United Nations Conference on the World Financial and Economic Crisis and Its Impact on Development
Roundtable II on “Coordinated and collaborative actions and appropriate measures to mitigate the impact of the crisis on development”
24 June 2009, New York, USA
Mr. Chairperson, Excellencies, Distinguished participants, ladies and gentlemen,
It is an honour and privilege to be part of this panel. The economic crisis unleashed in developing regions of the world by the financial crisis of developed countries threatens to roll back our development gains and precipitate a human tragedy in many parts of the globe. Up to 60 million people could lose their jobs by the end of the year, with deepened income insecurity for millions more. Asia-Pacific is the most trade-dependent region of the world with high dependence on manufacturing exports, and 23 million people from our region are in danger of losing their jobs. The average growth rate of our region’s developing countries decreased from 8.8 per cent in 2007 to 5.8 per cent in 2008, with a further decline to 2.8 per cent projected for this year. To prevent the economic crisis becoming a human tragedy, we must use our collective strengths: coordinating our policies and actions to stabilize financial markets, international capital flows, halt economic decline and initiate recovery. This is no longer a choice, but an imperative if we are to mitigate the worst impacts of the crisis on development and on our people.
Unlike the crisis of 1997 in Asia, developing countries can no longer “trade themselves out of the crisis”. They cannot rely on demand in developed countries to pull them out of recession. They therefore have little choice but to evolve more coordinated home-grown policy responses that are oriented towards promoting domestic and regional sources of growth. And in this process, we are seeing the seeds of evolution of a new inclusive and sustainable development paradigm- that is more economically, socially and ecologically balanced and can address issues of growing disparities and persistent poverty in our region. For this development paradigm to emerge it requires not just international collaboration but collaboration of all stakeholders of the development process, including the private sector.
I see three mutually supporting pillars of this new development paradigm. Foremost is the generation of additional domestic demand. To stimulate demand many governments in our region are implementing fiscal stimulus policies. There is need to ensure that the main targets of such programmes are the poor and those unable to cope. Addressing economic inequality and putting additional income in the hands of poor not only enhances the inclusiveness of the recovery process, it also makes good economic sense given the higher propensity of the poor to consume. Expansionary fiscal policy is thus the central vehicle through which a new development paradigm will be energized. The huge scale of government spending in the pipeline, nearly 900 billion USD in developing Asia-Pacific countries alone, offers an unprecedented opportunity to design development policies that will bring about more inclusive and sustainable growth.
However, a number of policy gaps exist and need to be closed quickly. An important area of concern is the lack of social protection in the Asia-Pacific region. With only 30 per cent of the region’s elderly receiving pensions, and only 20 per cent of the region’s people having access to health-care coverage, the need for social protection systems has become acute. Social protection systems not only create the social foundations for more resistant and inclusive societies, they also make smart economics. By increasing the income security, the spending power of middle and lower income people who drive the economy is freed up contributing to domestic demand and macroeconomic stability. There is a need to engender fiscal stimulus policies. For example, the large infrastructure work projects foreseen will create jobs mostly in construction where 80-90% of jobs are held by men. Delivery of social services such as health, education, water and sanitation and social and rural infrastructure services as well as support to SMEs, that would open equal opportunities for women will need to be incorporated into public work programs and recovery packages.
The current crisis should also be utilized as a window of opportunity for addressing economic recovery in a sustainable manner. Anything less, the future growth in our regions will be held back as economic production suffers from depleted natural resources, the balance of payments sinks into the red from volatile fuel prices, and agricultural stress and food insecurity will condemn the poor to persistent poverty. Fiscal stimulus packages should therefore include measures to create greener economies. The “Global Green New Deal” promoted by the Secretary- General and the ESCAP Low-Carbon Green Growth provide a way forward.
The second pillar of the development compact relates to unlocking the potential of regional economic integration, especially in the Asia-Pacific. Driven by still robust growth rates 6-8 per cent in the region’s major emerging economies namely China and India, the Asia-Pacific region is now becoming the epicenter of global growth. Regional economic cooperation and integration can therefore be a strategy to harness the region’s dynamism in a mutually beneficial manner. The region, as a whole, could achieve faster recovery through intra-regional aggregate demand, trade and capital flows, remittances and coordinating fiscal stimulus spending at the regional level to target sectors with the greatest regional multiplier effects.
In growing recognition of the vital need for regional policy coherence and a more coordinated Asia-Pacific, ESCAP’s members agreed on a shared regional perspective and commitment to sustainable recovery and growth at the 65th Session of the Commission, held in April. But much remains to be done. While strengthening the sub-regional cooperation in Asia within the framework of groupings such as ASEAN, SAARC, ECO, BIMSTEC, APTA of ESCAP, we need to create a framework for building a seamless pan-Asian market. Some initiatives have begun to be discussed; for instance, the proposed Comprehensive Economic Partnership of East Asia (CEPEA), a study of which has been launched by the leaders of 16 East Asia summit (EAS) member countries. Such comprehensive partnership accompanied by seamless connectivity through the Asian Highway and Trans-Asian Railway networks promoted by ESCAP, will facilitate the creation of a regionally integrated market and economic corridors for shared prosperity linking landlocked countries and LDCs to coastal areas and centres of growth. This will enable Asia to trade from a more cost-efficient and integrated production base.
The other avenue for regional cooperation is to exploit the potential of financial cooperation in Asia-Pacific region. ASEAN+3 countries have recently created a multilateral pool of foreign exchange reserves amounting to US$ 120 billion. There is a need to build on the ASEAN+3 initiative in terms of scope and coverage to do more.
Time has come for taking bold steps to generate additional demand in the region. With over four trillion dollars in foreign exchange reserves, the Asia-Pacific region now has the resources to foster a major programme of building regional infrastructure and other regional public goods through catalyzing private public partnerships while providing for exchange rate stability and balance of payment support.
Financial cooperation would assist in expediting the recovery of not only the region by generating additional demand but also of the global economy given the economic interdependence. Nothing less than a new regional financial architecture equipped to manage the breadth and scale of tasks involved, and that serves as a complement to the new international framework is the way forward.
The third pillar comprises global cooperation for guarding against protectionism and for building more inclusive international economic governance architecture. It needs to be recognized that developing countries have undertaken a huge burden of adjustment with an unprecedented external shock resulting from the crisis. Conclusion of the Doha Round in accordance with its development mandate will be an essential centerpiece of a more inclusive multilateral economic architecture. We know the costs of protectionism and there is a growing recognition of the need to draw down the effects of protectionism emerging from certain aspects of recovery packages in the developed world. At the same time, developing countries should also guard against any measures in their own policies which may distort conditions of fair competition and hinder the huge and still untapped potential of South-South trade as a way to economic recovery.
International cooperation is also needed for addressing the long pending agenda for reform of international financial architecture including addressing the development deficit giving voice to Asia-Pacific countries commensurate with their growing economic (and demographic) weight. An important debate is now underway on the characteristics of a new global reserve currency, which must take cognizance of the rise of new centres of financial stability.
In conclusion, a global crisis demands a global response. But action will be much more effective if it is built on strong regional foundations that are more coordinated not only in terms of wealth creation but also in managing risks and volatility. By taking ownership of their economic revival, developing regions can make a quantum leap in building a more inclusive and sustainable future for themselves and for humanity.
I thank you.