Launch of Economic and Social Survey of Asia and the Pacific 2009
Excellencies, distinguished delegates, ladies and gentlemen,
We are grateful to Thailand’s Deputy Prime Minister, His Excellency Korbsak Subhavasu for attending this launch. Your presence here today despite your
pressing schedule is a reflection of the importance of this occasion.
This past year has been a tumultuous one. Consequently the launching of the 2009 Survey marks an important departure from ESCAP’s previous publications. The severity of the triple financial, food/energy and climate change crises required a more responsive, action oriented document. The Survey’s findings and recommendations will be of use to financial policy makers and economists throughout the region. It will serve as a guide through the uncertain times ahead brought about by the fundamental changes currently taking place in the macroeconomic landscape.
Secondly, the simultaneous launching of this publication in 20 countries provides an opportunity for an Asian Pacific voice to be heard during the G20 summit meeting in
early April this year. It identifies the issues we think need to be discussed and the solutions required to meet the challenges facing us regionally and globally.
You will find that ESCAP’s survey has taken anticipatory approach to analyzing the challenges facing our region. It proposes mitigative and long term policy measures which can be taken swiftly and collectively to help move the Asia-Pacific to the forefront of a new global economic order.
I would like to quickly summarize the Survey’s findings and its implications for policy making. I will then propose three priorities for immediate action.
The Asia-Pacific region is facing a triple threat
The world’s attention is currently focused on the financial crises and the subsequent repercussions sweeping the globe. There are, however, two other longer term crises that have been overshadowed by current events. Food and energy security issues as well as climate change threaten to disrupt trading systems, human health and environmental well being in the near future. The Survey argues that while all 3 crises are symptomatic of imbalances that have been building up over decades, these other crises are the longer term manifestation of development gone wrong. Non inclusive economic policies have allowed the number of inequities in our region to grow, while short term development practices have resulted in significant environmental degradation to our planet. The converging triple crises remind us all that a more comprehensive, inclusive approach to sustainable development is needed if we are to meet the MDGs. Accordingly, the Survey has identified four major policy challenges.
Challenge 1: Asia’s export oriented growth model is under threat
While the financial crises emerged from developed countries in the West, it is taking the form of a trade crisis in the region Having undergone significant reforms since 1997, the financial sector of the Asia Pacific showed remarkable resilience to the initial impacts of September 15, when Lehman Brothers collapsed. In fact developing countries in our region have shown a greater resilience to the financial crises than developed economies .
This resilience is now being eroded as declines in trade are beginning to affect the economies of our region. The result is a string of bankruptcies and a worrisome rise in unemployment, primarily in export oriented manufacturing sectors.
These impacts are having a knock-on effect in the banking sector with an increase in non-performing loans expected to put added pressure on banks’ balance sheets.
While some analysts hoped regional exports to India and China would provide a buffer to the financial crisis, dramatic double digit declines in exports and imports have proved otherwise. Intraregional trade is inextricably linked to global supply chains with developed countries being the ultimate destination markets. In fact, the Survey shows that developing countries in Asia-Pacific have become even more reliant on trade with developed countries since 1995
The fact is the Asia-Pacific is more economically integrated with the rest of the world than it is with itself. Intraregional trade among developing countries accounts for only 37% of exports in our region in comparison with NAFTA at 51% and the E.U at 68%.
The Survey shows that countries with a large share of exports leading their economies will be in a weaker position to absorb the shocks of declining trade,
conversely those with larger shares of domestic demand will have higher resilience.
Further, some governments in our region have growing fiscal deficits and high public debt that will constrain their ability to introduce fiscal stimulus packages . This can lead to long term pressures on economic growth and currencies in these countries. Survey results indicate that some of these economies will require external assistance and may need additional support to recover.
How governments formulate and implement fiscal policy will have a significant impact on determining the speed of economic recovery. The Survey indicates that while there are considerable variations in the size of stimulus packages developed by ESCAP countries, their role in stabilizing downward pressures on economic growth and in reorienting growth to a more inclusive and sustainable development is key.
Fiscal stimulus packages introduced are geared to stimulating domestic demand. On a country by country basis however, there is quite a range in strategies. For instance China’s package build infrastructure, upgrade science and technology, and improve the national's health care system. The Republic of Korea's package explicitly created a Green New Dea Job Creation Plan while in Indonesia and India, emphasis has been given to stimulating domestic demand through tax reductions. In Japan, the package has 3 pillars focused on improving economic security of people lives through direct assistance, employment creation as well as support for small and medium scale enterprises.
The Survey makes a number of policy recommendations in this regard:
The first is that the Asia-Pacific region needs to increase intra-regional trade and investment linkages so that domestic markets are strengthened and the region can provide a secondary buffer to global market fluctuations. Opening up trade with each others’ markets, by accelerating the implementation of regional economic cooperation agreements among developing countries, will help move our region from being crisis resilient to crisis resistant.
The second recommendation is that a regional coordination mechanism needs to be established that shapes and coordinates the fiscal stimulus packages currently being developed. The overarching goal will be to maximize both regional and global multiplier effects from these investments.
Challenge 2: Volatile oil prices directly threaten this region’s food security
When crude oil prices peaked at $147 U.S. per barrel in July 2008 it reached a historic all time high. This drove both food and commodity
prices to their highest level in 20 years. Alarmingly rice, the regions staple, increased by 150% in four months over the same period. By the
end of 2008 commodity prices had declined drastically, although food prices continue to remain higher than before. Sadly higher food prices do not translate into
higher incomes for farmers who are at the wrong end of the supply chain to control gate prices for their produce.
These shocks were also a reflection of the integrated nature of commodity and financial markets. Abundant liquidity gave rise to asset bubbles. Institutional
investors, believing that prices were experiencing a long term rise became attracted to commodity markets as a means of diversifying their traditional portfolios. However, when equity markets started their declines investors retreated from commodity markets to salvage their positions in the financial sector. This behavior reflects one of the basic problems of financial markets, which tend to fluctuate between boom and bust periods.
When approximately 2/3rds of the worlds poor see the price of their food staple, rice, sky rocket by 150% due to energy costs, export bans, hoarding and speculation – it’s a
wake-up call. One of the responses to this situation is that countries in the Asia Pacific will need to diversify energy markets and switch to renewables. As indicated in the Survey, the Asia-Pacific region as a whole cut petroleum intensity by 18% between 1990 and 2005. However, the petroleum intensity in the developed economies of the region is still one third that of the developing economies of the region. Promoting a sustainable energy paradigm as proposed by ESCAP in 2008 would creates a win-win-win situation by addressing not only volatile energy prices, food security, but more importantly reduce carbon emissions for climate change mitigation.
Secondly we need to ensure that new policies being developed during this period are not reactionary. They should not promote protectionism (i.e. by imposing tariffs or trade restrictions) that works against strengthening intraregional trade.
Challenge 3: Poverty increases the vulnerability of Asia-Pacific populations to impacts from natural disasters and climate change
Asia is a disaster prone region; experiencing 42% of the world’s natural disasters, with a disproportionate 65% of its victims. Climate change threatens to further magnify these threats by increasing the severity and frequency of floods, droughts, storms, landslides, rising sea levels and crop failures in the region.
Studies have shown that natural disasters disproportionately affect the poor and most vulnerable. Asia currently has two thirds of the world’s poor and this number will likely increase as the financial crises continues. In societies where gender inequalities exist, women are 14 times more likely to be victims of natural disasters than men.
These people are put further at risk when planning fails to incorporate disaster risk reduction measures in designs. Thus, while mitigation measures and adaptation to climate change may be expensive, the costs of inaction will be much greater for future generations. UN estimates impacts of climate change will range between 5% and 20% of GDP per year for countries globally.
ESCAP’s leadership in green growth will help provide a way forward for member countries. Our response could in turn, prove to be an important contribution to the realization of the Global Green New Deal currently being promoted by the Secretary General.
I see current fiscal stimulus packages as a window of opportunity for re-orienting current development practices to not only mainstream disaster risk reduction into long term planning practices, but also to integrate climate change mitigation and adaption measures.
Challenge 4: Lack of basic social protection in Asia Pacific magnifies impacts from the triple crises.
As the impacts of the current crises hit two thirds of the world’s poor living in our region, it is clear that a stronger social foundation for economic growth needs to be created to benefit the poor. This requires setting up social protection systems that increase income security and free up the spending power of middle and lower income people who drive the economy.
Coverage of basic social protection programmes is very low in the Asia – Pacific. Only 30% of our elderly receive pensions. We also need to improve access to basic social services like education. Only 20% of the people in our region have access to health-care assistance.
UN estimates project that 24 million people or more could lose their jobs as a result of the current downturn. These statistics suggest that there is a real need to bring about deeper transformations by strengthening the social foundations for more resilient societies better able to face volatility and manage risk. Specifically with regard to income security, provisions need to be established for minimum wage and unemployment insurance.
By providing a basic level of income support, protection schemes will make individuals feel more secure and less inclined to increase their savings to protect
themselves from possible incomes losses. This in turn contributes to domestic demand and macroeconomic stability.
Instead of being crisis-driven, social protection systems should be established as part of an overall, long term framework for future development. Implementing these
measures will require governments to develop their capacities in relevant areas, creating another opportunity for job creation. I was heartened that China has
committed 123 billion dollars to improve their national health care system, while the Republic of Korea has similarly committed to an increase in welfare support to
stabilize the livelihoods of low income groups.
Priority Areas For Action
To summarize, there are three immediate priority areas for action:
1. Fiscal stimulus packages should be used to address short term priorities to stabilize macro economic conditions. Further more,these packages should
address major long-term economic issues. For example demand-supply imbalances in food markets, left unabated will lead to soaring commodity prices
in the future. Equally important is the need to build social protection systems that will ensure future growth is more inclusive.
2. Intra-regional trade, investment and the development of domestic markets should be promoted to create a solid foundation for future growth in the Asia-Pacific.
3. Longer term planning horizons need to be adopted by government that internalize disaster risk reduction as well as climate change measures, thereby
preventing future costs incurred by natural disasters.
The above measures need to be implemented in a swift and coordinated manner among countries in our region. Furthermore use of significant public funds will require a greater deal of transparency, which will help assail fears and speculation.
I would like to summarize with the following. The converging triple threat highlights the need for a more comprehensive, inclusive approach to development. Not only is there an urgent requirement to resume economic growth, but we have to re-think where that growth takes place and whom it benefits.
Our response requires moving from an unfetted market economy to a model where governments re-enter the financial/economic landscape as managers in partnership with business and civil society. This, in turn, will require significant changes in capacity of many government agencies and programmes, thereby creating further employment opportunities.
The 2009 launch of the Economic & Social Survey for the Asia and the Pacific represents a significant, substantive contribution by ESCAP. It is a call to action among member countries with findings and policy recommendations that will act as a guide through the uncertain times ahead.
It is also an opportunity for the voice of our region to be heard. As the Asia-Pacific region becomes more influential in discussions shaping the future global economic architecture, so too will its’ responsibly to address the underlying causes of the triple threat. Our region has the potential to emerge from this period as a global leader if current stimulus packages and reforms are implemented in a manner that is both inclusive and sustainable. ESCAP’s 2009 Survey will help inform this process over the months to come.
I urge you to read this Survey’s rich findings. It will to help guide your deliberations in the months ahead.
Thank you for attending this event.