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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

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ADBI News 2010 Volume 4 Number 2

ADBI Proposes Three-pronged CONFERENCE


Strategy for Growth Rebalancing

ADBI Dean Kawai addresses APEC delegates attending the senior officials meeting in Sapporo on 1 June in a joint SOM-SFOM
Workshop on the APEC Growth Strategy.

Global rebalancing strategy should not only be Mr. Kawais speech was a broad interpretation
about addressing current account imbalances, but of the meaning of sustainable growth. He
also about rebalancing towards a more equitable emphasized making opportunities from economic
allocation of resources and rebalancing for growth accessible to the poor and the need for
environmental sustainability. The ADBI Dean, stronger social protection. But he also underscored
Masahiro Kawai, emphasized this three-pronged
growth strategy in a speech that kicked-off the
SOM-SFOM joint workshop on Growth Strategy In this issue
for the Asia Pacific Economic Cooperation
(APEC), held in Sapporo, Japan, on 1 June. Growth Strategy for APEC 12
The workshop was attended by some 150 senior Postcrisis Agenda for Asia 2
trade and finance officials of APEC member Distinguished Speaker Seminar 3
economies. It was jointly organized by the ADBI
Climate Change Adaptation 3
and Japans ministries of finance; foreign affairs;
and economics, trade and industry. Water Resources Management 4
Two main themesrebalancing the regions ADBI-OECD Roundtable 4
economy for growth, on the one hand, and Regional Workshop 5
financing growth, on the otherwere the focus of Featured Publication 5
discussions. Rebalancing for growth tackled global
current account imbalances and the need to adjust Forthcoming Publications 6
domestic spending and production, whereas Upcoming Events 7
financing for growth dealt with green financing; Recent Working Papers 7
infrastructure financing; and financing for Chinas Dollar Peg 8
innovations and technology.

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the need not to lose sight of the environmental been mostly driven by an increase in government
impact of economic growth programs. and corporate savings, not excessive household
The other speakers put more emphasis on savings. To increase household consumption, he
current account imbalances. Susan Collins of the believes, the Peoples Republic of China needs to
University of Michigans Ford School of Public increase its household income share through tax
Policy underscored the decline in US private cuts and government transfers. Concerning the
savings and the ballooning of the US government appreciation of the renminbi, he emphasized that
deficit that is driving the external imbalance. The the exchange rate needs flexibility but that any
weak employment figures in the United States adjustment of the yuan would be gradual.
limit the options available to the government, and Other discussions focused on green financing
she highlighted the need for both deficit and strategies, such as adoption of green certificates
surplus economies to make adjustments and the and tax incentives for financial instruments that
importance of a weak real exchange rate to invest in green technologies. Other speakers
improve US exports. explored the challenges facing public-private
Ming Zhang of the Chinese Academy of Social sector partnerships in infrastructure financing.
Sciences argued that, in contrast to the US See more details about the conference at
government deficit, the rise in Chinese savings has www.adbi.org/event/3826.2010.som.sfom.workshop/.

A Postcrisis Agenda for Asia ADB ANNUAL MEETING

ADBI conducted a seminar entitled Postcrisis demand. Balanced growth, it is argued, means
Agenda for Asia at the ADB Annual Meeting in growth that is consistent with smaller global
Tashkent on 3 May. The seminar presented the imbalances and is less dependent on exports, as
highlights of the forthcoming joint ADB/ADBI well as growth that is socially inclusive and
book Rebalancing for Sustainable Growth: Asias environmentally sustainable.
Postcrisis Challenge. In the book it is argued that Key issues addressed in the book include: ways
Asian economies export-led growth model, which to strengthen Asian policy frameworks to enhance
was so spectacularly successful in Asia in earlier economic and financial stability in an environment
decades, has hit significant limits. Growth in of volatile capital flows; ways to re-orient the
Asias major export marketsthe US and supply side of the economy to be more consistent
Europeis likely to remain sluggish for some with balanced growth, including investment, trade,
time due to the after-effects of the global financial the service sector and green growth; ways to
crisis. Moreover, export-led growth was strengthen social safety nets to enhance the
associated with large-scale current account inclusiveness and social sustainability of growth;
surpluses, which were not sustainable. In addition, ways to make Asian financial systems more
the export-led growth model contributed to stable and deeper, so that they can play a greater
widening income gaps and deterioration of the role in financing regional development and
environment. As a result, Asia now needs to promoting financial inclusion; and ways in which
rebalance growth by adopting policies to promote regional cooperation and financial architecture
a greater reliance on domestic and regional can contribute to the above goals. Key
recommendations include: enhancing monetary
policy frameworks to take asset prices and
potential bubbles into account; promoting a region-
wide free trade agreement including services and
investment; deregulating services; strengthening
social safety nets; implementing frameworks for
macroprudential surveillance and regulation;
promoting Asian bond markets; and strengthening
regional entities such as the multilateralized
Chiang Mai Initiative.
Read more details of the event at
Panel debates Asian growth rebalancing recommendations. www.adbi.org/event/3642.postcrisis.agenda.asia/.

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Asian Regionalism: DISTINGUISHED SPEAKER


a Better Model for the World

Kishore Mahbubani delivered a lecture entitled EU has several key weaknesses, namely that it is a
The Secret Formula of Asian Regional mono-civilization entity and that it has a large
Cooperation at ADBI on 12 April. He pointed out amount of political and economic dishonesty
that the major problem with studies of regional within its member countries (the latter
cooperation is that they treat the European Union demonstrated, in Mr. Mahbubanis view, by the
(EU) as the one and only gold standard of EUs response to Greeces crisis). The strengths of
regional cooperation. While recognizing some of Asian regionalism, he argued, are that it is a multi-
the EUs strengths, Mr. Mahbubani argued that the civilization model; that there have been no wars in
recent years; and that it is pragmatic. There are
weaknesses, though, such as low levels of trust and
internal political problems. He concluded that what
is developing in Asia in the form of cooperation
among ASEAN and ASEAN Plus processes may
be a better model for regionalism than the EU.
Asian
regionalism Read a more detailed summary of this event at
is a multi- www.adbi.org/event/3645.mahbubani.distinguished.speaker/.
civilization See the video of this seminar at
model. www.youtube.com/watch?v=g0J7PkrckG8&feature=related.

Strategic Assessment for WORKSHOP


Climate Change Adaptation

Developing Asian countries, as a group, are the existing policies on climate risk with others such as
ones most threatened by the impact of climate drought management, structural adjustments, crop
change. The impact on the agricultural sector is felt insurance schemes, subsidies, etc., for better
mainly through higher temperatures and altered targeted and coordinated actions, is needed
rainfall patterns. Although some effects will be urgently. The workshop concluded that regional
positive, at least in the short term, the primary cooperation can contribute to improving adaptive
impact in most Asian countries will be negative, capacity in the areas of climate data acquisition,
harming livelihood activities, reducing irrigation building up analytical and monitoring capacities,
water supplies, and altering food production systems. moderating, and the supporting process of strategy
Some 45 senior officials from agricultural development.
ministries and environmental ministries gathered in
Colombo, Sri Lanka, from 8 to 11 June for a
regional workshop on Strategic Assessment for
Climate Change Adaptation. The key
developmental risks posed by climate change and
the necessary adaptation actions to be taken were
discussed and it was agreed that setting priorities
for action involves strategically assessing the
exposure to threats, determining sensitivity to a
changing climate, and assessing the sectoral
capacity to adopt. It was further agreed that key
priorities for initial action should include Micro-adaptation strategies focus on climate resilient water
expanding the knowledge base on planning tools, saving infrastructures.
supporting adaptive agricultural research, and Read more details of the event at
raising awareness and communication among www.adbi.org/event/3836.climate.change.adaptation.natural.
policy makers. It was acknowledged that linking resource.mngt/?sectionID=35.

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Institutional Framework for IWRM Needed SEMINAR

Appropriate and sustainable water resources it has managed to unify its Water Policy with the
management is of crucial importance for developing EU Water Framework Directive was thought to
countries. While the concept of integrated water contain useful lessons in terms of creating a
resources management (IWRM)meaning that all common framework for IWRM in Asia.
the different uses of water resources are considered
togetherhas been acknowledged as a useful tool
to improve the current situation, an institutional
framework is needed to improve IWRM
sustainability, above all for developing a unified
policy and to secure funding.
A seminar on Exchanging Asian and European
Experiences and Case Studies on IWRM was
held in Madrid from 24-28 May, co-hosted by
ADB and the Ministry of Economy and Finance of
Spain. Participants exchanged experiences on
IWRM and explored ways to improve water Visit to the Ebro River Basin. The river is monitored and
security in Asia through better IWRM and water managed by use of state-of-the-art remote sensing equipment.
governance. In particular, Spains long history of Read more details of the event at
private sector participation in river management www.adbi.org/event/3825.asian.european.experiences.iwrm/
and trans-boundary river management and the way ?sectionID=35.

Why Investment Matters! ROUNDTABLE

Investment is a major driver of our economies. investment in green growth and in infrastructure
Indeed, strong domestic and foreign investment for a seamless Asia. They concluded that
has been a key element in developing Asias investment can play a leading role in rebalancing
impressive record in economic development and growth toward greater reliance on domestic and
poverty reduction. regional demand, and in making growth greener
Looking ahead, to what extent can investment and more inclusive.
contribute to addressing Asias post-crisis But reforms are necessary to remove pro-export
challenges? This question was at the top of the policy biases, and to provide greater incentives for
agenda of the inaugural ADBI-OECD Roundtable green investment. It is also critical for investment
on Asias Policy Framework for Investment held policy frameworks to abide by the following
on 6-8 April 2010. principles at the heart of the OECDs Policy
Participants discussed a broad range of issues Framework for Investment: policy coherence, non-
from the role of investment in recovery from the discrimination, transparency, accountability, and
crisis and the outlook for investment in Asia, to regular evaluation.
Tadahiro Asami, Secretary-
General of the Business and
Industry Advisory Committee
to the OECD, talks about
building a better business
environment and the benefits
of freedom of investment in
Asia.

Read more details of the event at


www.adbi.org/event/3430.adbi.
oecd.roundtable.asia.economy/.

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How to Strengthen Corporate WORKSHOP


Environmental Management in Asia?

While the private sector has always been the effort in implementing more win-win solutions so
primary engine of growth across Asia-Pacific, the that low carbon economic development can take
growing influence of companies in the economic place with the active participation of the private
sphere is increasingly raising concerns about their sector. To further promote sustainable corporate
potential environmental and social impacts. Such practices, governments should provide tangible
concerns are manifested in the current debates on incentives through such measures as tax exemptions,
climate change, environmental degradation, or seed financing, subsidies, low-interest financing,
greening the markets. A regional workshop on and favorable treatment in public bidding. It was
Corporate Environmental Management: from concluded that, in line with such incentives, the
Policy to Practice, held in Bangalore, India, from following four strategies would strengthen
3-6 May 2010 for senior officials and private environmental excellence of corporations:
sector managers, looked at major corporate information disclosure; cooperation along the supply
initiatives to improve environmental and economic chain; engaging with employees and communities;
performance and the supportive policy and participating in setting global standards.
environment under which they can be scaled up.
View speeches and workshop materials at
The main recommendations that emerged from www.adbi.org/event/3653.corporate.environmental.
the deliberations include the need for concerted management/?sectionID=35.

Twenty seven delegates from Asia participated in the workshop held at the Indian Institute of Management, Bangalore, India.

Featured Publication

Trade Facilitation and Regional Cooperation in Asia


Edited by Douglas H. Brooks and Susan F. Stone

Asias rapid development has been heavily promotes and supports


dependent on markets external to the region. interregional trade growth
However, given the unlikely timely recovery of the has never been timelier.
United States or Europe there is an urgent need to While the focus is on
develop domestic and regional markets. While informing policymaking in
greater integration has long been a regional goal, its Asia, the findings also
importance has never been more pressing. To have relevance for other
facilitate trade and promote growth and regional regions.
integration, and to counteract declining markets in
other regions, Asian countries have announced large
Read or order Trade Facilitation and Regional Cooperation in
expenditures for developing infrastructure. Thus, a Asia at www.adbi.org/book/2010/07/05/3924.trade.
look at how investment in regional infrastructure facilitation.regional.cooperation.asia/.

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Forthcoming Publications

The Asian Tsunami: Aid and Reconstruction After a Disaster


Edited by Sisira Jayasuriya and Peter McCawley
The death toll following the 2004 Asian tsunamiclose disasters strike. This is the first
to 230,000 peoplewas stunning. The devastation that serious attempt at an overview
the tsunami caused highlights the need to strengthen of the impact for this major
approaches to disaster risk reduction activities across event and for anybody with an
Asia. Summarising hundreds of reports and articles influence on disaster response
about the disaster, this book underlines the fact that policy in Asia, this book should
global disaster risks are highly concentrated in poor be compulsory reading.John
countries. And within those countries, it is usually Weiss, University of Bradford,
poorer communities who are especially hard-hit when UK

Managing Capital Flows


Edited by Masahiro Kawai and Mario B. Lamberte
This book provides analyses that can help policymakers analyze the experience of emerging Asian economies in
develop a framework for managing capital flows that is dealing with surges in capital inflows. They also discuss
consistent with prudent macroeconomic and financial possible policy measures to manage capital flows while
sector stability. While capital remaining consistent with the goals of macroeconomic
inflows can provide emerging and financial sector stability. Building on this analysis,
market economies with the book presents options for workable national policies
invaluable benefits in pursuing and regional policy cooperation, particularly in
economic development and exchange rate management. Containing chapters that
growth, they can also pose bring in international experiences relevant to Asia and
serious policy challenges for other emerging market economies, this insightful book
macroeconomic management will appeal to policymakers in governments and
and financial sector supervision. financial institutions, as well as public and private
The expert contributors cover a finance experts. It will also be of great interest to
wide range of issues related to advanced students and academic researchers in finance.
managing capital flows and

ADBI Dean Kawai in


the European press

It is in Asia that investors should be


Top man at Asian Development Bank Institute
has soft spot for Viet Nam

Asia is the only region that grows sustainably


after the financial crisis, Masahiro Kawai
proclaims cheerfully in an exclusive interview
with De Tijd, a Belgian broadsheet newspaper
that mainly focuses on business and economics.
And I also do not see that changing
immediately. As head of the knowledge center
of the Asian Development Bank he is perfectly
placed to analyze the region.

ADBI is now on Twitter, where new research, events, and speeches are announced. Visit our page at
www.twitter.com/ADBInstitute.

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Selected Upcoming Events

International Cooperation in Times of Global Crisis: Views from G20 Countries (Delhi)
1617 The objective of this conference is to reflect on the effectiveness of the G20 forum for international
September cooperation in the areas of economic and financial policy, and ways to improve it.
www.adbi.org/event/3917.intl.cooperation.global.crisis.g20.countries/

Skills Development in the Post-Crisis Context (Tokyo)


2830 This conference will deal with skills development to support re-balancing growth and building effective
September local partnerships.
www.adbi.org/event/3723.adbi.oecd.post.crisis.context/

Reforming Services for Inclusive and Sustainable Development of Asia and the Pacific (Bali,
Indonesia)
1112 The purpose of this conference is to examine regulatory issues and liberalization in the services sector and
October to assess their impacts on inclusive and sustainable development in Asia and the Pacific.
www.adbi.org/event/3640.regulatory.reforms.liberalization.services/

Innovation for Balanced and Sustainable Growth (Beijing)


2426 This roundtable will address innovation today; making innovation work for development; and green
November growth and technological transfer.
www.adbi.org/event/3919.adbi.oecd.roundtable.sustainable.growth/

Recent Working Papers

Japan Bank Crisis Institutions for Asian Connectivity


Authors: Mariko Fujii, Masahiro Kawai Author: Biswa Bhattacharyay
Study of Japans measures to cope with its banking crisis, Study of how to make Asia more economically sustainable and
including regulations and governmental support. The authors resilient against external shocks through increased regional
warn that if the authorities do not address the banking sector connectivity. The author draws linkages between infrastructure
problem promptly, the crisis will prolong and economic connectivity, growth and development, governance, and
recovery will be substantially delayed. They also draw lessons institutions in Asia, and explores the benefits the region could
that could be applicable to other countries. achieve by addressing needed connectivity enhancements.
Read Working Paper 222 at www.adbi.org/working-paper/ Read Working Paper 220 at www.adbi.org/working-paper/
2010/06/29/3922.lessons.japan.banking.crisis.1991.2005/. 2010/06/25/3915.institutions.asian.connectivity/.

Financing Asias Infrastructure: Modes of Development Rebalancing Growth in the Republic of Korea
and Integration of Asian Financial Markets Authors: Joonkyung Ha, Jong-Wha Lee, Lea Sumulong
Author: Biswa Bhattacharyay
Exploration of the issues and challenges in financing Study of the effect of exchange rates on the Republic of
infrastructure for seamless Asian infrastructure connectivity Koreas trade and the extent to which this causes external
and for other high priority development financing needs. The imbalances. The authors use econometric analysis to show that
author seeks methods and instruments to help direct Asian the Republic of Koreas external imbalances are caused not
and international resources to cost-effectively and efficiently only by external factors, but also reflect internal and policy
support infrastructure and other development needs. factors.
Read Working Paper 229 at www.adbi.org/working-paper/ Read Working Paper 224 at www.adbi.org/working-paper/
2010/07/12/3937.financing.asia.infrastructure/. 2010/07/01/3925.rebalancing.growth.korea/.

The Benefits of Regional Infrastructure Investment in Prospects for Regional Cooperation between Latin America
Asia: A Quantitative Exploration and Caribbean and Asia Pacific: Perspective from East Asia
Author: Fan Zhai Authors: Erlinda M. Medalla, Jenny D. Balboa
Capitalizing on recent estimates of infrastructure financing This paper explores the potential for regional cooperation
requirements in Asia, this paper frames a scenario for between the Asia and Pacific region, on the one hand, and Latin
infrastructure development in the region and estimates the America and the Caribbean, on the other. It also provides
external effects of infrastructure investment. It also assesses recommendations to enhance the economic partnership of the
quantitatively the economy-wide welfare effects of two regions. Interregional cooperation could also help the two
developing regional infrastructure in Asia, using a global regions seek ways to deal with the current global economic
computable general equilibrium model. crisis through a range of opportunities to stimulate the economy.
Read Working Paper 223 at www.adbi.org/working-paper/ Read Working Paper 217 at www.adbi.org/working-paper/2010/
2010/06/30/3923.regional.infrastructure.investment.asia/. 05/25/3840.regional.cooperation.america.caribbean.asia.pacific/.

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Will Abandoning the Dollar Peg Help the Peoples


Republic of China Rebalance its Economy?*
By Willem Thorbecke, senior research fellow, ADBI

Will the Peoples Republic of Chinas (PRC) affecting the cost competitiveness of a much wider
decision to ditch the dollar peg help rebalance the share of the value-added than would happen with
global economy? By abandoning its de facto dollar only a renminbi appreciation.
peg and adopting a regime characterized by a However, the PRCs dollar peg had prevented
multiple-currency basket-based reference rate, the Asian countries from appreciating together. With
PRC may facilitate a concerted appreciation in the the PRCs currency pegged, neighboring countries
region, helping the region to redirect production competing with the PRC felt they also had to
away from western markets and towards domestic prevent their currencies from appreciating. When
consumers. currency markets opened on 21 June 2010 after the
The PRCs trade surplus has been concentrated in announcement by the Peoples Bank of China, the
processing trade. Processing trade refers to a renminbi and other East Asian currencies
customs regime under which parts and components appreciated together.
are imported into the PRC duty free and used to If the PRC can gradually increase the band
produce final goods that are re-exported to the rest of around its new reference rate, the huge surpluses
the world. Neither the imported inputs nor the final generated within East Asian production networks
assembled goods enter the PRCs domestic market. would cause currencies in the region to appreciate
PRCs Trade Balance by Customs Regime together. Market forces could allocate these
appreciations across supply chain countries based
on their value-added in processing trade. Stronger
exchange rates would then reduce processed
exports to the US and Europe, helping the region to
redirect production away from western markets
and towards domestic consumers.
PRCs Processing Trade, 2006-2009
Republic of Taipei,China ASEAN4 Japan Singapore Hong Kong, US Europe ROW
Korea China
Imports for processing (%)
2006 15.08 19.04 10.51 15.89 2.63 2.11 5.23 4.99 24.52
2007 15.24 18.75 10.65 16.11 2.40 1.98 4.93 5.03 24.91
2008 15.63 18.07 10.26 16.20 2.28 1.62 5.20 5.72 25.01
2009 16.95 16.96 9.73 15.53 2.18 1.32 4.80 5.51 27.03

The table below shows that two-thirds of Processed exports (%)


2006 3.95 2.19 3.21 10.35 2.96 22.34 25.23 17.85 11.90
2007 3.98 1.92 3.25 9.35 2.84 22.42 23.54 18.59 14.10
imports for processing come from East Asia while 2008 4.75 1.88 3.27 9.22 2.79 21.01 22.20 18.71 16.16
2009 4.96 1.86 3.40 9.13 3.36 20.57 22.68 17.50 16.54
only 5% each come from the United States (US) Balance in processing trade (billions of dollars)
2006 (28.29) (50.01) (17.40) 1.76 6.65 107.24 111.98 75.06 (18.12)
and Europe. It also shows that about 20% of 2007
2008
(31.57)
(27.07)
(57.18)
(55.71)
(19.18)
(16.72)
(1.63)
0.99
8.73
10.19
131.18 127.25 96.29 (4.65)
135.76 130.20 104.67 14.46
processed exports go to East Asia; the US; Europe; 2009 (25.50) (43.72) (11.41) 3.56 12.72 116.46 117.61 84.93 9.92

and Hong Kong, China. The PRC thus runs large Notes: ASEAN4 includes Indonesia, Malaysia, Philippines, and Thailand.
Europe includes Austria, Belgium, Denmark, Finland, France, Germany,
deficits with East Asia and large surpluses with Greece, Ireland, Luxembourg, Netherlands, Italy, Portugal, Spain,
Europe and the US. Given this pattern, an Sweden and UK. Source: China Customs Statistics.

appreciation throughout East Asian supply chain *The views expressed in this paper are the views of the author and do
not necessarily reflect the views or policies of ADBI. This feature is an
countries would help rebalance processing trade by extract from www.voxeu.org/index.php?q=node/5266.

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