Opportunities for Asia exist in global crisis

Asia’s policymakers should view the global economic crisis as an opportunity to expand investment in “desperately” needed public goods, economist Jeffrey Sachs said.

Sachs told a forum at the Asian Development Bank (ADB) headquarters in Mandaluyong City on Wednesday that Asia would have to increase its investments in key areas to help mitigate the impact of the international financial meltdown.

The noted American economist is a director of the Earth Institute at Columbia University and a special advisor to UN Secretary-General Ban Ki-moon.

In a lecture titled “Achieving Global Cooperation on Economic Recovery and Long-Term Sustainable Development,” Sachs said that with the drop in external demand for exports from Asia, the region would “have to rely on public spending” in infrastructure, health, education and energy reforms, among other areas.

“Asia needs all of that [spending in such areas] desperately,” he added.

It is a field of “opportunity” for fending off adverse effects of the global economic crisis, Sachs said.

Asia, he pointed out, “is still the region of the world with the fastest urbanization, with the most dramatic need for pollution control, for cleaning up the energy sector, for cleaning up the rivers, for sustainable urban development, for accommodating the migration of hundreds of millions of people from rural areas to urban areas.

“I like to view this crisis as an opportunity for Asia, given the chronic underinvestment in public goods. Public spending has a very high social return and also has a very high macroeconomic purpose right now,” Sachs said.

He also noted that with around $4 trillion in foreign-exchange reserves, large current-account surpluses and low inflation, Asia is well placed to expand public spending.

Asia should lead

The region “can continue to have robust growth even as the exports decline,” Sachs said, but added that “it’s going to have to be an Asian-led effort within Asia.”

The substantial reserves of Asia’s two largest economies—Japan and China—would be key to a quick recovery, he added.

Sachs said that Japan, with $1 trillion in reserves, should adopt a more expansionary stance on monetary policy, and making long-term yen credit lines more readily available in the region—particularly in South Korea and in Asean member-countries—to help boost growth.

Asean groups the Philippines, Brunei Darrusalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam.

China’s “main role should be to keep the Chinese economy growing and keep buying from the rest of the region,” Sachs said.

ADB’s role, he added, is to help economies in Asia with long-term financing.

Growth outlook

In a special note released in December 2008, the bank revised its growth estimates for developing Asia for 2009. Initially, the region looking “well positioned to weather the global crisis” has now come under increased pressure.

ADB has scaled down its gross domestic product (GDP) growth projections for the region from 7.5 percent to 6.9 percent for 2008 and from 7.2 percent to 5.8 percent for this year. GDP is total cost of all goods and services produced in the Philippines in a year.

For Southeast Asia, the bank revised economic expansion from 5.4 percent to 4.8 percent for 2008 and from 5.4 to 3.5 percent for this year.

The bank also noted that global investors have pulled back from emerging markets, which hurt Asian equities and external funding.

Since the Asian financial crisis in 1997, the region has built up a large stash of foreign-exchange reserves but “foreign-currency illiquidity is also testing the resilience of Asian banks.”

“Should credit conditions tighten further, affecting key economic activities, the growth outlook for the region could be further damaged. The impacts of a major global downturn are also to be felt through trade channels,” ADB said.

Because of the weakening demand for manufactured goods in major industrial countries, exports from Asia are declining. Global trade volume “is rapidly slowing down” and is expected to stall this year, thus, “creating difficulties for regional economies that rely on exports for growth.”

But with the region’s macroeconomic strengths, Sachs said, the international financial meltdown also should be viewed as an opportunity to rebalance the public and private sectors and short-term macroeconomic with long-term investment interests.

Story of Sachs

Originally one of the youngest economics professors in the history of Harvard University, the American economist, now 50, became renowned for his work on the challenges of economic development, environmental sustainability, poverty alleviation, debt cancelation and globalization. He has authored numerous books and articles on these subjects, including The End of Poverty and Common Wealth, both The New York Times bestsellers. Sachs has been named one of Time Magazine’s “100 Most Influential People in the World” several times.

From 2002 to 2006, he was the director of the United Nations Millennium Project and today remains a leading advocate for the Millennium Development Goals, eight internationally endorsed objectives to reduce extreme poverty, hunger and disease by the year 2015.–Euan Paulo C. Añonuevo, Reporter, Manila Times