Asia’s developing economies are suffering more than expected from the global slowdown and must take steps to reduce their reliance on exports, the head of the Asian Development Bank said yesterday.
ADB President Haruhiko Kuroda called on developing countries such as India and China to take steps to boost domestic demand to offset the impact of recessions in major developed economies.
With growth slowing more than expected, the Manila-based ADB may lower its economic forecast for next year for developing Asia, he told reporters.
The bank’s current projection, released in December, is for growth in the region to slow to 5.8 percent this year from 6.9 percent last year.
“Asia faces the threat of worsening conditions for socially vulnerable people, due to rising unemployment caused by slowing growth,” he said.
“But Asia remains the engine of growth for the world economy. With developed economies shrinking, Asia is the only region seeing growth, even if the pace is slowing,” Kuroda said.
The ADB chief said Asia’s export-led economies needed to spur domestic demand and boost trade within the region to reduce their dependence on ailing markets in developed Western countries.
Investment in infrastructure is needed to encourage economic growth, particularly in countries such as India, Kuroda said.
In China, whose economy has slowed sharply, measures were required to boost domestic consumption. Tax cuts, job protection and solid social security are needed in the long term to stimulate domestic demand, he said.
But Kuroda warned Asia to avoid protectionist policies that would only serve to weaken the region, such as higher tariffs and currency devaluation.
“As overseas demand plunges, especially in the US, countries may be tempted to implement nationalistic policies to sustain growth,” Kuroda said.
He called instead for deeper economic integration and better policy coordination within Asia to help wean the region from its heavy dependence on the US and Europe.
Despite the current slowdown, Asia is still driving growth, Kuroda said.
“And the region will likely play a leading role in bringing about a global economic recovery,” he added.
With the global economic crisis putting pressure on developing Asia, the ADB hopes its shareholders will agree to triple its capital base at an annual meeting in Bali in May so it can boost financial support.
“Given the credit crunch in the international financial market, it is all the more important to ensure developing countries have access to foreign funds,” Kuroda said.
It would be the ADB’s first capital boost in 15 years and the largest since it was set up in 1966 with a mission to lend to developing Asian economies that might struggle to raise affordable funds on their own.
The fresh capital would come from the ADB’s shareholder nations. Japan and the US are the biggest contributors with shares of 15.6 percent each in the bank, which has more than 60 member countries.