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ADBI News
2012 Volume 6 Number 4

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Outlook for Growth and Regional Cooperation in Asia

CONFERENCE

Dean Kawai (center) joins a panel of experts to assess policy choices for sustainable growth in the Asia and Pacific region.

The aftermath of the 2008 global financial crisis

continues to present challenges for achieving sustainable and inclusive growth in Asia. Growth in the major export markets in Europe and the United States (US) is likely to remain subdued for several years, prompting the need for more robust trade integration within Asia to take advantage of the growing regional market. Greater financial integration in the region is needed to facilitate the deployment of regional savings to support investment, including infrastructure, while ensuring that such integration has safeguards to control destabilizing volatile capital flows. As the European Union is considered the most advanced example of regional economic and financial integration, the eurozone crisis presents lessons for further integration in Asia. To take stock of these developments in growth and regional integration, as well as to explore prospects and assess policy choices for sustainable growth, the ADBI Annual Conference on Growth and Regional Cooperation and Integration in Asia and the Pacific 2012 and Beyond was held in Tokyo on 30 November 2012. The event attracted more than 100 participants, including: Haruhiko Kuroda, President, ADB; Masahiro Kawai, Dean, ADBI; Zhang Yunling, Professor, Director of International Studies, CASS;

and Bruce Miller, Australia Ambassador to Japan. Discussions focused on the regional impact of the growth slowdown in the People’s Republic of China (PRC) and India, the eurozone crisis, and shifts in regional trade and financial integration.

In this issue
ADBI Annual Conference Connectivity between South and Southeast Asia ADBI Reaches Two Key Milestones 2012 DAJA Competition Eurozone Crisis Breaking the ‘Diabolical Loop’ Recent Books Top downloads in 2012 Growth Constraints on Small Companies in Myanmar Promote Financial Inclusion ADBI in the News Selected Events Recent Working Papers Effective Policies and Experiences 1–2 2 2 3 4 4 5 5 6 6 6 7 7 8
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Papers presented will be published as ADBI working papers and in a book. The conference covered several key issues. First, the slowdown in the PRC and India is being driven by endogenous factors. Because of their increasing importance as sources of export demand, an output drop in the PRC or India will lower output in the G-3 economies (Japan, EU, US) and other Asian economies. However, extra-regional shocks are more important in explaining output fluctuations in ASEAN. Second, trade and financial integration will continue to be an important agenda for Asian economies. Asia has a multi-track trade liberalization approach with a focus on FTA-led liberalization to support deepening production networks, but challenges remain. A region-wide Asian FTA can reduce the

risk of the “noodle bowl,” or overlapping regional trade agreements, and facilitate a WTO Doha deal. Third, optimism is growing that the eurozone crisis will be managed and that the US will avert the so-called “fiscal cliff.” Fourth, Asia would need to be prepared in the event of a worst-case scenario. Macroeconomic policy space may be available for some Asian countries, but not all. Therefore, macroprudential policies, including regional liquidity support systems like the Chiang Mai Initiative, are vital and need to be strengthened. Asian economies have to deepen trade and investment integration, strengthen the financial system, and integrate the financial markets. I
For more information on this event please visit: www.adbi.org/event/5307.regional.integration.asia. pacific.2013/.

Connectivity between South and Southeast Asia
Over the past decade, Southeast Asia and South Asia were two of the fastest growing regions in the world with annual average growth rates of 5.5% and 7.6% respectively. In 2011, the two regions accounted for 6% of total world output. Nevertheless, economic integration between the two regions is low. To address this issue, an inception workshop for the ADB/ADBI flagship study, Connectivity between South and Southeast Asia, was held in Manila on 17 December 2012. The objective of this project is to facilitate more effective economic integration and cooperation between developing member countries

WORKSHOP

in Southeast and South Asia. The expected outcome of the project is that public and private stakeholders will have a greater understanding and appreciation of policy steps required for effective economic integration and cooperation between the two regions. This project would also help developing member countries and ADB devise strategies for effective regional economic integration and cooperation, and support ADB’s role as a catalyst of regional cooperation and integration. It is critical that the identified projects and strategies be driven by realistic estimates of prospective demand, rather than being supply-driven. I

ADBI Reaches Two Key Milestones
ADBI passed two milestones in December 2012 with the publication of post number 50 on Asia Pathways and working paper number 400. Urbanization can be good for the environment, by Guanghua Wan, was the 50th post to be published on Asia Pathways, the blog launched by ADBI at the beginning of 2012. Asia Pathways has grown in influence and its authors have included Ambassador Tommy Koh, former President of the United Nations Conference on the Law of the Sea and chair of the Earth Summit; Nobel laureate
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Mohammad Yunus, founder of Grameen Bank; and Tarisa Watanagase, former Governor of the Bank of Thailand. The South China Morning Post, The Japan Times, and China Daily are among the newspapers to have republished Asia Pathways posts. December also saw the publication of the 400th paper in the well-regarded ADBI working paper series, The Persistence of Current Account Balances and its Determinants: The Implications for Global Rebalancing, by Erica Clower and Hiro Ito.

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Bangladesh Journalist Wins 2012 Developing Asia Journalism Awards

AWARDS

Twenty-five journalists from the Asian and Pacific region participated in the DAJA Forum held at ADBI on 27 November. The annual awards honor the work of journalists engaged in dissemination of knowledge on poverty reduction and growth in the region.

Syed Zain Al-Mahmood, a journalist with the Dhaka Courier in Bangladesh, was named winner of the 2012 Developing Asia Journalism Awards (DAJA) for his article Pink Gold Rush, which explores the impact of large-scale shrimp farming on the environment and livelihoods in local communities of the Sundarbans area. The award was present to Al-Mahmood at ADBI in Tokyo on 27 November as part of the 2012 DAJA Forum. “The DAJA competition is a unique opportunity to highlight the significant contribution of journalism and individual journalists to the development process in Asia,” said Dean Kawai. “Zain’s article is an excellent example of this contribution. It sheds light on the challenge of balancing the growth of an important job-creating industry and the need to protect the environment.”

The shrimp industry is the second-biggest export earner in Bangladesh behind garments, with shrimp farms covering around 243,000 hectares of farmland, according to the article. But the industry has taken a heavy toll on the environment as salinity and pollution have damaged the soil fertility of more than 405,000 hectares of coastal agricultural land. Pramod Kumar Tandan, a journalist based in Nepal, won the award for Young Development Journalist of the Year (under age 30) for his article, Himalayas Can Change into Blackstone Very Soon. Twenty-five journalists from across Asia and the Pacific were selected as finalists by an international panel of judges and participated in the DAJA Forum. The Developing Asia Journalism Awards were established by ADBI in 2004 to build capacity among journalists working on key development issues. The annual awards honor the work and contributions of journalists actively engaged in the responsible dissemination of knowledge related to poverty reduction, and other areas that support long-term growth in the Asia and Pacific region. I
For more information on this event please visit: www.adbi.org/event/5091.daja. awards.2012/.

DAJA participants visited Japan’s Tohoku Region to survey recovery efforts following the 11 March 2011 earthquake and tsunami.

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Eurozone Crisis: a Test for International Financial Cooperation
ADBI and the Reinventing Bretton Woods Committee organized a joint seminar on Adjusting the World to the New Realities of the International Financial System at ADBI on 12 October in conjunction with the IMF–World Bank Annual Meetings. The background is that the eurozone sovereign debt and banking sector crisis poses a major threat to global economic growth and financial stability, while at the same time the process of economic and financial integration in the European Union (EU) provides an important benchmark for similar processes in Asia, although the latter are still at a much earlier stage. Therefore, it is important to understand the lessons, both positive and negative, from the EU integration process and the eurozone crisis. ADB President Haruhiko Kuroda delivered welcoming remarks. The first panel focused on the eurozone crisis as a test for regional and international financial cooperation. The second panel, chaired by President Kuroda, addressed

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issues implied by creating the “four unions” in Europe and their international implications. Speakers from Northern Europe, including Klaus Regling, CEO of the European Financial Stability Fund, and Peter Praet, member of the European Central Bank’s policy board, took a positive view of the prospects for resolving the eurozone crisis. I

ADB President Haruhiko Kuroda (left) joins a panel of distinguished economists to discuss how economic and financial integration in the European Union provides a benchmark for similar processes in Asia at the seminar, Adjusting the World to the New Realities of the International Financial System, held at ADBI on 12 October. For more information about this event please visit: www.adbi.org/event/5228.eurozone.crisis.testing.regional. intl.cooperation/.

Breaking the ‘Diabolical Loop’
ADBI organized a seminar titled, The Eurozone Crisis and Its Implications for Asian Economies, on 12 October in conjunction with the International Monetary Fund–World Bank Annual Meetings. The objective of the seminar was to provide further insight on the factors underlying the eurozone crisis, policy suggestions for ending the crisis, and the implications of the crisis for economic and financial stability in Asia. Erik Berglof, chief economist, European Bank for Reconstruction and Development, analyzed solutions to the eurozone crisis, arguing that it was necessary to separate legacy problems and “steady state” solutions. Some burden sharing would be

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needed for legacy debt from the crisis, while a banking union was an important step to break the “diabolical loop” and regain democratic legitimacy. Masahiko Takeda, deputy director of the Asia and Pacific Department of the IMF, took a relatively optimistic view about the implications of the eurozone crisis for global and Asian economic and financial stability. He argued that, although short-term prospects have deteriorated, so far spillovers in Asia from the eurozone crisis have been limited, and there remains ample policy space to react to a larger external shock. Nonetheless, structural reforms are needed over the medium-term to increase resilience and prevent slowdowns. During the panel discussion, Masahiro Kawai, Dean of ADBI, also emphasized the need for structural reforms and regional cooperation to increase economic and financial resilience in Asia. I
For more information on this event please visit: www.adbi.org/event/5247.eurozone.crisis.implications.asian. economies/.

Dean Kawai (center) said structural reforms and regional cooperation are needed to boost economic and financial resilience in Asia.

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Recent Books
The Global Financial Crisis and Asia: Implications and Challenges
A new book, edited by Dean Masahiro Kawai, Mario Lamberte, Yung Chul Park, aims to identify and analyze the impact of the 2007–2009 global financial crisis on Asian economies and to assess the short-term and longer-term policy responses to the crisis in terms of their effectiveness and sustainability. This book is the first to be copublished with Oxford University Press. The volume highlights that Asian economies have recovered strongly from the crisis, reflecting their aggressive moves to ease monetary and fiscal policy. However, the biggest challenge lies ahead. It asserts that, given that it is unlikely that the US and Europe will be engines of global growth, Asian economies should contribute to global economic adjustment by creating their own growth engines. This book features a unique collection written by international experts from developed economies in the West and emerging economies in Asia. It offers comprehensive coverage of macroeconomic policy, real sector issues, infrastructure, labor market and social policy, financial sector reform and regulation, and regional cooperation and financial architecture. And it gives detailed information of how countries were affected by the global financial crisis and their policy responses. The Global Financial Crisis and Asia draws lessons on how best to avoid or mitigate future crises and to identify structural policy recommendations that can help guide Asian policymakers to expand the growth potential of domestic and regional demand in coming years, and thereby create a basis for sustainable and inclusive long-term growth. I
To order a copy please visit: http://ukcatalogue.oup.com/product/9780199660957.do.

Infrastructure for Asian Connectivity
This book, edited by Biswa Nath Bhattacharyay, Dean Masahiro Kawai, and Rajat M. Nag, addresses the prospects and challenges concerning soft and hard infrastructure development in Asia and provides a framework for achieving Asian connectivity through regional infrastructure cooperation towards a seamless Asia. This book builds upon the findings and recommendations of Infrastructure for a Seamless Asia, the most downloaded book on the ADBI website. It looks at regional infrastructure in Asia until 2020, provides examples of national and regional and global best practices, and also presents policy recommendations. The study offers several measures, including creating effective new projects and regional and national institutions, strengthening financing, and improving coordination in infrastructure in Asia. To address the great infrastructure financing gap, the study advocates the promotion of public-private partnerships in regional infrastructure development in Asia. This insightful book will serve as a definitive knowledge product for policymakers, academics, private sector experts and infrastructure practitioners interested in the regional and national infrastructure demand, investment and benefits in the region. Concerned officials from private and public sectors, and other experts involved in environmental and natural resources studies will also find this compendium invaluable. I
This book was copublished with Edward Elgar. To order a copy please visit: www.e-elgar.com/bookentry_main.lasso?id=14819.

Top downloads in 2012
Infrastructure for a Seamless Asia was the most downloaded publication from the ADBI website in 2012, a position it has held since its publication in 2009. A total of 72,000 copies were downloaded during the year. Asia’s Wicked Environmental Problems, by Stephen Howes and Paul Wyrwoll, was, at 19,000, the most downloaded working paper of 2012.
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Growth Barriers on Small Companies in Myanmar
Myanmar has been experiencing a great political and economic transformation. The business climate is improving, but while entrepreneurship in Myanmar is high, most companies are small and make very little profit. What are the constraints that keep companies from growing in the Southeast Asian A lack of credit in country? This question was Myanmar is the biggest addressed at the seminar, constraint for companies to expand in the country, Growth Constraints on said Dr. El-hadj Bah. Small Companies in

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Myanmar, held at ADBI on 11 December 2012, by Dr. El-hadj Bah, a lecturer of economics at the University of Auckland, New Zealand. Bah conducted a survey of small firms in Northwest Myanmar to shed light on the economy’s stagnant growth and constraints to business growth. He found that a lack of credit is the biggest constraint for companies to expand in the country. Myanmar needs credible financial services, including facilities and service programs, but the design and administration of such programs must avoid a one-size-fits all development agenda. I
For more information on this event please visit: www.adbi.org/event/5334.growth.constraints.companies. myanmar/.

Developing APEC and Other Regional Economies
The conference, Regulatory Environments to Promote Financial Inclusion in Developing APEC and Other Regional Economies, was held in Melbourne, Australia, 17–19 October, to discuss effective financial inclusion regulations for the developing countries of the Asia-Pacific region. This event served as a knowledge sharing platform for regional policymakers to develop and adopt relevant policies in their countries. The conference brought together government officials from APEC economies and non-APEC developing member countries, and experts on financial inclusion. The event was sponsored by ADBI, Australian APEC Study Center at RMIT University, AusAid, and Association of Development Financing Institutions in Asia and the Pacific.

CONFERENCE

The conference consisted of formal presentations, structured discussions, and country case studies presented by experts from policy and regulatory agencies from the region, international organizations, banks, and non-bank financial institutions. Topics discussed included stronger and sustainable linkages between policymakers, regulators, and financial institution, enhanced capacities of regional supervisors and regulators, and concrete policy recommendations for financial inclusion. In addition, the forum highlighted the best regulatory standards and practices, especially those that support technology and IT systems in delivering financial services to the region’s developing economies. I
For more information on this event please visit: www.adbi.org/event/5249.financial.inclusion.dev.apec. economies/.

ADBI in the News
Dean Kawai was cited in the Thai News Service article, Establishment of Asian free trade zone positive on trade. The Business Times cited the Dean in the article, BOJ’s yen for cheap loans. And The Phnom Penh Post interviewed the Dean in the article, ADB Institute: too much focus on 2015. The ADBI book, Capital Market Reform in Asia, was reviewed by The Hindu website. Deputy Dean Jae-ha Park was cited in the Thai News Service articles: Yuan alternative backed; Yuan unlikely to rule in short term; ASEM Finance Ministers to consider regional currencies; and Asia-Europe Editors’ Roundtable begins. Senior Consultant for Research Peter Morgan appeared on NHK World to discuss the outlook for the global economy.

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Selected Upcoming Events
ADBI-FSA Conference (Tokyo) The objective of the conference is to engage high-level academics, think tank scholars, policymakers and practitioners in thinking about the effective design of regulatory and policy frameworks that will promote financial system development and stability.

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Recent Working Papers
Regional Financial Arrangements and the International Monetary Fund
Author: Barry Eichengreen
The rise of regional monetary arrangements poses a challenge for the International Monetary Fund’s (IMF) global surveillance efforts. This paper reviews how the IMF has responded to earlier regional initiatives, from the European Payments Union of the 1950s and the Gold Pool of the 1960s to the CFA franc zone and the European Monetary System. The penultimate section draws out the implications for monetary regionalism in East Asia.
Read Working Paper 394 at www.adbi.org/working-paper/2012/ 11/06/5328.regional.financial.arrangements.imf/.

Impact of Changes in the Global Financial Regulatory Landscape on Asian Emerging Markets
Author: Tarisa Watanagase
This paper discusses the relevance of Basel III to Asian emerging markets. It reviews some of the proposed regulations of Basel III in order to evaluate their likely implications for, and their ability to enhance, the stability of the banking and financial system. This is followed by a discussion on the challenges faced by the regulators of Asian emerging markets in effectively managing their financial regulations, given their capacity and institutional constraints.
Read Working Paper 391 at www.adbi.org/working-paper/2012/ 10/26/5290.impact.global.financial.regulatory.landscape/.

The World Bank and the Asian Development Bank: Should Asia Have Both?
Author: Vikram Nehru
This paper examines the complementary and competitive roles of the World Bank and the Asian Development Bank in Asia given the backdrop of a changing world in which development priorities and challenges are changing rapidly and the rapid expansion of financial flows to developing countries is challenging the influence of these organizations. The paper highlights changes to the international aid architecture, its increasing fragmentation, the rise of non-traditional donors, and recent efforts at improving aid coordination.
Read Working Paper 385 at www.adbi.org/working-paper/2012/ 10/02/5243.world.bank.adb.should.asia.have.both/.

Establishing Monetary Union in the Gulf Cooperation Council: What Lessons for Regional Cooperation?
Author: Shinji Takagi
The paper reviews the experience of regional economic cooperation in the Gulf Cooperation Council (GCC). Conceived as a regional security alliance, the GCC has evolved to become a common market in the making. All six GCC countries participate in the common market project, and additional countries may join. But the timing of introducing a common currency, initially targeted for 2010, remains uncertain, especially in the light of the ongoing euro area crisis.
Read Working Paper 390 at www.adbi.org/working-paper/2012/ 10/19/5268.monetary.union.gulf.cooperation.council/.

The People’s Republic of China and Global Imbalances from a View of Sectorial Reforms
Authors: Hiro Ito and Ulrich Volz
This paper examines the impact of sectorial reforms on current account imbalances, with a special focus on the People’s Republic of China (PRC). In particular, we investigate to what extent reforms pertaining to the financial sector, social protection, and healthcare may contribute to a rebalancing of the PRC’s persistent current account imbalances.
Read Working Paper 393 at www.adbi.org/working-paper/2012/ 11/02/5308.prc.global.imbalances.sectorial.reforms/.

The Persistence of Current Account Balances and its Determinants: The Implications for Global Rebalancing
Authors: Erica Clower and Hiro Ito
This paper examines the statistical nature of the persistency of current account balances and its determinants. With the assumption that stationary current account series ensures the long-run budget constraint while countries may experience “local non-stationarity” in current account balances, the authors examine the dynamics of current account balances across a panel of 70 countries.
Read Working Paper 400 at www.adbi.org/working-paper/2012/ 12/13/5386.persistence.current.acct.bal.determinants/.

The Emerging “Post-Doha” Agenda and the New Regionalism in the Asia-Pacific
Author: Michael Plummer
This paper considers emerging commercial policy challenges facing the Asia-Pacific region in light of the impasse reached at the Eighth World Trade Organization (WTO) Ministerial Meeting in December 2011. It underscores that, while marginal liberalization of trade barriers under the Doha Development Agenda may not be forthcoming in the short- or even medium-term, the WTO has been successful in erecting a rules-based system of global governance and continues to be important to the future health of the international trading system.
Read Working Paper 384 at www.adbi.org/working-paper/2012/ 10/02/5242.post.doha.new.regionalism.asia.pacific/.

Historical Sources of Institutional Trajectories in Economic Development: China, Japan, and Korea Compared
Author: Masahiko Aoki
This essay provides a game-theoretic, endogenous view of institutions, and then applies the idea to identify the sources of institutional trajectories of economic development in China, Japan, and Korea. It stylizes the Malthusian-phase of East Asian economies as peasant-based economies in which small families allocated their working time between farming on small plots— leased or owned—and handcrafting for personal consumption and markets. It then compares institutional arrangements across these economies that sustained otherwise similar economies.
Read Working Paper 397 at www.adbi.org/working-paper/2012/ 11/30/5341.historical.sources.intl.trajectories.economic.dev/.

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Innovative Poverty Reduction Strategies
ADB’s recent poverty data found that Asia and the Pacific region experienced a significant reduction in poverty from 2005 to 2008. About 150 million people exited extreme poverty during this period, bringing the percentage of people living under the extreme poverty line of $1.25 per day to 22% from 27%. Despite the big drop in the number of extreme poor, the reduction for the moderately poor, those living on $2 per day, was marginal at only about 18 million in the region. In light of the new poverty data, ADB and ADBI organized a joint workshop, Effective Policies and Experiences for Poverty Reduction in Asia, in Kunming, People’s Republic of China, 23–25 October. The event was sponsored by ADB, ADBI, and Research Institute for Indian Ocean

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Economies, Yunnan University. In addition to presentations by experts in the field, 41 senior government officials from 12 developing member countries exchanged their country’s poverty reduction experiences and explored the impact of government policies and programs on poverty reduction. Two sessions were also dedicated to understanding how poverty data governance differs between countries and identified opportunities and challenges in poverty data governance methodologies. A follow-up training program will be held in mid-2013. I
For more information on this workshop please visit: www.adbi.org/event/5248.effective.policies.poverty. reduction.asia/.

Attendees from 12 developing member countries gathered at the conference, Effective Policies and Experiences for Poverty Reduction in Asia, in Kunming, People’s Republic of China, 23–25 October, to exchange ideas and strategies on lifting people out of poverty.

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