The FINANCIAL — Asia has emerged as a global economic powerhouse from the recent worldwide financial crisis, said IMF Managing Director Dominique Strauss-Kahn in his opening address to the Asia 21 high-level conference in Daejeon, Korea. “Asia’s time has come…no-one can doubt that Asia’s economic performance will continue to grow in importance.”
“In my view, the macroeconomic, financial and corporate sector reforms put in place over the last decade have played an important role in the region’s resilience. So, despite being hit hard initially, Asia was able to bounce back quickly from the global financial crisis.” The IMF last week projected that Asia would grow at a rate of 7 ¾ percent in 2010, relative to a global growth rate of over 4 ½ percent.
He also highlighted Asia’s increasingly important role in global economic policy coordination—especially via the G-20, which Korea is leading and which includes six Asian countries. “As Asia’s economic weight in the world continues to rise, its stake in the economic performance of other countries is rising too,” Mr. Strauss-Kahn said.
He added that the response to the global financial crisis had demonstrated how beneficial international coordination can be. Based on recent analysis by the IMF, further global policy coordination could help to increase Asia’s GDP by about US$250 billion and roughly 14 million more jobs over five years.
While emphasizing Asia’s strong growth, Mr. Strauss-Kahn also cautioned that downside risks—including from the recent turmoil in Europe—means that Asian policymakers need to remain attuned to further possible shocks. Major policy challenges include how best to manage the sharp rebound in capital inflows, and the related risks of overheating and credit and asset bubbles.
A longer-term policy issue is how Asia can best increase its domestic investment and consumption, what Mr. Strauss-Kahn described as “Asia’s second engine of growth.” In the past, much of the region’s growth was driven primarily by exports, but with Asia’s major trading partners—in particular Europe and the U.S.—entering a potentially extended period of lower rates of growth, the need to nurture Asia’s domestic demand has become all the more crucial. Mr. Strauss-Kahn said it was encouraging that many of the changes needed to foster and sustain this second engine of growth are already underway across the region. These include stronger social safety nets, which can help boost private consumption by reducing the need for precautionary saving; better infrastructure, to encourage private investment; and more flexible exchange rates.
Mr. Strauss-Kahn said that Asia’s rising role in the global economy needs to be reflected in stronger voice and representation for Asia in the international financial architecture, including in the IMF. Building on a package of 2008 reforms which boosted Asia’s voting power in the IMF, he noted that “we are now working on a second stage—to be completed by the G-20 summit in Seoul this November—that will do even more to help align Asia’s representation in the Fund with its economic weight in the world.”
He emphasized that the IMF is working to strengthen its effectiveness in supporting Asia in the period ahead. He pointed to three areas, in particular, where the Fund’s work could help: improving its analysis of economic and financial risks; facilitating international policy collaboration; and strengthening further the global financial safety net.
Mr. Strauss-Kahn concluded that “Countries all over the world want to understand how Asia has managed its growth and globalization so successfully. Drawing the lessons of Asia’s many successes is an important objective for this conference.”