Summary: ESCAPís Economic and Social Survey of Asia and the Pacific 2009We are living through a period of tremendous turmoil and uncertainty. The worst financial crisis since the Great Depression, the continuing food/fuel price fluctuations and looming climate change disasters have converged Ė posing triple threats to development. The ESCAPís Economic and Social Survey of Asia and the Pacific 2009 reviews macroeconomic performance in the Asia-Pacific region, analyses the threats, and outlines ways in which the regionís economies can forward move in unison, from initial crisis resilience to crisis resistance. The analysis and proposed policy actions centre around three messages:
1. A crisis-vulnerable region that nevertheless showed remarkable resilience when the financial crisis hitFor the second time in less than a decade, the Asia-Pacific region has been hit by financial crisis. The region is crisis-vulnerable because it is more integrated through financial, trade and investment flows with the rest of the world than with itself, thus opening up a channel for transmitting global financial instabilities and recession back to itself. At the same time, the region showed remarkable resilience to the financial crisis, having become better prepared for such crises through implementation of prudent macroeconomic policies, improved fiscal balances, banking reforms and foreign exchange reserve accumulation over the past decade.
2. The global outlook for 2009 has darkened considerably with new layers of crises looming large for the regionHowever, by the fourth quarter of 2008, trade the regionís engine of growth, moved from double digit growth to double digit declines, with fresh evidence mounting that the worst has yet to come. As the economic outlook continues to darken at the global level, there is a tangible shift in recession-hit countries towards more inward-looking protectionist policies. The tried and true recourse of 1998óboosting exportsóhas lost its effectiveness in mitigating economic crisis. The region thus will have to rely on itself as a source of growth. A downside risk is that if expansionary monetary and fiscal policies enacted by various countries fail to stimulate domestic private consumption and investment, risk aversion and loss of confidence may deepen. Banks will further curtail credit supplies to households and businesses, while fear will increase that Governments may lack the means to finance ever-larger bailouts or that public debt increases will be a threat to economic stability in the future. There is a marked risk that the financial crisis could converge on itself in a downward spiral of deepening recession, social unrest and political instability. This combined with food/fuel price shocks and climate change challenges brings compounding effects that feed on each other and result in policy stresses that if not properly addressed could lead to a superimposition of new layers of crises.
3. Crises present an opportunity to move from resilience to resistance, if recognized as such by the regionNotwithstanding this gloomy scenario, there are two issues of importance:
- One is that the regionís past prudent macroeconomic management has enabled it to put in place expansionary fiscal packages that will see ESCAPís developing countries emerge as primary sources of any world economic growth that might take place in 2009, thus providing some global stability. While growth is being subjected to continuous downward revisions, the regionís developing countries are forecast to grow at 3.6 per cent as compared to -2.2 per cent for the regionís developed economies. This opens up opportunities for mutually beneficial collaboration between developing countries themselves as well as between developed and developing countries
- Second, the risks inherent in market failures are too high and the costs of neglecting traditional regulatory capabilities of government are too brutal. The crises present an opportunity to shift perspectives on development and the role of Government. Governments will reenter the macroeconomic landscape to rebalance economic, social and environmental systems. However, this should not mean a return to models of the past. Rather it should be based on a modern form of governance centered on how governments manage openness, interdependence and collaborate with each other multilaterally, regionally and nationally as partners of their peoples. Leadership will be needed to form and frame a more inclusive and sustainable development path that links societies across nations and generations across time, and Asia-Pacific by acting in unison can emerge as a centerpiece of this process.