- This is the inaugural issue of the Bulletin. Its objectives are twofold; one, to provide an assessment of the most recent developments in the global economy and their impact and implications for various economies within the ESCAP region and two, to shed some light on the pressing issues and feasible options available to governments in the management of change.
- The assessment of recent developments prepared by ESCAP staff benefited greatly from the collective wisdom of 14 eminent persons from the region who met over two days in Bangkok on 22-23 October 2001 and gave their views to the ESCAP Secretariat. These are included in the statement entitled "Challenges Facing the ESCAP Region" on pages 31-32 of the Bulletin.
- With regard to the issues, challenges and policy options facing the ESCAP region these are discussed in the seven shorter pieces in the Bulletin. They range from the impact of ICT in India, the new WTO Round to the challenges that the ESCAP region will face from the implementation of the new Basel Accord for capital adequacy. Other pieces focus on issues of poverty and contemporary development issues in Central Asia and the Pacific islands.
- As the crisis evolves growth forecasts are being continuously updated. The next issue of the Economic and Social Survey of Asia and the Pacific will provide an assessment of the latest prospects for the Asia-Pacific region. The Survey will be released in April 2002.
Global And Regional Developments: Patterns, Implications And Prospects For The ESCAP Region
- Even prior to the terrorist attacks in the United States the global economy was faced with the most geographically synchronized slowdown since the Second World War. The exact impact of the terrorist attacks is still evolving and new forecasts from the IMF, World Bank and ADB for both 2001 and 2002 give lower forecasts of growth for the global economy and the Asia-Pacific region. It is clear, however, that the attacks are intensifying the global downturn in the short term through a major loss of business and consumer confidence.
- From the perspective of the ESCAP region the downturn would:
- retard the achievement of the United Nations Millennium Declaration's goals on poverty reduction;
- call into question the long-term rationale of the export-led strategy of growth;
- require a re-evaluation of the role of the public sector in sustaining domestic growth and stabilization;
- renew the debate on the costs and benefits of globalization such as those arising from the adverse impact of greater volatility and higher security and insurance costs following the terrorist attacks;
- focus attention on the strong need for a coordinated response between developed and developing countries to counter the slowdown;
- boost momentum towards greater regional cooperation in trade and financial matters including action on counter money laundering; and
- promote the need for a more balanced trade agenda reflective of the needs of developing countries.
- Against this background, the following factors need to be remembered: One, in the ESCAP region, countries with high trade-to-GDP ratios and high dependence on the United States as an export destination,
such as East and South-East Asia, would suffer the most from the downturn; countries with large domestic markets and with relatively low trade-to-GDP ratios, such as China and India, would suffer the least.
Nevertheless, all countries in the region will have reduced growth rates. Two, from a global perspective there is no obvious 'engine' of recovery in sight though United States recovery is expected to provide the boost.
Three, with interest rates already at their lowest for a generation or more further monetary easing may be of limited help in stimulating activity. Fiscal stimulus is the key policy instrument, though the appropriate thrust of the stimulus varies from country to country.
Four, restoring consumer and business confidence is thus the key.
- For 2002, given the role played by robust growth in the United States economy in the global economy in 1990s much depends upon a revival of growth in that economy. These sectors have been the worst affected by the downturn in the United States.
- Diversification away from high tech exports - a significant source of growth in the ESCAP region since 1998 - and to markets other than the United States is not an easy option in the short term for most countries. Furthermore, a slowing global economy is likely to constrain growth in all economies.
The region as a whole is faced with many challenges:
- In the short term, the principal challenge is, given the rising level of public debt, how to stimulate growth through higher state spending while maintaining macroeconomic prudence - 'squaring the circle' in other words - and simultaneously sustaining the momentum of financial and corporate sector reform.
- In the long term, the goal is to manage more effectively the process of globalization, i.e. maximizing its benefits and minimizing its costs.
- For this, governments need to enhance regional and sub-regional trade and financial cooperation and reduce over-dependence on particular markets and products.
- At the same time, governments need to pursue trade and financial market liberalization, while realistically assessing their institutional strengths and weaknesses in this regard.
- The successful conclusion of the WTO talks in Doha, Qatar opens up new opportunities for developing countries to participate in, and benefit from, the on-going process of multilateral trade liberalization. It also sends a strong positive signal to governments and business people around the world with respect to trade, economic growth and tackling poverty in the future.
Other selected issues in development
- In Information And Communications Technology And Development, the author (Bibek Debroy, Director, Rajiv Gandhi Institute for Contemporary Studies, New Delhi) states that ICT is like Janus for India. While it will boost exports, output and employment India will still have to address the challenges of development such as the low level of literacy, low enrolment ratios in education and a persisting high level of poverty. The critical element in a knowledge-based economy and tackling development remains reform of education.
- Issues of public debt management are taken up in Public Debt Management: A New Priority (Nihal Kappagoda). The author offers a framework for effective debt management based upon a clear statement of objectives, coordination between macroeconomic policies and debt management and transparency on the part of the government in terms of information flows to the public. The author looks at the varying experiences in this regard of Thailand, the Republic of Korea and Indonesia following the 1997 crisis.
- WTO And Developing Countries: Regional Perspectives On Future Trade Negotiations, explains that both developed and developing countries stand to gain from further tariff reductions and achieving results in this area can be facilitated by focusing on the common interests of developing and developed countries. Educating the public is the key. In ESCAP, there is scope for countries to band together in negotiating groups to obtain concessions from more powerful trading partners.
- Pacific Island Economies: Recent Economic Growth Experience (author Te'o I J Fairbairn). Pacific island countries face many obstacles to sustainable growth including a poor policy milieu. It is in this latter area that future reform efforts should be concentrated.
- The New Poor explains how economic crises, political events, terrorist attacks and natural disasters can lead to the creation of a set of new poor. Preventive, mitigation and coping strategies that stress social safety nets are recommended for tackling the problems of the new poor.
- Contemporary Issues In Central Asia focuses on the reforms carried out in these countries in the 10 years since they began their transition to market economic systems. It is emphasized that a decisive commitment to macroeconomic stability, improving the fiscal position, strengthening institutions and governance and dealing with the social consequences of reform are needed to meet the challenges ahead.
- Implementation Of The New Basel Capital Accord In The Asia-Pacific Region: Potential Challenges And Rewards outlines the capital requirements of banks in the revised Basel Capital Accord (to be implemented from 2005) based upon a credit risk assessment for each separate category of assets and the challenges this would pose for the banking systems of the region. As a result of the New Accord, more capital will be needed by banks in the developing countries, thus constraining their ability to expand their asset base. Here, banks in developing countries should be given the responsibility to implement new regulations at a realistic pace.
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