COVID-19 Pandemic, the 1997 Asian Financial Crisis, and WBG Response
Thank you, Chair. Ministers, Colleagues. It is good to speak with you at this 24th meeting of the ASEAN Finance Ministers. Thank you to the Vietnamese Government for hosting. I am pleased to share the “virtual” stage with the ASEAN Secretary General and my friend and colleague, ADB President Masa Asakawa.
The COVID-19 pandemic, and the economic shutdown of the advanced economies, will result in the first major recession in ASEAN countries since the 1997 Asian Financial Crisis. The World Bank’s East Asia Economic Update, which was launched on September 30, projects that real GDP in the East Asia and Pacific region, excluding China, will contract by 3.5 percent on average in 2020.
The COVID-19 shock is expected to increase the number of people living in poverty in the East Asia and Pacific region by 38 million in 2020 – including 33 million people who would have otherwise escaped poverty, and 5 million people who would be pushed back into poverty.
The pandemic threatens decades of human capital gains and development progress. Sickness, food insecurity, job losses, and school closures could lead to the erosion of human capital and earning losses that last a lifetime.
There is also inequality inherent to COVID-19’s impact and the world’s response, with higher-income people receiving more benefits and protection and likely to recover earlier and more sustainably.
In East Asia and the Pacific, the World Bank Group has been taking broad and fast action to support developing countries in the face of this pandemic.
We have also been working on ways to provide additional financing for COVID-19 vaccines through a fast-track facility. This additional financing will be for developing countries that don’t have adequate access, and will help them purchase and deploy vaccines, once these have been approved by several highly respected, stringent regulatory agencies.
I announced earlier this week that I have proposed to our Board to make available up to $12 billion of fast-track financing to countries for the purchase and deployment of COVID-19 vaccines. Fair and equitable access to vaccines for the poorest and most vulnerable countries is essential for both health and economics. The goal is to alter the course of the pandemic and help set countries on a path toward a more resilient recovery that builds new livelihoods.
We’ve also expanded trade finance to banks in the region and beyond. For example, one of IFC’s – our private sector arm – first COVID-related projects was to increase trade limits for four Vietnamese commercial banks.
We’re also working with a number of countries to strengthen their domestic capital markets. This is important to mobilize financing for both the public and private sector as economies start recovering. For example, Indonesia and Vietnam are part of our Joint Capital Markets Program – or JCAP – where we’re supporting governments in areas of pension reform, strengthening capital markets regulation, and introducing new capital markets products.
Beyond these efforts, it is critical to create fiscal space so countries can finance health services, provide social protection, and promote economic recovery. For many of the poorest countries, unsustainable levels of public sector debt have become an enormous obstacle to development. Debt service crowds out the spending needed to tackle the pandemic’s human tragedy, and the overhang from the stock of debt blocks new investment.
This is why I championed, and the G20 endorsed, the suspension of debt payments for the world’s poorest countries. So far, the Debt Service Suspension Initiative – or DSSI – has delivered more than $5 billion in debt service deferral this year to 43 eligible countries, including Myanmar.
Participation in DSSI by commercial and official bilateral creditors needs to be broadened in order to provide light at the end of the debt tunnel. We are urging the G20 to extend the moratorium through 2021 and to consider further options for debt reduction, resolution, and increased transparency.
Transparency is vital to ensure accountability, develop reliable estimates of debt sustainability, and bring in new high-quality investment. This is why in mid-June, we began publishing new data about the debt of developing country governments, with information on the basic terms agreed between official borrowers and lenders.
Countries will also need to prepare for a different economy post-COVID, by allowing capital, labor, skills and innovation to move into new businesses and sectors. The disruption of trade and global value chains could hurt productivity by leading to a less efficient allocation of resources across sectors and firms.
COVID and Global Trade: Threats and Opportunities for ASEAN
Trade has been a powerful engine of growth and job creation in ASEAN, by encouraging the movement of resources to more productive sectors and firms. COVID-19’s large impact on trade and global value chains is critical to the region’s growth prospects.
ASEAN countries will need to deepen trade reform, especially in still-protected services sectors—such as finance, transport, and communications—to enhance firm productivity, resist pressures to protect domestic firms, and equip people to take advantage of digital opportunities whose emergence has accelerated during the pandemic.
Countries should continue to champion openness and transparency, as the ASEAN community has done over the last five decades.
There may also be several good opportunities for ASEAN countries that lie ahead. For example, the pandemic is likely to accelerate the adoption of new technologies, automation of production, particularly in manufacturing, as well as the incorporation of digital financial services more broadly, greater efficiencies among businesses, and the pace of scientific innovation. We may also see lasting organizational and technological change to the way businesses operate, in weeding out non-viable firms and encouraging the adoption of more efficient technologies.
The ASEAN community has a strong track record of balancing external commitments with domestic priorities. With many sound economic policies, a business-friendly investment climate, skilled labor forces and strong political leadership, the ASEAN countries can stand at the forefront of good development outcomes and remain champions of the movement of goods, services, ideas and people around the world.
ASEAN Can Lead the Recovery Process
I believe that prospects for the East Asia and Pacific region show room for positive outcomes. The World Bank’s East Asia Economic Update shows that growth in 2021 is expected to be 5.1 percent in the East Asia and Pacific region, excluding China. This is based on the assumption of continued recovery in the region and normalization of activity in major economies, linked to the possible arrival of a vaccine. This will make the EAP region the fastest growing region in the world.
Nevertheless, the COVID-19 pandemic is expected to have long-term impacts on the global economy, to leave lasting scars through multiple channels, including lower investment, erosion of human capital, and a possible retreat from global trade and supply linkages. The ASEAN countries will need to take this into account when formulating their development strategies.
Let me conclude by saying that, continued international cooperation to maintain an open and rules-based trading system will be essential for achieving a sustainable and inclusive global economic recovery. Countries that remain globally integrated will be best placed to respond effectively in the short term, and to recover more rapidly over the medium and long term. There is a critical need for stronger global trade cooperation and the maintenance of open markets. The ASEAN countries have done remarkably well in navigating the maze of globalization, and I strongly believe that they can do equally well or even better in the future.
Thank you for your attention, and I wish all of you good health, safety and success.