Achieving the MDGs in Asia-Pacific through Partnership

Mr Chairman, excellencies, ladies and gentlemen

It gives me great pleasure to take part in this event. The theme, “Achieving the MDGs in Asia-Pacific through Partnership” is highly significant and timely as we approach the UN Summit on MDGs in September 2010.

Partnerships have been a cornerstone of strategies, policies and programmes adopted to achieve the MDGs. The global and regional partnerships enshrined in the MDG-8 call on developed countries, multilateral donors, and the private sector to assist developing countries through development finance, market access, technology, knowledge sharing, and other resources as they focus their policies on achieving MDG 1 to 7. In the dynamic Asia-Pacific region, these partnerships at the regional level have a great potential. With the increasing recognition of the regional interdependence first highlighted by the 1997 Asian financial crisis, numerous regional partnerships have been formed in the Asia-Pacific region and deepened. This is reflected in not only the adoption of plans of economic integration by sub-regional groupings such as ASEAN, SAARC, BIMSTEC, Pacific Islands Forum but also evolution of broader forums such as ASEAN+3 and the East Asia Summit. The other has been the rise of emerging countries of the region as sources of development assistance, and technology to other partners in the region. I will argue that these partnerships especially regional cooperation in different areas become even more critical in the context of the global financial crisis that has made the return to business as usual scenario for sustaining our growth and dynamism more difficult. Regional economic partnerships with a focus on poverty reduction, MDG achievement and narrowing other development gaps will have to form a strategy to sustain region’s dynamism. In other words, the challenge posed by the financial crisis can be turned into an opportunity for poverty reduction, MDGs achievement and narrowing development gaps thus helping in balanced and inclusive development of our region.

Excellencies, ladies and gentlemen

The global economic crisis posed additional challenges to national efforts to achieve the MDGs in the Asia-Pacific region. As has been brought out very well by the 2010 MDG Report of the Secretary General and the ESCAP/ADB/UNDP Regional MDG Report 2009/10, that prior to the economic crisis, Asia and the Pacific had been making impressive progress towards some MDG targets. The region as a whole is an early achiever for a number of targets, including improvement in access to safe drinking water, reducing gender disparities in primary and tertiary education, and stopping the spread of HIV & AIDS, and TB. In addition, the Asia-Pacific region is on track to achieve other important targets, including reduction of extreme poverty (by $1.25-a-day poverty line), promoting access to primary school for all children, and achieving gender parity in secondary education.

But the progress towards the MDGs has been quite uneven across targets and across sub-regions in Asia and the Pacific. East Asia and South-East Asia as a whole has already reduced the prevalence of extreme poverty by half of the level in 1990. Thus it is an early achiever for this target. But South Asia is making a slower progress on this goal. All of the sub-regions except the Pacific Islands have achieved gender parity in primary school enrolment. The progress has been slow in reducing malnutrition among under-5 children in all the sub-regions except South-East Asia and North and Central Asia.

Within individual countries too, large disparities remain a challenge. Malnutrition among young children for instance is more prevalent in rural than in urban areas in large number of countries. The rural-urban divide in Bangladesh, Nepal and Turkey have actually widened over the years. This means that children in urban areas in these countries benefited more from the progress. The exception is Cambodia, which between 2000 and 2005 managed to reduce the proportion of children underweight in both urban and rural areas, but at an even faster rate for rural areas.

Despite the progress, large scale deprivation remains in the Asia-Pacific region. The region has a high share of over 70% of rural residents without basic sanitation in the world, over 70% of world’s undernourished children and over 68% of people living in extreme poverty in the world. Even with achievement of the target of halving the percentage of people without access to clean water, it still has 406 million rural residents without access to safe drinking water.

In achieving the MDGs, LDCs of the region have faced particular difficulties. The High-level Review of the Brussels Programme of Action for Asia-Pacific LDCs for the Decade 2001-2010 conducted by ESCAP in Dhaka in January 2010, showed that, although some progress has been made in achieving the key objectives of the Brussels Programme of Action, the LDCs continue to suffer from multiple development challenges, and as a whole encounter greater difficulties in making a sufficient progress in achieving the MDG targets by 2015.

Excellencies, ladies and gentlemen

The global financial crisis which struck with full force since the third quarter of 2008 disrupted the growth process all across the world. The Asia-Pacific region, given its deep trade and financial linkages with the world economy, was affected severely by the crisis. Widespread job losses were reported all across the region as the growth rates declined in most countries pushing more people to poverty and reversing the development gains of years. ESCAP/ADB/UNDP Regional MDG Report estimated that at least 21 million people may have been trapped into poverty because of the crisis in the region.

Due to timely response by the region’s governments in the form of massive fiscal stimulus packages and expansionary monetary policies, the economic outlook of the Asia-Pacific region has improved considerably with a seemingly V-shaped recovery. ESCAP’s latest Economic and Social Survey projects a 7.0% growth in 2010 of the Asia-Pacific developing economies, led by China growing at 9.5% and India, at 8.3%. However, the recovery is fragile besides further uncertainties created by the European debt crisis. Furthermore, rising inflationary pressures in a number of countries especially in food prices, growing asset price bubbles and appreciating exchange rates in a weak growth environment require a tough balancing act on the fiscal and monetary policies fronts and will make 2010 a year of complex policy making.

Beyond these short-term challenges, however, a serious consideration has to be given to the prospects of sustaining the recovery beyond the fiscal stimulus packages. As APEC leaders have argued at their Singapore Summit in November 2009, it is not possible to return to ‘growth as usual’ and ‘trade as usual’ scenario given the unwinding global macroeconomic imbalances and debt-fuelled consumption. ESCAP’s analysis also suggests that a return to the business as usual scenario is unlikely and even with a recovery, growth of imports of the western economies may not revive to the pre-crisis trends. This clearly means that Asia-Pacific region has to develop new sources of demand that would make up for the shortfall in the advanced economies like the US.

This is where poverty reduction strategies, achieving MDGs and narrowing other development gaps become relevant. With close to a billion people living in poverty and other development gaps, the Asia-Pacific region has a considerable head room for generating additional aggregate demand for sustaining regional growth. Recent ESCAP studies find that for closing the MDG gaps (other than poverty), the region would require additional resources of the order of US$ 636 billion over the 2010-2015. For the region as a whole, the costs may not seem daunting, but for individual countries they can be steep-- over 20% of the GDP for some of the LDCs. ESCAP studies also point to the wide gaps in infrastructure development that need to be closed between more advanced countries in the region and the poorer countries typically the LDCs, landlocked and small island states. These gaps require nearly US$ 800 billion of investments a year. It is clear that we have enormous potential of enhancing consumption and investments in the region that would not only help to make up for the shortfall of demand in the west but will also make the growth process much more balanced. It is time we argue for Asia to invest in itself.

Where could the resources come from to close these gaps? ESCAP studies explored into both domestic and international sources. An analysis of government budgets in Asia-Pacific countries suggests that the governments have focused on fiscal consolidation over the past decade (except for the 2008-10 crisis management) and have often been prevented from fully exploiting the fiscal space available to them by the prevailing economic orthodoxy that tends to limit budget deficits to a one-size-fits-all rule of thumb of 3%. We argue that an optimal level of fiscal deficit should vary according to the national circumstances and often more fiscal space exists than is realized. This additional fiscal space or spending ability wherever exists should be exploited for funding MDG priorities. Furthermore, more resources for MDG spending can be found through reorienting the public expenditure, through public-private partnerships, through augmenting the government revenue by widening the tax base and by making fiscal incentives development-friendly such as providing incentives for employment generation rather than just capital investment in the corporate tax laws.

Besides overseas development assistance that is critical for MDG financing in many developing especially least developed countries, South-South cooperation is becoming an important channel of resources and technical assistance for many countries. Significant magnitude of such assistance is originating now in countries in the region such as China, India, Thailand, Singapore, among others. Asia-Pacific countries especially Japan have also mainstreamed the triangular development cooperation. ASEAN’s dialogue partners such as Japan, China, India, among others, have set up funds to support cooperative activities in ASEAN countries. Intra-regional FDI flows are also increasing in importance with the rise of new sources in the region such as China, India, Russian Federation, Malaysia, among others. The other aspect of South-South cooperation is the preferential market access extended by region’s emerging countries to other Southern partners. China and India both have launched such tariff schemes for LDCs in recent years.

We have to also explore new sources of funding global public goods such as MDGs. In that context, initiatives such as solidarity levies on airplane tickets to fund medicines for fighting diseases in poor countries have considerable potential. There is also a discussion on a global financial transaction tax that could moderate the volatility of short term capital flows while generating billions of dollars of revenue. Even a small tax of 0.1% on global foreign exchange transactions could yield revenues of about $640 billion annually that would go a long way in funding the MDGs and other development gaps. Concerned by the financial volatility brought about by the short term capital flows, a number of European countries such as France, Germany, the UK have been seeking a consensus on such as tax. G-20 leaders have asked IMF to advise on the relevance and feasibility of such an instrument. Hopefully the Seoul Summit of the G20 would be able to move forward in that direction. While it would be most optimal at the international level, a beginning could be made at a regional-level in Asia-Pacific region as a stepping stone to a global tax, in case a global consensus takes long time to evolve. Republic of Korea’s leadership in bringing development on the G20 agenda and enhancing outreach activities to bring a perspective of non-G20 members or the poorer countries is laudable. ESCAP seeks to contribute to this process by organizing a consultation with its membership on the G20.

Finally, lack of a well developed regional financial architecture has been a reason why the region’s central banks have invested their growing savings and foreign exchange reserves in the United States treasury bills thus perpetuating the global macroeconomic imbalances by funding excess consumption in the US. The recent multilateralization of the Chiang-Mai Initiative is an important step but is limited to management of liquidity crises. With combined reserves of nearly $ 5 trillions, the region now has the ability to develop a more ambitious regional cooperative architecture that could not only help prevent and manage crises but also assist in closing the development gaps and unleash the potential aggregate demand in the region’s lesser developed regions. At the 66th Session of the ESCAP Commission held in Incheon last month, the member countries have asked the ESCAP secretariat to assist in elaborating the elements of a stable and development-friendly regional financial architecture.

Excellencies, ladies and gentlemen

Let me now turn to the aspects of the regional policy agenda for creating new engines for fostering inclusive and sustainable growth that ESCAP has been articulating in its recent publications.
Strengthening social protection

We need to attach a high importance to strengthening social protection. If poor households can rely on systems of social protection that will automatically trigger social safety nets at times of adversity they will be able to maintain food intake and continue to use education and health services. Just as important, at normal times they will have less need to maintain precautionary savings and can use more of their income for consumption. Social protection is also desirable in view of the fact that the Asia-Pacific region is the most disaster-prone region in the world. The people most affected by all these crises are the poor, women, young people, persons with disabilities, older persons and workers in the informal sector. Recent statistical work by ESCAP also indicates that developing countries of the region have a very high proportion of their labour force working in the informal sector with minimal legal protection and social security. The Asia-Pacific region now has a number of examples of ambitious social security programmes. These include Thailand’s universal health-care programme, China’s new health insurance scheme, India’s National Rural Employment Guarantee programme, and conditional cash transfer programmes in Indonesia, Cambodia, the Philippines, and Bangladesh.

Promoting agriculture and rural development by fostering a new green revolution

As the majority of poor people live in the rural areas and derive most of their income from agriculture they are likely to benefit from agricultural growth. We now need a new more knowledge-intensive green revolution that combines advances in science and agricultural engineering with the region’s unique traditional knowledge to make agriculture more environmentally resilient. International partnerships and South-South cooperation can also help foster such a green revolution while also addressing concerns for food security. Asia-Pacific region has a number of centres of excellence in agricultural research which will be networked and empowered to assist in fostering such a revolution.

Enhancing Financial Inclusion

Beyond mobilizing funds, we must ensure that financial services reach out to the millions of ‘unbanked’ providing them with the opportunities and security of a well functioning financial system. In most of the countries of the region, only a small proportion of the population has access to formal financial services. Tackling these barriers to access requires innovation in bringing financial services to the poor, investment in human resources and technology within the banking system. Different types of financial institutions e.g. commercial banks, microfinance institutions, development financial institutions, post offices and other public networks- have a role to play to serve the poor, with their own strengths. The public policy and regulations have a critical role to play in creating an inclusive financial system, which is efficient, fair and secure. The experience of several countries shows that left to itself, the financial system is unlikely to champion financial inclusion. In addition, widening the range of financial services to the poor is essential covering “five-micros”: micro-savings, micro-credit, micro-repayments, micro-remittances and micro-insurance.

Promoting Green Growth and environment-friendly innovations

Asian and Pacific countries are facing immense challenges in sustaining previous levels of economic growth as natural resources dwindle. Demand for energy, water and other natural resources is expected to continue to grow rapidly, yet the basic needs of millions of people remain unmet. The Asia-Pacific region can no longer hope to “grow first and clean up later”. Green Growth emphasizes environmentally sustainable consumption and production that foster low-carbon, socially inclusive development. Investing in the sustainable use of resources and in providing clean energy, safe water, and adequate sanitation can realize double dividends in terms of economic growth, poverty reduction, and environmental sustainability - including in climate change mitigation and adaptation. Many countries in Asia and the Pacific are already successfully integrating environmental sustainability into their socio-economic development strategies. Several countries have also turned the financial and economic crisis into an opportunity for green growth by incorporating green elements into their economic stimulus packages. While many initiatives are underway, it is clear that there is no ‘one-size-fits-all’ approach, and that countries will need to tailor green growth to their own priorities. ESCAP secretariat with the support of the Government of the Republic of Korea is developing a low carbon, green growth roadmap for East Asia, which will assist member countries in integrating development and climate challenges. At the Asia-Pacific Business Forum that ESCAP organized in April in Kunming, governments and business leaders discussed policies and strategies to create markets and to grasp the huge business opportunities of low carbon goods and services.

Enhancing eco-efficiency of resource use will need to be promoted consciously through a strategic industrial policy approach and through incentives and regulations. Continuous investment, both private and public in this economic development path is critical to build on the capabilities that a number of Asia-Pacific developing countries are acquiring and to strengthen their economic competitiveness in the world market, where greener technologies and goods are rapidly expanding their shares. Richer countries can invest in developing new systems. But for developing countries an important condition for ensuring environmental sustainability is their access to existing greener technologies and finance. The United Nations Framework Convention on Climate Change (UNFCCC) provides for the commitment of developed countries to support developing countries, through the transfer of technology and finance according to the principle of common but differentiated responsibilities. Governments will also need to consider policies that channel private sector capital into investments in green technologies although public financing will play a crucial role, especially in the short run.

Evolving a regional framework for cooperative action

Finally, I earlier talked about the need for developing a regional financial architecture. Deepening regional economic integration and improved transport connectivity have their own logic. With some of the world’s largest and fastest-growing economies, Asia and the Pacific can become an even greater economic powerhouse if it develops a more integrated regional market. Thus far, for historical, political and topographical reasons, the region has been better connected with Europe and North America than it has been with itself. ASEAN has been a pioneer of regional economic integration in Asia-Pacific. Alongside deepening its economic integration process beyond ASEAN FTA (AFTA) to an ASEAN Economic Community by 2015, ASEAN has also provided a basis for an even broader economic grouping by bringing other major Asia-Pacific economies viz. Japan, China, Republic of Korea, India, Australia and New Zealand, as dialogue partners leading to formation of ASEAN+1 FTAs. This dialogue partnership has also led to formation of two broader groupings namely ASEAN+3 and the East Asia Summit (EAS) that are both considering closer economic partnership arrangements. The first is the East Asia Free Trade Agreement (EAFTA) which brings together the ASEAN+3 grouping. The second one is the Comprehensive Economic Partnership of East Asia (CEPEA) of the East Asia Summit (EAS) whose members include those in the ASEAN+3 grouping plus Australia, India, and New Zealand (or ASEAN+6). These proposals hold the promise of broader economic integration in the region and can serve as stepping stones to an even broader, unified Asia-Pacific market and an economic community. Therefore, they need to be expedited especially in the context of falling demand for region’s exports in the western markets. Furthermore, regional trade agreements (RTAs) should move beyond tariff reductions to broader and deeper economic partnership agreements. Dismantling non-tariff barriers and reducing delays at borders will not only facilitate trade and investments, it will also generate wider employment opportunities as small and medium-sized enterprises integrate more effectively in regional value chains.

Secondly, connecting countries through roads and railways is a critical element of regional integration, a reduction in development gaps, more balanced spatial development and improved access to social services. Development of transport and other physical infrastructure also has the potential to generate aggregate demand besides narrowing the development gaps and promoting connectivity. The ESCAP helped organize the Ministerial Conference on Public Private Partnerships for Infrastructure Development and Infrastructure Asia 2010 held in Jakarta in April 2010 inaugurated by Honourable President Susilo Banbang Yudhoyono of Indonesia considered ways and means to promote public private partnerships to foster infrastructure investments.

In future the region will need an integrated, multimodal transport system. For this purpose, it can, for example, build intermodal transfer points, also known as dry ports, where goods, containers or vehicles can be transhipped using the most efficient mode of transport – along with facilities for product grading, packaging, inspections and the processing of trade documentation. The areas surrounding dry ports can then emerge as growth poles, bringing new investment and employment opportunities to impoverished hinterlands while reducing the pressure on coastal areas. Building on its Asian Highway and Trans Asian Railway Networks, the ESCAP secretariat is now helping the region develop a network of dry ports while improving trade and transport facilitation such as through paperless trade and single window clearance. ESCAP, along with the Asian Development Bank and Economic Research Institute for Asean and East Asia (ERIA), is also assisting with ASEAN in developing a connectivity master plan.

In conclusion, Mr Chairman, I have outlined how the partnerships at various levels can play an important role in assisting the Asia-Pacific region achieve the MDGs but also sustain its recovery and dynamism for inclusive and sustainable development and become an anchor of peace and stability in the world economy. ASEAN as a pioneer of regional economic integration now has the opportunity to lead the process of broader regional economic integration bringing economic powerhouses of Asia-Pacific region namely Japan, China and India among others together to drive formation of a unified Asia-Pacific market that would unmistakably emerge as the centre of gravity of the world economy. ESCAP as the regional arm of the United Nations, and the all-inclusive forum for Asia and the Pacific, stands ready to provide the analysis, and facilitate the policy consensus, for this collective journey.

I thank you very much for your attention.