HONG KONG — Asian governments should improve their social security systems and introduce tax incentives to encourage nationals to save less and spend more, a senior Asian Development Bank official said. Rajat Nag, managing director general of the bank, said the financial crisis was an opportunity to transform Asia’s export-led economic structure by expanding its domestic consumption base.
One of the regional fundamentals that needs change is the hard saving culture and the thrifty lifestyle of many Asians, he told AFP in an interview.
Nag said that savings in the region accounted for 30 percent or more of GDP — and rate that could be attributed in part to a general lack of social safety nets.
“I am not saying we should give up our virtue, but too much saving can be bad,” he said.
“We’ve got to have better social security systems. People (need) confidence, in their old age or when they are ill or unemployed, that they have a system in place other than their own savings.”
Nag said many tax regimes in the region had in recent years focused on encouraging investment, rather than domestic spending.
“At the moment, we have many tax incentives for investments, which can sometimes be tax dis-incentives for consumption,” he said, adding that policy makers should also extend their lending to the rural population, as part of the campaign to drive up consumption.
He said banks could lend money to rural dwellers for purchase items such as electrical appliances, but “at the moment, there is no such arrangement in many countries”.
Nag said Asian governments should remove existing hurdles to intra-regional trade, looking at the lack of cross-border travel agreements, transport networks and other infrastructure development.
At a conference in Hong Kong this month on global finance last week, Nag called on the private sector to increase investment in infrastructure, especially at a time when governments are under severe pressure to maintain financial stability.
He said Asia should look to the European Union as the ultimate regional trading model, but stressed that it must not turn itself into a protectionist “Fortress Asia”.
The bank has recently said it aims to boost its US$55 billion capital three-fold to help regional emerging economies ride out the financial crisis.
The capital increase, if successful, would be the bank’s first capital boost in 15 years and the largest since it was set up in 1966.
Nag said the bank had planned before the crisis to lend a total of US$12 billion to their beneficiary countries this year. But after the crisis, the struggling governments requested an additional five to six billion dollars.–AFP
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