As developing Asia rebounds rom the global economic crisis ahead o the rest o the world, the
Asian Development Outlook 2010
)predicts growth exceeding 7% in the region this year and next. Althoughthat is still lower than the precrisis outcome o 9.6% in 2007, such ahealthy rebound, rom a low o 5.2% in 2009, would be welcome.Te global economy has also turned the corner, with the UnitedStates, eurozone, and Japan beginning a mild recovery in late 2009. Froma collective contraction o 3.5% last year, the three are orecast to expandby 1.7% and 2.0% in the next two years, respectively.Extraordinary scal and monetary stimulus packages implementedin countries around the world to mitigate the negative eects o theglobal nancial crisis ueled the quick turnaround. Large and ast-trackedpublic spending, targeted transers, low interest rates, and unconventionalliquidity measures combined to li growth, albeit with varyingeectiveness.But there are substantial downside risks to the recovery that couldstill see regional and global growth alter in the near term. Mistimedwithdrawal o macroeconomic stimulus measures could derail the ragilerecovery. A reversal o last year’s commodity price deation and a sharprise in international commodity prices could also thwart the global andregional revival. Te persistence o global imbalances, meanwhile, riskssparking uture turmoil, while deteriorating debt positions could imperilscal credibility in some countries.
highlights two additional risks that are particularly relevantto developing Asia. Te region’s early recovery is attracting large capitalows, the perils o which were made clear in the 1997–98 Asian nancialcrisis; volatile capital ows could again have serious implications orexchange rates and money supply. Moreover, the quick return to highgrowth could accelerate the increase in consumer and asset prices.As it exits the worst eects o this crisis, thereore, developingAsia must remain aithul to its tradition o sound and responsiblescal and monetary policies. Just as they did beore the crisis, thesepolicies will promote macroeconomic stability and sustained growth.Such macroeconomic prudence will provide the needed resources andcredibility or tackling any large and adverse shocks in the uture.Tere is also plenty o scope or improving and strengthening theregion’s scal, monetary, and exchange rate policy rameworks. As Part 2o
lays out, such adjustments will enable the region to betteradapt to the postcrisis world.In monetary policy, price stability must remain the overridingobjective. But the global crisis highlights the need to prevent asset pricebubbles. Tis suggests that nancial regulation should be more closely coordinated with monetary policy.More exible exchange rates are desirable to reduce the region’scurrent account surpluses. Tis also requires coordinated eort to