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ADBI Newsletter - 2010 - Volume 4 Number 3

ADBI Newsletter - 2010 - Volume 4 Number 3

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Published by ADBI Publications
ADBI News provides information about ADBI's research and capacity building programs, events, and publications.

This issue includes articles on:

* ADBI-BNM Conference
* Trade in Central Asia
* The Rise of Asia's Middle Class
* Skilling Up for Development
* Post 2010 Trade Agenda
* Distinguished Speaker Seminar
* New Publications
* Forthcoming Publication
* Upcoming Events
* Recent Working Papers
* Finnish Education

Download this newsletter: http://www.adbi.org/newsletter/2010/11/18/4217.newsletter.november.2010/
ADBI News provides information about ADBI's research and capacity building programs, events, and publications.

This issue includes articles on:

* ADBI-BNM Conference
* Trade in Central Asia
* The Rise of Asia's Middle Class
* Skilling Up for Development
* Post 2010 Trade Agenda
* Distinguished Speaker Seminar
* New Publications
* Forthcoming Publication
* Upcoming Events
* Recent Working Papers
* Finnish Education

Download this newsletter: http://www.adbi.org/newsletter/2010/11/18/4217.newsletter.november.2010/

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Published by: ADBI Publications on Nov 18, 2010
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11/18/2010

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ADBI News
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2010 Volume 4 Number 3

ADBI-BNM Conference Tackles Issues of Macroeconomic and Financial Stability in Asian Emerging Markets

CONFERENCE

At a conference on Macroeconomic

and Financial Stability in Asian Emerging Markets, organized by the Asian Development Bank Institute (ADBI) and co-sponsored with Bank Negara Malaysia (BNM), held in Kuala Lumpur on 4 August, participants grappled not only with the issues of how to strengthen frameworks for monetary policy, macroprudential supervision and regulation, as well as how to promote financial development and inclusion in the region, but also with the question of how Asian economies can influence the debate on these Conference participants grapple with issues of macroeconomic and financial issues at the global level. The stability and financial inclusion in Asian emerging markets conference was attended by highlevel policymakers from Asia and the United States experience in the postcrisis period. Specifically, he (US), senior officials from international institutions favored capital controls in some specific such as the International Monetary Fund (IMF), circumstances. By contrast, Charles Collyns, and top academics. assistant secretary for finance at the US Treasury, Participants generally agreed that argued that strong regulatory standards and fiscal macroprudential supervision and regulation can policy were better suited than capital controls to supplement the role of monetary policy in deal with surges in capital inflows. achieving financial stability, but that they need to be synchronized. Moreover, regulators must have In this issue scope for independent action in cases where information is still incomplete. Shyamala ADBI-BNM Conference 1–2 Gopinath, deputy governor of Reserve Bank of Trade in Central Asia 2 India (RBI), provided an overview of RBI’s approach to macroprudential regulation and The Rise of Asia’s Middle Class 3 systemic risk management and reviewed lessons Skilling Up for Development 4 drawn from the Indian experience. She noted that Post 2010 Trade Agenda 4 harmonization of monetary policy and prudential Distinguished Speaker Seminar 5 objectives may not be possible if banking supervision is separated from central banks. New Publications 6 Volatile capital flows remain a threat to Forthcoming Publication 6 economic and financial stability in the region. Upcoming Events 7 ADBI Dean Masahiro Kawai discussed the policy Recent Working Papers 7 challenges and measures needed to manage the Finnish Education 8 surge in capital flows that Asia is likely to
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Dato’ Muhammad Ibrahim, deputy governor of BNM, in his keynote address said that Asia had benefited greatly from its integration into the global economy, but that this also raised two key challenges. The first is to balance domestic and external considerations in determining monetary policy actions. The second is to continue developing financial markets despite the global financial turmoil, while maintaining their strength and soundness. He called for greater trade and financial integration among Asian countries and greater regional cooperation to improve stability and harness the growth potential of the region. Regarding the goals of financial development and inclusion, IMF’s Mangal Goswami presented a paper outlining the priorities for developing bond markets in the region. Naoyuki Yoshino of Keio University advocated the construction of a smalland medium-sized enterprises database in order to synthesize information and allow banks to undertake better risk assessment. Sukudhew Singh, assistant governor of BNM, discussed the

imperatives of broadening financial inclusion and the experience of Malaysia in this regard. He argued that the poor need a variety of financial services, but that there is a lack of delivery channels for such services. ■

Dean Kawai sets out Asia’s policy challenges Read more details of the event at www.adbi.org/event/ 3836.climate.change.adaptation.natural.resource.mngt/ ?sectionID=35.

Toward Smoother, Cheaper Trade in Central Asia
Trade drives economic growth across Asia. In the landlocked Central Asia region, eight countries are working together under the Central Asia Regional Economic Cooperation (CAREC) Program to improve the trade environment with a focus on six transport and trade corridors linking the countries to each other, and the CAREC region to major markets across Eurasia. Modern customs and logistics arrangements will be critical to cut trade costs and time, and to ensure the Program’s large investments in transport infrastructure bring the greatest benefit to the region. The CAREC Customs Cooperation Committee (CCC), which is supported by the Asian Development Bank (ADB), held its 9th annual

SEMINAR

meeting at ADBI in September. The meeting reviewed each country’s progress in the simplification and harmonization of customs procedures and documentation, including single-window development; information and communication technology for customs modernization and data exchange; risk management and post-entry audit; joint customs control; and regional transit development. As the Program considers options for a regional customs modernization project, the CCC studied the Time Release Study (TRS) methodology developed by the World Customs Organization and its use in Japan. The TRS is a tool to measure the efficiency of customs procedures and identify bottlenecks. Japan Customs has implemented nine TRSs since 1991. The findings have helped it finetune customs processes and shape new initiatives such as its Authorized Economic Operators program. The results have been impressive—a twothirds reduction in the mean time required for the clearance of imported goods transported either by sea or by air. Achieving similar progress in CAREC economies will require strong political support for modernization efforts and effective coordination among trade-related ministries and agencies. ■
For more information on the CCC and the CAREC Program visit www.carecinstitute.org.

CAREC customs officials inspect the container management system at Yokohama Port

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ADB Key Indicators for Asia and the Pacific 2010: The Rise of Asia’s Middle Class
Strong economic growth in Asia over the past two decades has been accompanied by the emergence of a sizeable middle class and significant reductions in poverty. As a result, developing Asia has become one of the foremost global consumers, with expenditure second only to the Organisation for Economic Co-operation and Development (OECD) countries. ADB’s study The Rise of Asia’s Middle Class was presented at ADBI on 31 August. It was the main theme of ADB’s flagship annual statistical data book, Key Indicators for Asia and the Pacific 2010. It contends that the growth of Asia’s middle class may hold the key to greater and more efficient poverty reduction across the region, but it will also place extraordinary demands on the environment and governments will be confronted with the challenge of adequately responding to the demands of this emerging middle class. Carefully constructed policies to bolster Asia’s emerging middle class and fulfill its needs will be indispensable. Masahiro Kawai, Dean and CEO of ADBI, stressed the importance of Asia’s new middle class in terms of providing the potential domestic demand to support global sustainable growth: as Asia’s middle class continues to grow it will be an increasingly important force for driving global economic growth and development. Douglas Brooks, assistant chief economist at ADB, observed that developing Asia’s middle class has rapidly increased in terms of size and purchasing power, as strong economic growth in the past two decades has helped to reduce poverty significantly and lift previously poor households into the middle class. He argued that Asia’s emerging consumers are likely to assume the traditional role of the US and European middle

DISSEMINATION EVENT

classes as global consumers, and will play a key role in rebalancing the world’s economy. Mr. Brooks also emphasized the role of governments in initiating proper policies to cultivate the quality and size of the middle class. Governments should promote higher quality jobs, education, social safety nets, conservation, public health, and infrastructure development to support the growth of middle income classes. In conclusion, Dean Kawai observed that the demand of Asia’s growing middle class would evolve from durable products, to higher quality medical and educational services, to better infrastructure, and to better social protection. As needs are increasingly fulfilled, the new middle class may demand higher levels of policy participation, which in turn should lead to better governance, Dean Kawai predicted. Assessing regional development, Kaushal Joshi, statistician at ADB, presented key economic indicators on regional growth and revealed progress made in terms of meeting the Millennium Development Goals (MDGs). Despite a slowdown in Asian growth in 2009 as a result of the global financial crisis, its impact was less severe than had been anticipated at the beginning of 2008. Instead of relying on export oriented strategies, Asian governments increased their government spending to cushion the impact of the crisis. Progress towards meeting the MDGs was mixed. In terms of poverty reduction, universal primary education, gender equality, combat of disease, and environment sustainability, acceptable levels of improvement could be seen, but achievements in terms of child mortality reduction, maternal health improvement, and global partnership development remained unsatisfactory. ■

Panelists discuss Asia’s growing middle class

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Skilling Up for Development
In the wake of the global financial crisis, developing Asian economies need to “rebalance” their growth towards greater reliance on domestic and regional demand. US and European Union (EU) markets could be weak for some years. However, for such rebalancing to take place effectively, skills development policies will need to be adapted to complement this new pattern of demand. These issues were at the top of the agenda

CONFERENCE

of a recent OECD/ADBI conference on Skills Development in the Post-Crisis Era. Policymakers from developing Asia agreed that some of the major challenges in adapting skills policies are to ensure that they are aligned with long-term economic strategies, are based on accurate and reliable forecasts of various skills needed, and are well coordinated (both horizontally and vertically) within government. Other critical elements are building the capacity of trainers and developing effective partnerships with local stakeholders, especially from the business sector. Participants agreed that this Conference made an important step towards a more coherent and coordinated approach to policymaking as it brought together policy makers from both education and employment ministries. They also proposed to organize a follow-up conference next year to take stock of progress and lessons learned rebalancing skills development policies. ■
Read more details of the event at www.adbi.org/event/ 3723.adbi.oecd.post.crisis.context/?sectionID=35.

Participants debate skills development

A Post 2010 Trade Agenda for the Asia-Pacific
“America and Europe cannot be the strong engines for global trade and investment for some time to come, and the need for new sources of growth from domestic and regional markets has made regional economic integration more appealing than ever”, Masahiro Kawai, Dean and CEO of ADBI, said at a two-day conference entitled A Post 2010 Trade Agenda for the Asia-Pacific held at ADBI on 6-7 July 2010. The year 2010 is viewed as a watershed year for trade policy in the Asia-Pacific region. It is the year when industrialized Asia-Pacific Economic Cooperation (APEC) economies will be assessed on their progress in meeting the Bogor Goals of APEC. More importantly, 2010 marks a “new beginning” as the global economy crawls out of the global financial crisis. The postcrisis scenario implies a changed environment for trade policy. To discuss the next steps for APEC’s trade and investment agenda, the Pacific Economic Cooperation Council (PECC), ADBI, and InterAmerican Development Bank (IDB) jointly
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CONFERENCE

organized the conference where policy makers and leading trade scholars from APEC economies grappled with various issues of multilateral trade and regional economic integration. Some points of consensus emerged on the continuous importance of the World Trade Organization (WTO)-Doha Development Agenda (DDA) and the building of an Association of Southeast Asian Nations (ASEAN) Economic Community. However, the political economy of regional integration remains fraught with difficulties. ■

Sherry Stephenson of the Organization of American States discusses labor mobility in preferential trade agreements Read more details of the event at www.adbi.org/event/ 3886.post.2010.trade.agenda.asia.pacific/.

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Sustaining Growth and the Environment: What Asian Governments Can and Should Do
Asian economies continue to grow and projections for economic growth in the short- to medium-term are rosy. However, this growth is also having negative local, regional, and global environmental impacts. Euston Quah, head of the economics department and acting chair of the School of Humanities and Social Sciences at Nanyang Technological University, Singapore, delivered a lecture entitled “Sustaining Growth and the Environment: What Asian Governments Can and Should Do” at an ADBI Distinguished Speaker Seminar in Tokyo on 2 September 2010. Professor Quah argued that the key challenge facing Asian governments is to pursue the twin goals of continued economic growth and affluence, on the one hand, and environmental conservation, on the other. The success of achieving this will hinge on whether Asia will be able to develop sustainably. For this, he believes, more pragmatism is needed at all policy levels. At the local level, individual governments should adopt sound, pragmatic environmental policies, whereas at the regional and global levels, they should adopt a “bottom-up” approach, rather than the “top-down” approach of imposing a global benchmark on countries. Policies adopted within a country tend to be more useful than international treaties. He believes Asian governments are faced with five key challenges in resolving the environment issue: the so-called not-in-my-back-yard challenge, that can lead to the failure of a planned project due to insufficient support by the people immediately affected; the challenge of pricing non-market goods; the challenge of solid waste disposal arising from the fact that countries are becoming increasingly affluent resulting in higher consumption and an increase in waste generated; the challenge of trans-boundary pollution; and the challenges posed by climate change. In Professor Quah’s view, environmental problems are economic problems and he made the

DISTINGUISHED SPEAKER

case that economic instruments can and should be used to solve these problems. To achieve sustainable development, therefore, it is important to assess how to deal with environmental spillovers from economic development. He suggested a number of policies crucial, in his view, for sound local environmental management. Each is based on basic economic principles, namely: getting prices right (in that the price observed in the marketplace should reflect the true social opportunity cost of using the resources); greater employment of appropriate and inclusive costbenefit analysis; accounting for externalities and non-market goods; adopting so-called damage schedules; expanding market solutions (e.g., emission taxes, cap-and-trade systems, deposit refund systems), which are instrumental for creating incentives and disincentives; establishing baselines and green accounting for environmental variables and pollutants; pursuing green technology; and working with stakeholders. Although these policies seem easy to implement, governments have been displaying many shortcomings in trying to do so. ■

Professor Quah makes the case that environmental problems are economic problems Read a more detailed summary of this event at www.adbi.org/ event/4049.quah.distinguished.speaker/. See the video of this seminar at www.adbi.org/event/ 4049.quah.distinguished.speaker/video/.

E-newsline Brings Asia to Your Inbox
For a daily wrap up of development news and events in Asia, subscribe free to ADBI’s e-newsline. Concise summaries of news, opinions, and editorials from an Asian perspective are delivered daily to your inbox. To learn more about e-newsline and to subscribe, visit: www.adbi.org/e-newsline/.

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New Publications
Effects of Social Policy on Domestic Demand
Edited by Masahiro Kawai and Gloria Pasadilla

This book is based on ADBI’s 12th Annual Conference, which had the objective of formulating appropriate long-term responses to the global financial crisis, focusing on social policies and their impact on domestic demand. The conference examined the extent to which improved social protection policies can help reduce household savings in Asian countries with very high savings rates and induce a long-term increase in consumption spending. The conference tackled the following questions: What are the theoretical and empirical relationships between social protection, household savings, and income? What is the experience of social protection policies in

developed and emerging economies? How do factors like demographic developments and income distribution between labor and capital affect savings and demand? What is the impact of increased social protection spending on household savings and consumption in Asian countries? ■
Read or order “Effects of Social Policy on Domestic Demand” at www.adbi.org/book/2010/11/04/4158.effects.social.policy. domestic.demand/.

Promoting Financial Inclusion through Innovative Policies
Edited by John Conroy, Julius Parrenas and Worapot Manupipatpong

This book covers six key areas for financial inclusion, namely: agent banking, mobile phone banking, diversifying providers, reforming public banks, financial identity regulation, and consumer protection. It highlights best practices for introducing innovative policies in these areas. ■

Read or order “Promoting Financial Inclusion through Innovative Policies” at www.adbi.org/book/2010/10/14/4089.financial. inclusion.innovative.policies/.

Forthcoming Publication
Asia’s Free Trade Agreements: How is Business Responding?
Edited by Masahiro Kawai and Ganeshan Wignaraja

The spread of Asia’s free trade agreements (FTAs) has sparked an important debate on the impact of such agreements on business activity. This pioneering study uses new evidence from surveys of East Asian exporters—including Japan, the People’s Republic of China, the Republic of Korea and three ASEAN economies, namely of the Philippines, Singapore and Thailand—to shed light on the FTA debate. Critics are concerned that FTAs erode the multilateral trading process and foster an alarming “noodle bowl” of overlapping regulations and rules of origin requirements—which may be costly to business. Asia’s Free Trade Agreements makes key recommendations for improving business use of
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FTA preferences, reducing costs of FTAs and creating a region-wide FTA. This well-researched and documented book will appeal to undergraduate and postgraduate students in international business, international economics, economic development, public administration and public policy. Academics, researchers and members of think-tanks around the world will also benefit from this book as will trade negotiators and trade policy officials from developed and developing countries. ■

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Selected Upcoming Events
Innovation for Balanced and Sustainable Growth (Tokyo) This round table will deal with innovation today, innovation for balanced and sustainable growth, making innovation work for development, seizing the benefits of the global value chain at the local level, green growth, innovation and technological transfer, and international cooperation for innovation.
www.adbi.org/event/3919.adbi.oecd.roundtable.sustainable.growth/

24-26 November

24-26 November

The Environments of the Poor: Responding to Climate Change and the Green Economy — Making Sustainable Development More Inclusive (Delhi) This conference will review the linkages between the environment and poverty reduction from a spatial, climate change, and green economy perspective.
www.adbi.org/event/4083.environment.poor.climate.change.green.economy/

3 December

15-17 December

The Political Economy of Asian Regionalism (Tokyo) The ADBI annual conference 2010 will explore what reforms and innovations are needed to the current institutional architecture in the region to promote further economic integration. Postcrisis Employment and Social Policies in Developing Asia (Tokyo) This conference will deal with jobs and the recovery, youth employment, role of active labor market policies, promoting employment recovery while meeting fiscal goals, rebalancing Asia's economy and jobs, and social cohesion and employment.
www.adbi.org/event/3640.regulatory.reforms.liberalization.services/

Recent Working Papers
Asia’s Role in the Global Financial Architecture
Authors: Masahiro Kawai, Peter Petri
This paper suggests that federalism be introduced on a global scale by creating hierarchies of global and regional organizations with overlapping ownership structures in various functional areas. Asia could contribute to this transformation by building effective institutions to promote macroeconomic and financial stability and deepen regional trade and investment integration.
Read Working Paper 235 at www.adbi.org/working-paper/ 2010/08/04/4025.asia.role.global.financial.architecture/.

Asset Market Structures and Monetary Policy in a Small Open Economy
Author: Yongseung Jung
This paper sets up a canonical new Keynesian small open economy model with nominal price rigidities to explore the impact of habit persistence and exchange rate pass-through on the welfare ranking of alternative monetary policy rules.
Read Working Paper 251 at www.adbi.org/working-paper/ 2010/10/27/4118.asset.market.structures.monetary.policy/.

ASEAN Services Sector and the Growth Rebalancing Model
Authors: Rafaelita Aldaba, Gloria Pasadilla
This paper argues that ASEAN governments should pursue policies that support new growth areas of services investment (environmental protection, low carbon growth, and green strategies) by encouraging research and development, strengthening mechanisms for the transfer of green technology, and promoting greater private sector participation.
Read Working Paper 246 at www.adbi.org/working-paper/ 2010/09/07/4059.asean.services.sector.growth.rebalancing/.

Measuring the Environmental Impacts of Changing Trade Patterns on the Poor
Authors: Kaliappa Kalirajan, Venkatachalam Anbumozhi, Kanhaiya Singh
This paper attempts to measure the environmental impact of changing trade patterns on the poor and argues that poverty reduction can be achieved without causing damage to the natural environment through energy-efficient production methods and service-led growth.
Read Working Paper 222 at www.adbi.org/working-paper/ 2010/08/10/4030.environmental.impacts.trade.patterns.poor/.

Estimating Demand for Infrastructure in Energy, Transport, Telecommunications, Water, and Sanitation in Asia and the Pacific: 2010-2020
Author: Biswa Nath Bhattacharyay
This paper estimates the need for infrastructure investment, including energy, transport, telecommunications, water, and sanitation during 2010-2020, in order to meet growing demand for services and facilitate further rapid growth in the region. By using “top-down” and “bottom-up” approaches, this paper provides a comprehensive estimate of Asia’s need for infrastructure services.
Read Working Paper 248 at www.adbi.org/working-paper/ 2010/09/09/4062.infrastructure.demand.asia.pacific/.

Investigating the Effect of Exchange Rate Changes on Trans-Pacific Rebalancing
Authors: Willem Thorbecke, Ginalyn Komoto
This paper investigates the role exchange rate changes can play in rebalancing transpacific trade. It presents evidence from a gravity model indicating that the exports from the People’s Republic of China (PRC) to the United States (US) are a key outlier in the global economy and that imbalances between the PRC and the US have remained large during the financial crisis that began in September 2008.
Read Working Paper 247 at www.adbi.org/working-paper/ 2010/09/08/4060.effect.rate.changes.transpacific.rebalancing/.

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“Finnish-ing” Top in Education

High-school students in Finland have the OECD’s shortest school hours and rarely have more than half an hour of homework a night. They have no classes for the gifted. They have no school uniforms, honor societies or valedictorians. They do not even have sport teams, marching bands or proms. And yet, Finnish teenagers score highest overall in the OECD’s Program for International Student Assessment which measures reading, scientific and mathematical literacy. Moreover, the gap between Finland’s best and worst schools is the smallest of any country. What are the secrets behind its success? Finland’s Ambassador to Japan, Jari Gustafsson, shared some of the evidence in a keynote address to a recent ADBI/OECD conference on skills development. In Finland, there is a broad political consensus that since the country does not have oil and other riches, or a big domestic market, it should invest in education. Knowledge is power. Finnish

Finland’s Ambassador Jari Gustafsson with ADBI’s Takashi Kihara.

education is comprehensive and non-selective. It is based on the principle of equal opportunity, irrespective of the place of residence and the economic situation of the parents. And above all, education is “free”, with all expenses covered by government. Teaching is a well paid vocation in Finland. All teachers hold university Masters degrees. They have personal life-long learning programs. Teachers tend to stay with the same kids for years, rather than moving on to another school. Most importantly, teachers are highly respected members of society. Students are encouraged to be self-reliant and independent. Parents do not fuss over accompanying their children to and from school, and arranging every play-date and outing. Young Finns do much on their own. More responsibility means less need for standards and rules. Schools have a free hand in choosing the curriculum, and teachers have freedom to choose textbooks and create lessons to fit their students. And when it comes to marshalling scarce resources, Finland concentrates on weaker students rather than pushing gifted students ahead of everyone else. Bright students can help average ones without harming their own progress. Thus, remedial teaching is taking place during school hours, not outside the classroom. In short, the Finnish education success story is based on a strong partnership between well qualified teachers and responsible children. ■
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Publisher: Takashi Kihara

ADBI News reports quarterly on the activities of the Asian Development Bank Institute. The views expressed in this newsletter do not necessarily reflect the views or policies of the Asian Development Bank Institute or the Asian Development Bank. Materials may be reprinted with credit given to ADBI News. To send comments or to request a free subscription, e-mail adbinews@adbi.org; fax a message to +81-3-3593-5571; or write to ADBI News, Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. For the web version, go to www.adbi.org/newsletter/.

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