Speech by Juan Jose Daboub
Managing Director of the World Bank Group
at the 14th ASEAN Finance Ministers’ Meeting
April 8, 2010
Nha Trang, Vietnam
Mr. Chairman, Excellencies, Secretary-General Dr. Pitsuwan
Thank you for inviting me to address the ASEAN Finance Ministers meeting.
This is a critical time for this region of the world and ASEAN has an important role to play.
While the East Asian and Pacific region is poised to make a full recovery from the global economic crisis, allow me to share three key challenges we see:
- Implementation of the remaining reform agenda,
- Accelerating regional integration, and
- Achieving a balance between energy security and sustainability.
Most of its economies have in fact already regained their pre-crisis output and export levels, largely thanks to China – but also to ASEAN countries who have staged a vigorous recovery in 2010 – real GDP growth in developing East Asia is expected to be 8.6% in 2010, up from 7% in 2009 and matching the 2008 level (8.5% growth in 2008).
Let me take this opportunity to congratulate ASEAN for having provided a powerful forum for coordination of policies within the region and for having advanced several initiatives to help manage the crisis, the latest being the establishment of the Chiang Mai Initiative Multi-lateralization.
In the process of recovery, the region has emerged as a major driver of the global economic recovery and growth in the post financial crisis period. The region’s growth accounts for more than 1/3rd of global economic growth in 2010, although it accounts for just over 10% of global GDP. For its part in response to the crisis and in support of the coming years, the World Bank Group is providing technical and financial support for:
- Fighting poverty through programs such as social safety nets
- Supporting economic growth, including competitive infrastructure
- Governance and Anti-corruption, and
- Private sector development – to create jobs.
Starting from a position of financial strength, the World Bank Group has leaned into the crisis and significantly scaled up its operations. As of this month our commitments since the beginning of the crisis will reach $100 billion. In addition, the Word Bank Group also enhanced its support for reforms that will better prepare its clients for the future. This support is based on lessons learned and experiences from countries that have developed creative solutions.
In the short run, it is worth noting that the economic recovery is not yet complete and it will be premature to fully exit from stimulus packages. There are still important downside risks in the world economy. The challenge will be to sustain economic recovery in the background of shaky performance in the euro zone countries and some deep uncertainties in the US economy centering on housing, financial markets and overall fiscal stress. Within the East Asian region, a smooth implementation of China’s exit strategy, the unwinding of the huge credit growth of last year that has created a potentially destabilizing bubble for the region will be needed. Overall, there will be the need to find new markets for the region’s manufacturing exports given the expected slowdown in growth and import demand in the US and Euro zone countries.
In the long run, the region could be poised to lead world economic growth not only today but also in the coming decades. It has accumulated more than USD 2 trillion in reserves and large current account surpluses. It has an increasingly educated labor force, and considerable scope to catch up with other G7 countries in technology, productivity and per-capita incomes.
To meet this expectation, leaders in the region may want to consider three key challenges.
First, there is an important reform agenda that differs across countries.
- For the high exporting countries, the key task will be to use fiscal, trade and the right incentives to stimulate domestic consumption, imports and the services sector which relatively lags behind.
- For middle income countries such as Malaysia and Thailand, another key challenge will be to stimulate private investment – · which never fully recovered in the post 1997 Asian crisis – and to invest in innovation, knowledge and education to climb up the technology chain.
- This is one way they can avoid the middle income trap of rising unit labor costs and being outcompeted by lower income countries in East and South Asia and in Africa.
- The lower income countries will need to break out of the more traditional textiles and into the more advanced manufacturing and the global production chain by diversifying into more value added industries such as electrical goods and electronics.
- Finally, commodity exporters of all income levels such as Indonesia, Thailand and Laos will need to strengthen fiscal rules and frameworks to translate their volatile external revenues into long term growth.
The second key challenge for the region is to accelerate regional integration.
Doing so will do two things.
- First, it will help stimulate much needed regional demand for goods and services.
- Second, it will increase productivity and innovation by facilitating cross border flows of capital, labor to their most efficient use and the exchange of ideas and knowledge, which is essential for innovation.
We would suggest that there are three areas where a regional agenda needs to be addressed – and ASEAN is playing a role in all of these:
- Stimulate further regional and south-south trade in final goods by lowering the current applied tariff peaks in textiles, agriculture and other goods and by improving trade facilitation.
- Expand the scope for trade liberalization in services as barriers remain in the region.
As you may know, barriers to equity investments, FDI in manufacturing, telecommunications, transport and finance are highest among East Asian countries relative to other regions of the world. Such barriers constrain the use of the region’s large foreign exchange reserves and savings, and constrain the task of building the nearly US $ 5 trillion worth of infrastructure that is expected to be required over the next decade.
The third area for regional integration is a better management of migration.
At present there are over 20 million migrants from the region who remitted nearly USD 80 billion in 2008. Much of this migration takes place within the region. The large differentials in earnings by more than 5 times among the countries in the region, and the demographic pressures of aging (with the 65 and older population accounting for 40 to 60% of some of the North Asian countries in the next 30 years) among the more affluent countries will adversely affect growth and fiscal sustainability by lowering the share of working age population. New research suggests that managing migration can be an effective policy instrument to raise profits and investments for receiving countries, while minimizing the consequences for the domestic work force.
The final challenge which would benefit greatly from regional cooperation is to carefully balance the needs of energy security and efficiency with sustainable development.
For many developing countries, strategic plans for energy security and efficiency consist of the adoption of a range of technologies, including those that are high Greenhouse Gas-emitting. Yet, at the same time, these same countries need sustainable development that creates economic opportunities for people now, prepares the country to be responsive to environmental and economic transitions and events, and ensures a foundation for continued growth and prosperity for the generations to come.
There is scope to turn the challenge of climate change into an opportunity for green growth.
Several East Asian countries – China, Japan, Korea and Singapore – are already at the forefront of investing in and developing energy efficient and renewable technologies and products. They have become world leaders in producing and using technologies for renewable energy such as solar photo-voltaic cells, wind power, bio-fuel and hydro-electricity. In the future there will be a need to scale up investment in cleaner energy, green building, transport, and more efficient, compact urban design. Stimulating investment in these technologies and disseminating the use of the green growth products will require significant regional cooperation as countries in the region will need to develop understandings on open collaboration and sharing of innovation.
As you see, ASEAN’s agenda for stimulating integration in the trade of goods and services and for promoting technical and economic cooperation among its member countries will be key to addressing the region’s development challenges.
Much has been achieved already in the trade area and in setting the basis for integrated financial markets. ASEAN will need to build on this strong foundation, along with the “plus three,” grouping of China, Japan, and South Korea to promote further integration and become bigger players in the world economy. Clearly, countries in the region are already addressing these challenges. It is the Bank’s privilege to partner with you and support you in addressing this agenda.