Economic crisis traps tens of millions in poverty–ADB

SEOUL: The global economic crisis is also a social crisis in Asia, with an estimated 60 million people remaining mired in poverty because of falling growth rates, according to an Asian Development Bank (ADB) executive.

“The social consequences of the economic crisis are very severe,” Rajat Nag, ADB managing director general, said during an interview on Thursday. “That is our biggest concern.”

Nag added that the estimated three percent drop in GDP (gross domestic product) between 2008 and 2009 in developing Asia—excluding Japan, Australia and New Zealand—meant 60 million would fail to emerge from poverty. GDP is the total value of goods and services produced in a country in a year.

An extra 10 million people would be undernourished and around 56,000 more children younger than 5 years old would die.

Changes needed

Nag made his comments on the sidelines of the World Economic Forum on East Asia, where speakers agreed the region must rebalance its export-led growth model to cope with shrinking Western markets.

“Asia will need to sell its products to itself more than it has,” he said during the interview with Agence France-Presse and other agencies.

Developing Asia at present exports 60 percent of its production to Japan, the Eurozone and the United States and “that cannot continue forever.”

Asia must boost consumption—an important part of poverty reduction—by saving less and spending more, Nag said.

He added that regional savings rate was very high, largely to compensate for the lack of welfare programs.

“People save for old age, people save for ill health, people save for education,” Nag said.

“Is it more efficient for people to save individually for what is essentially a social protection network, or is it more efficient to save collectively as a nation? If we want to increase consumption, we’ve got to decrease savings,” he added.

Service industries should also be encouraged. At present, according to the ADB executive, services in Asia are difficult to access because of protectionist or other measures.

“The development model for the last 50 years of export-oriented growth that has served Asia well, which we believe was the right one, now needs to be rethought,” Nag said.

He called for greater Asian integration on environmental and infrastructure matters.

“The center of gravity of economic power is shifting to Asia . . . Asia needs to cooperate and integrate within itself,” Nag said.

“It does not mean that tomorrow we will have an Asian common market or an Asian common currency but I think the trend is to have greater integration,” he added.

Worst over

Average growth in developing Asia was 6.3 percent in 2008 and the ADB forecasts 3.4 percent this year, rising to 6 percent next year.

“We think we have seen the worst of it,” Nag said.

But he cautioned that the biggest threat to recovery was “to think of green shoots as more than green shoots” and slow down on reforms and stimulus measures.

“The economic recovery is still very fragile,” Nag said.

In earlier comments to the economic forum, the ADB executive expanded on what he called the most worrying aspect of the economic crisis.

“There are two faces of Asia: one shining, which has done very well . . . and the other 900 million people who live below one dollar and 25 cents a day and that face is not shining at all,” Nag said. “And that gap is actually diverging rather than converging.”

Peter Sands, chief executive officer for the Standard Chartered Bank group, told the forum that Asia would play a critical role in leading the world out of the economic crisis.

But he said that the old model “of Asia overproducing and the West over-consuming has proved to be unsustainable.” — AFP