Sun, December 19, 2010
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Developing Asia leads global recovery in 2010

2010-12-19 12:17:14 GMT2010-12-19 20:17:14 (Beijing Time)  Xinhua English

MANILA, Dec. 19 (Xinhua) -- Developing Asian economies posted solid growth in 2010 as sound fundamentals and supportive monetary and fiscal policies that helped the region to survive the global financial crisis continued to sustain its growth.

The global recovery may be sluggish, given that U.S. consumer spending remains lackluster while European countries struggle with a debt crisis. But Asia's economic prospects remain bright, with some of the region's economies even growing at pre-crisis levels.

Indeed, developing Asia didn't only prove to be resilient to the crisis, but is now leading the global recovery.

"Asia is growing, the region served as cushion to the whole ( global economic) crisis," Sri Lanka Central Bank Governor Ajith Nivard Cabraal said in an interview with Xinhua.

"Without Asia, the crisis may not end," he stressed.

POSITIVE POLICIES WORK

Expansionary fiscal and monetary policies boosted domestic consumption and raised business confidence. The region is also enjoying a rebound in its exports sector (after a sharp contraction in 2009), supported by a large government stimulus that boosted China's imports.

The Asian Development Bank (ADB) forecasts the regional GDP to grow 8.2 percent in 2010, compared with the actual 5.4 percent GDP growth posted in 2009.

The World Bank forecasts real GDP to rise 8.9 percent in the East Asia and Pacific region in 2010, up from 7.3 percent in 2009.

"East Asia's lessons from the crisis are simple: have strong fundamentals and ample fiscal and monetary space, and be prepared to use it on time and decisively when trouble comes," Ivailo Izvorski, World Bank's lead economist for the East Asia and Pacific region, said in an online media interview in November.

Izvorski noted that compared to the 1997 Asian financial meltdown, the current economic fundamentals in the region are " very strong". Fiscal deficits were in check, government and external debt have been reduced, foreign exchange reserves were higher and the banking system was stable. Economic managers were also well prepared, releasing timely monetary and fiscal stimulus packages that bolstered consumption.

"These policies brought about the stable macroeconomic environment needed for countries to grow, and provided the capacity for authorities to respond to the massive external shock, " the ADB said in its latest Asian Development Outlook issued in September.

DELIBERATE MANEUVERS NEEDED FOR SUSTAINABLE GROWTH

Several factors, however, threatens Asia's economic success. The sudden capital inflows mostly in the form of short term portfolio investments - to emerging market economies may hurt future growth and prompt a repeat of the Asian financial crisis.

"Short term capital gains from asset price increases can leave a country just as quickly as they enter and the whipsawing effect on exchange rates, interest rates, and asset prices can be profoundly destabilizing to economies," said Vikram Nehru, World Bank's chief economist for the East Asia and Pacific region, in an online media interview in November.

Then there's the question that the Asian government may have to unwind the fiscal and monetary policies they put in place during the crisis. This calls into question Asia's much vaunted resiliency. Would these economies survive even without these emergency measures?

Several Asian economic planners have been slowly unwinding these measures. India is gradually reducing its fiscal deficit to avoid a buildup of public debt, while China increased bank reserve requirements to rein in private credit expansion. India, South Korea, Malaysia, Pakistan and Thailand have also increased policy rates to keep inflation in check.

But more than that, the challenge remains for the region to promote a more equitable growth path. Asian economies may be among the fastest growing in the world, but poverty remains a problem.

Two-thirds of the world's poor are in the region and nearly 2 billion Asians subsist on less than two U.S. dollars a day.

"One size doesn't fit all, and policies whether to reduce inequality or address other development challenges need to be tailored to individual country circumstances," World Bank's Nehru said.

Nehru notes that there are three broad ways that can be done to promote a more equitable growth, including removing impediments that prevent the poor from gaining access to key public services and factors of production.

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