Asia needs to craft out a new growth plan because the export-led model that has served the region well is no longer feasible, the UN Development Programme (UNDP) said yesterday.
“Going back to the growth model of the last two decades is tempting as it brought Asia the dynamic momentum for rapid growth and signs of prosperity,” the UNDP said in a report on the impact of the global crisis on the region.
“But this is neither feasible nor desirable, and so the crisis is also an opportunity for many countries in Asia to re-orient their growth and development strategy,” it said.
PHOTO: REUTERS
The export-led model pursued by many Asian economies, while it has created stellar growth rates, has also resulted in rising urban-rural inequality, the UNDP said.
“Asia’s record growth performance has come at a price,” it said.
The UNDP said Asia must recognize that the imbalances created by the export-led model will only worsen further if policymakers fail to address the issues effectively.
“On current trends, Asia’s growth imbalances — with growth driven by investment in industry and services in urban areas, environmental strains, and income inequality — are likely to become worse.”
In the report, the UNDP called on Asia’s policymakers to look to building up domestic demand and boosting intra-regional trade rather than continue to rely on the Western economies which have been squeezed badly by the global crisis.
“Given the sharp actual decline and projected stagnation in export demand, it is critical that domestic demand rises rapidly in these countries,” the UNDP said.
To a certain degree, this is already taking place within the region, it said.
“There have already been significant moves towards this, especially through extension and deepening of bilateral and regional free trade agreements … The potential for expansion in such areas is now greater than ever before.”
The UNDP said Asia is already showing signs of recovery but cautioned there were risks of asset bubbles in some economies and unwinding the vast fiscal spending measures would be a key challenge for governments next year.
“To a certain extent, the recovery in some countries in the region has been associated with quick and proactive counter-cyclical monetary and fiscal policies that were designed to avoid the kind of sharp collapses in output and employment that were experienced during the Asian financial crisis,” it said.
“However, unwinding these policies will be tricky and will remain a major issue in early 2010 as asset bubbles may have formed in some markets which have exceeded fundamentals,” the UNDP said.
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