also an investment
target/destination for production or real economy. Capital is recycled, flowing out from
the region to the US and EU Market, before turning back to the region. Asia institutions
fails to interconnected and build trust that could promote intra-regional investment.
This crisis provides us a great opportunity to speed up those related initiatives.
Challenge 1: Recently, Asia economy is being recovered. China has maintained an
impressive growth during the crisis period and now. India and Indonesia are doing well.
Experiences from Asian financial crisis entrenched the resilience of financial system,
which has effectively limited the full impact of crisis. The recent recovery pretty much
depends on stimulus package, which is artificial. Many responses are Keynesian
ambulance, which is designed to hopefully wait for the recovery of US and EU. This will
continue to be the “business-as-usual” path of economic growth. In this regards, it is
hard to ensure the sustained recovery of Asia economy, without the recovery of US and
EU economies.
Fiscal and monetary expansionary policies that adopted by many Asia economies would
face challenges of exiting, both in form of production and consumption. In the context
of prolonged recovery of US and EU economy, more and even substantial stimuli are
required to fuel growth, which will create a difficult situation to exit. As the result, the
economy will run at high cost, less efficient and uncompetitive. In this regards, Asia
economy has to make sure that it would not hit or crash the wall by pushing too hard in
implementing the very costly stimulus packages.
Challenge 2: There are also notable variations among country groupings, perhaps
because of their more limited integration with the global financial system. While many
economies perform well during crisis, the largest economy such as Japan remains in
recession. This suggested that the isolation or less dependency of Asia economies. The
ASEAN-China, ASEAN-India and ASEAN-Korea free trade Areas that came into effect on
1 January 2010 is a concrete step toward a more integrated region. Our challenge is on
how-well ASEAN can play role that under different frameworks to facilitate trade in the
region. ASEAN also establish a comprehensive economic partnership with Japan.
Challenge 3: However, small-open economy relies on international trade as a
development mechanism. Experiences from Cambodia showed that accession to
international make triggered more production in agriculture. Moreover, development of
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garment industry was due to preferential treatment from EU, US and other countries.
Maintain market accession for small-open economies could provide opportunity for
quick development. Moreover, regional development should not exclude the small
economies, which would be future potential markets.
Challenge 4: the world has to overcome the climate change, which would lead to a
change in human living conditions. Consumers’ taste may change that would lead to
change in production. In agriculture, global warming would shorten rainy season and
increase intensity of rainfall, which will significantly impacts the yields. Therefore,
economic policies need to change to adopt and adapt to those changes.
Your Excellencies,
Ladies and Gentlemen;
Asian countries’ responses to the crisis ranged from strong to inadequate, depending on
how and when the crisis reached them, the nature of and intensity of its effects, and
their ability to fight back. In most countries, the first step was to safeguard banking and
financial systems, although the speed and intensity varied. The balance of risk in most
of the region has shifted since September 2008 from rising inflation to slowing growth.
Fiscal policy has taken the center stage in the region but the size and potential
effectiveness of stimulus efforts vary widely. Public spending, especially on
infrastructure, accounts for the bulk of the stimulus packages in most countries. In
Cambodia, we have also paid greater attention to ensuring stability in the banking
sectors and providing support for some key sectors such as garments and agriculture
while making use of this opportunity to strengthen and develop our safety net systems
to safeguard against future shocks.
Thank You!
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