Experts gather for macroeconomic policy dialogue in ESCAP
On December 8th, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) organized a policy dialogue to discuss emerging macroeconomic policy issues and development challenges in the ESCAP region.
The dialogue was attended by senior experts from the central bank, major think tanks and the academia of several ESCAP member states.
In his opening remarks, Dr. Nagesh Kumar, Chief Economist and Director of the Macroeconomic Policy and Development Division (MPDD) of ESCAP, said that the Asia-Pacific region has overall fared better in terms of recovery from the crisis but faced fresh challenges of sustaining the pace of recovery in view of slowing growth of exports to developed countries in the short term and of rebalancing its economies in favour of greater domestic and regional demand. Inclusive development and regional economic integration are important conditions for sustaining growth in the medium term. If the region moves in these directions, the crisis would have served a good purpose.
In assessing the risk perception, experts pointed out that despite talks of decoupling, exports from the region were inevitably affected by the slowdown in the Western advanced economies – which face a difficult balancing act of escaping the “low growth, high unemployment” trap and at the same time taking corrective action on the rising debt.
Short-term capital inflows have also led to exchange rate appreciations in several major economies in the region and sharp rises in stock and property prices. It was noted that with stocks rising and bond yields falling, there seemed to be some disconnect with the real economy. Hence prudential measures, such as those imposed in the Republic of Korea, Indonesia and Thailand, were needed to counter pro-cyclicality. In addition, balance of payments statistics should be carefully interpreted, as external indebtedness might have fallen but with a much higher exposure to speculative portfolio investments.
Commodity prices were also rising with oil prices reaching $90 per barrel and several South Asian economies facing high rates of inflation driven by food prices. There was a consensus that monetary policy was an inappropriate tool for controlling food prices. Instead focus should be on improving the supply, price controls, better use of buffer stocks, regulation of speculative activity by imposing limits on positions, among others.
Impact of the global economic crisis was also felt differently within countries. For instance, female workers in the export manufacturing sector were particularly hard hit, many of them still remaining in vulnerable employment. Similarly, while remittance flows have generally proven resilient, the story might be more complex when we disaggregate the data into different groups and look at household coping strategies. Overall as a region, Asia-Pacific has evolved a growing number of social protection programs, but they need to be scaled up and deepened.
In addition, experts discussed the particular challenges facing the Pacific island counties, where revenue from most sources has been stagnant and overall growth prospects low. It was noted that labor mobility, including through allowing more seasonal workers, could generate significant benefits. Better linkages between tourism and agriculture were also proposed – for instance, by increasing the domestic content of food served to tourists.
Finally, the issue of rebalancing and closer regional integration was discussed. It was noted that smaller developing countries face a more challenging environment, as inducing domestic demand generated growth is harder. Building closer linkages with the emerging market economies in the region will thus be vital. Looking back at South-East Asia’s experience of integrating into the global production chain, it was noted that the relocation of factories from NIEs was an important factor. For the lower income members like Cambodia and Lao PDR to benefit from similar patterns, improvements not only in infrastructure and logistics but also in human resources are urgent.