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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

www.adbi.org
ADBI News Volume 1 Number 2 April 2007

Should PRC Keep
its Dollar Peg?

The first of ADBI’s distinguished speaker
seminar series

Ronald McKinnon, William D. Eberle Professor
of International Economics at Stanford University,
addressed over 50 invited guests and ADBI staff on
1 March. He talked about why the People’s
Republic of China (PRC) should keep its exchange Professor McKinnon urges policymakers and economists to
“get rid of the notion you can manipulate exchange rates to
Many Asian countries, notably the PRC handle trade imbalances.”
and Japan, suffer from “conflicted virtue”
appreciate the lending country’s currency. Creditor
rate pegged to the dollar, drawing on Japan’s countries are thus “conflicted,” worrying that such
experience from 1971 through the early 1990s. an appreciation will lead to deflation. In addition,
The pressure to appreciate the renminbi is McKinnon asserted, currency appreciation can lead
coming from the United States, which is to wage growth slumps and a negative risk
experiencing a large trade deficit with the PRC, premium.
much as it had with Japan 30
years ago. Politicians, and many “... exchange rate appreciation, or the threat of it, causes
economists, argue that letting the macroeconomic distress without having any predictable
renminbi appreciate against the affect on the trade surpluses of creditor economies”
dollar will raise the price of the
PRC’s exports and help reduce this deficit. McKinnon argued that policymakers and
McKinnon expressed concern about this approach, economists alike must “get rid of the notion you
noting that “as with Japan’s earlier experience,
exchange rate appreciation, or the threat of it,
causes macroeconomic distress without having any In this issue
predictable affect on the trade surpluses of creditor
economies.” He went on to say that an appreciation Ageing Asia 2
is both misplaced and dangerous as it does not Dean Looks Ahead 3
address the root cause of the problem (i.e., US
Infrastructure’s Important Role 3
savings deficiency) and may hurt the PRC’s
economy by triggering a deflationary spiral. Interns’ Insights 4
McKinnon pointed to the Japanese experience of Featured Book 5
“serial appreciation,” which did not obviously Facilitating Trade 5
affect its trade balance and caused Japan to go into
just such a deflationary spiral and liquidity trap. Bilateral Trade Agreements 6
Many Asian countries, notably the PRC and Meeting Water Challenges 6
Japan, suffer from “conflicted virtue” according to ICT Boosts Education 7
McKinnon. These countries are “virtuous” for
having high savings, which the US uses to fund its Advantages of Industrial Clusters 7
trade deficit. This “virtue” results in the buildup of Coming Events 8
dollar claims that subsequently lead to pressure to

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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

can manipulate exchange rates to handle trade spiral in the PRC’s exchange rate, deflation
imbalances.” Instead exchange rates should be (particularly in agricultural prices), and a zero-
thought of as “instruments of monetary control.” interest liquidity trap in the Japanese mode.”
Floating the renminbi “... would be a big mistake”
He stated that a monetary approach to exchange The “biggest threat currently is not the
rate policy, which focuses on stabilizing the sustainability [of the US trade deficit] in a financial
domestic price level, should be pursued. The sense, but protectionism in the US,” McKinnon
experience of the yuan/dollar exchange rate concluded. However, given that politicians tend to
between 1994 and 2005 provides anecdotal focus on exchange rates, it is therefore important to
evidence that a fixed exchange rate can lead to get “... these international imbalances smoothed
stable prices at home, McKinnon said. out but not with an exchange rate mechanism.” ■
McKinnon stated that floating the renminbi Download the presentation at www.adbi.org/event/2177.
“... would be a big mistake—leading to an upward mckinnon.distinguished.speaker/.

Ageing Asia: A New Challenge for the Region

Many countries in Asia are now on the edge of on Ageing will follow at ADBI on 8 May, for the
drastic population ageing. To date, policymakers benefit of policymakers and researchers in Tokyo.
have sought to address these challenges purely The workshop will provide an opportunity to
from the standpoint of domestic policy; however, i) Discuss the current status and characteristics of
increasing regional integration implies that cross- ageing in Asia;
border movements of capital and labor are likely to ii) Draw out its domestic and regional implications;
play an important role in mitigating ageing’s and
impacts. This underscores the importance of iii) Explore feasible policy responses, particularly
dealing with ageing both at the national and in the area of regional cooperation.
regional levels. A distinguished panel of experts is being
Against this backdrop, ADBI will hold a assembled for the afternoon workshop (see Table),
seminar on Ageing Asia: A New Challenge for which will end with closing remarks by Haruhiko
the Region on 7 May, in conjunction with the Kuroda, President of the ADB. ■
Asian Development Bank’s 40th Annual Meeting Find more information at
of the Board of Governors. A half-day workshop www.adbi.org/event/2187.ageing.asia.workshop/.

Workshop on Ageing Asia Program 8 May 2007
● Session I The Impact of Ageing on Asian Development
Speaker: DAVID CANNING,* Professor of Economics and International Health,
Department of Population and International Health, Harvard University
Discussant: EIJI TAJIKA, Professor, Public Economics Program, School of International and Public Policy,
Hitotsubashi University
● Session II Ageing, Saving, and Fiscal Policy
Speaker: CHARLES YUJI HORIOKA,* Professor of Economics, Institute of Social and
Economic Research, Osaka University
Discussant: NAOHIRO YASHIRO, Professor of Economics, International Christian University
● Session III Cross-Border Movements of Goods and Capital Caused by National Differences
in Population Ageing
Speaker: RALPH C. BRYANT,* Senior Fellow, The Brookings Institution
Discussant: JAYANT MENON, Senior Research Fellow, Asian Development Bank Institute
● Session IV Economic Challenges of Ageing in East Asia: Prospects of Regional Cooperation
Speaker: MASAHIRO KAWAI, Dean of the Asian Development Bank Institute
Discussant: YOSHIHISA UEDA, Vice President, Japan International Cooperation Agency
Notes: (*) signifies participants at both the ADB Annual Meeting seminar and ADBI workshop.

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Dean Looks Ahead

Singapore’s Business Times featured a 10 February article on ADBI Dean Masahiro Kawai. The following
are some of the Dean’s words from the article, “Working towards Asian integration,” by Anthony Rowley.

“[ADBI focuses] on research and capacity- cooperation in the area of infrastructure… We will
building. For research the focus is on long-term, look not only at physical infrastructure but also the
structural issues, while capacity-building is software component of infrastructure—the
designed to strengthen capacities and skills on the surrounding institutional and regulatory
part of developing economies. There are four areas environment, governance of infrastructure
of (interest): poverty reduction; regional corporations, the implication of infrastructure for
cooperation, private sector development and regional cooperation and integration, how
governance. The issue of regional cooperation and infrastructure can reduce the costs of doing
integration is highly relevant to all of these. business and of international trade. We shall also
Because of my academic interest in regional look at the financing of infrastructure, how Asia’s
cooperation and integration, I would like to focus massive savings can be mobilised to finance the
particularly on this. potential demand for infrastructure in Asia which
“Actually there is an increasing demand on the the ADB estimates to be US$3 trillion over the
part of developing member countries for regional next 10 years or US$300 billion a year.” ■
Find more speeches by Masahiro Kawai at www.adbi.org/speeches/.

Infrastructure’s Role in Reducing Trade Costs

Improved infrastructure reduces commercial ADBI in Tokyo was convened with a team of
distribution margins thereby narrowing the gap researchers from PRC, India, Indonesia, the
between producer and purchaser prices. Moreover, Kyrgyz Republic, and Malaysia, and inter-
infrastructure can expand the scope for domestic national experts in trade cost analysis. It was
absorption and for supply to export markets, agreed during the workshop that the final report of
leading to economies of scale. ADBI is conducting the study will comprise an overview, a cross-
research on the role of infrastructure in reducing country analysis of the effects of seaport
trade costs to examine how infrastructure can be development on reducing trade costs, and country
a cost-effective means of lowering trade costs case studies that will show evidence of how better
and thereby promoting growth and regional infrastructure leads to lower shipping costs, faster
cooperation. movement of goods or delivery of services, and
In January, a two-day workshop conducted at lowered variability of shipping. ■

The study is expected to be completed by the end of July
2007. View related information at
www.adbi.org/event/2160.reducing.trade.costs/.

The results of the study “will
validate, and hopefully
accelerate, the virtuous cycle
between infrastructure and
regional cooperation,” ADBI
Dean Masahiro Kawai told
the research team in his
welcome remarks.

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Departing Interns Reflect on Time Spent in Tokyo

In February, ADBI said farewell to three interns from ADB developing member countries. As students
in the FASID-GRIPS* Joint Masters Degree Program in International Development Studies, they
completed internships at ADBI as part of their course of study.

Mary Ann M. Magadia Waruna Sri Dhanapala Hayati Lim Omar
(Board of Investments, Philippines) (Office of the President, Sri Lanka) (Bank Negara Malaysia, Malaysia)

Q Describe the accomplishment you are most Q What’s one piece of advice you would give
proud of from your time at ADBI. to organizations like ADBI and ADB to best
contribute to development issues?
–Mary Ann
A: I am most proud of the assistance I provided –Mary Ann
for the 9th ADBI Annual Conference on A: Development organizations should always
Infrastructure for Regional Cooperation. It is a have a sound mechanism for monitoring
very important event for the ADBI and thus I effectiveness and efficiency of projects. This
am honored to have contributed to its success. ensures that resources are spent on good
projects.
–Waruna
A: My exposure to ADBI’s capacity building –Hayati
and training activities enabled me to acquire A: The biggest challenge of every development
more knowledge on international development institute is to balance and manage the different
and to understand effective utilization of ICT opinions and convictions coming from
for development. different personalities and backgrounds
towards achieving a common noble objective.
Q What have you learned while in Japan that I hope that all multilateral and international
you would like to see applied in your institutions would be able to see beyond
country? individual and personal interests and focus
their energy on addressing the various critical
–Hayati issues of the developing world.
A: Recycle!
(*) GRIPS = National Graduate Institute for Policy
Studies; FASID = Foundation for Advanced Studies on
–Waruna International Development
A: Orderliness is on the top among many
important lessons I learned while in Japan. I
observe how simple and cost-effective
techniques will enhance customer care. Thus,
applying some of them in my country’s public
service would also make a positive change.

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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Featured Book: The Dynamics of Regional Development

A decade and a half since the Philippines
embarked on a major program of decentralization,
the authors of The Dynamics of Regional
Development: The Philippines in East Asia have
undertaken a detailed examination of all aspects
of the nation’s regional dynamics and policies.
The book was co-published by ADBI and Edward
Elgar Publishing Ltd., with its Philippine version
being published by Ateneo de Manila University
Press.
Three core observations are that countries
pursuing decentralization must:
i Establish a clear, predictable, and stable
regulatory environment that governs center- Overview, first chapter, and ordering information available at
region administrative and financial relations, www.adbi.org/book/2007/02/07/2157.philippine.
ii Invest in infrastructure with regional regional.development/.
developments in mind, and
iii Resolve regional conflicts for the well-being Also Recommended
of local and national populations.
NGO Law and Governance: A Resource Book
The lessons are relevant not only for an Surveying issues affecting internationally operating
audience interested in the Philippines, but also for NGOs, this useful resource provides practical tips for
readers living in and working on the many other managing civil society operations.
developing countries now embarking on such Download the book for free at
decentralization programs. ■ www.adbi.org/book/2007/01/04/2086.ngo.law/.

Facilitating Trade for Faster Growth

Trade plays a key role in reducing poverty through expeditious movements of goods traded across
faster economic growth. At the Customs DG- borders—often plays a more important role than
Commissioner Meeting on Trade Facilitation, trade liberalization in reducing costs of trade.” The
ADBI Dean Masahiro Kawai said, “Trade January meeting was held in Tokyo in
facilitation—which attempts to ensure smooth and collaboration with the Ministry of Finance, Japan;
the World Customs Organization; and ADB.
Twenty-nine senior officials attended the
meeting from ADB’s developing member
countries, focusing on policy aspects of the World
Trade Organization Agreement on Trade
Facilitation as well as practical ways to facilitate
trade, such as use of information technology,
partnerships with the private sector, and regional
cooperation. In addition to active discussion on the
issues, participants shared information by giving
presentations on the status of trade facilitation in
their countries. ■
“Today, no economy can be expected to thrive in isolation
from regional and global markets,” said Ms. Ursula Schaefer- View agenda and related information at
Preuss, ADB Vice President in her opening remarks. www.adbi.org/event/2121.customs.meeting.trade.facilitation/.

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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Why are Bilateral Trade Agreements so Popular?

Bilateral trade agreements (BTAs) have been ADBI Senior Research Fellow Jayant Menon
proliferating. Why are they so popular? What are examines how BTAs in general, and different types
their impacts on multilateralism and the world of BTAs, are affecting the world trading system.
trading system? A recent ADBI discussion paper Although the sheer number of these agreements is
attempts to answer these questions by identifying fragmenting the system, the impact of individual
the general and specific factors driving the BTAs often depends on their underlying
growth in BTAs. The general factors relate to motivation. This highlights the importance of
disenchantment with the WTO; domino effects delineating the specific factors in assessing the
with countries not wanting to be left behind; lower impact of BTAs. Finally, the author considers
visibility and thus lower resistance; and pure likely scenarios for the future landscape of world
politics. Three broad categories of specific factors trade, and possible responses, in the context of
are identified: economic, strategic, and event driven, different Doha outcomes. ■
and each is further divided into sub-categories to Read or download the paper for free at www.adbi.org/
total 11 specific factors (see Figure). discussion-paper/2006/11/28/2067.bilateral.trade.
agreements.wts/.

Factors Driving Growth of Bilateral Trade Agreements

Economic Strategic Event Driven

Sector Driven Market Access PTA Political

Sector Sector Market Market Lobby Terror PTA PTA WTO Political Political
Excluding Expanding Restoring Creating Driven Driven Facilitation Integration Accession Integration Disintegration

Notes: PTA = preferential trade agreement; WTO = World Trade Organization

Addressing Water Allocation and Water Rights

Increased water demand and water use conflicts are attended the workshop to discuss how to improve
occurring in many countries in Asia, and licensing water allocation issues and water rights systems.
mechanisms, water allocation, and water rights During the workshop, participants presented and
have become regular challenges. Unfortunately, the deliberated on action programs for achieving these
extensive interest on these topics is in stark improvements in their own country. ■
contrast with the relatively few successful
experiences so far in the region.
As the final workshop in a series organized to
address this problem, the NARBO Fourth
Thematic Workshop on Water Allocation and
Water Rights was held in Saitama, Japan, in
January in collaboration with the Asian
Development Bank and the Japan Water Agency, as
one of the leading activities of the Network of
Asian River Basin Organizations (NARBO).
Thirteen government officials and practitioners
from seven Asian countries (Indonesia, Japan, Lao
PDR, Philippines, Sri Lanka, Thailand, and Participants visited Saitama Prefecture’s Tone Canal Project,
Viet Nam) in charge of water resources management which is one of the representative canal systems in Japan.
Find more information about this workshop series at www.adbi.org/event/2117.narbo.4th.workshop/.

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ICT Boost for Education
in Nepal

In developing countries like Nepal, the education
and training infrastructure has not been able to
fully equip the workforce with the skills and
knowledge demanded by both domestic and
international industries. The severe skill gaps show
a lack of both proper instructional materials and
prepared teachers. Use of multimedia technology
in education makes it possible to illustrate and to
grasp complex industrial processes and difficult
scientific concepts. With such materials, “we can
expand educational opportunities which eventually To produce well trained teachers capable of developing
will ensure sustainable development and quality educational materials, 35 teachers and government
prosperity,” says Jeoung-Keun Lee, course officials of Nepal were trained at the workshop. During the
course each participant developed a computer courseware.
director.
With the objective of promoting the use of “It’s never too late to begin,” remarked Subash
information and communication technology (ICT) Kumar Bhatt, a computer teacher and head of
in the education sector of Nepal, ADBI organized a department at Shuvatara International School in
12-day residential workshop called the Pilot Lamatar, Lalitpur. “With these kinds of capacity
Course on Computer Courseware Development building programs, we can equip teachers with
in Lalitpur in February. The workshop was skills which in turn will bring significant positive
supported by the Nepal Resident Mission of the changes in the country’s education sector.” ■
Asian Development Bank and National View more information about this course at
Information Technology Center (NITC). www.adbi.org/event/2104.pilot.computer.courseware/.

Sharing the Advantages of SME Promotion
through Industrial Cluster Approach

Promotion of small and medium-sized enterprises the Republic of Korea. ADBI organized the
(SMEs) is a key to achieve economic growth, seminar in collaboration with the Foundation for
employment generation, and eventual poverty Advanced Studies on International Development,
reduction. Industrial clusters offer various ADB, Japan International Cooperation Agency,
advantages to SMEs located within them (see box United Nations Industrial Development
on right). A favorable national policy framework Organization, and Organisation for Economic
and local business environment, however, are Co-operation and Development. ■
needed for these clusters to flourish. In addition,
enhanced roles of the public sector under market- Some Advantages of Industrial Clusters
oriented economy and globalization mean new ● Spillover of technological and other information
challenges for the government officials in former
● Accumulation of skilled and various labor
centrally planned economies.
● Reduced transaction costs
To expose key policymakers to successful
cluster development cases in the Asia-Pacific ● Promotion of long-term contracts and commitments
region, and to disseminate knowledge about their ● Specialization and division of labor
patterns as well as favorable public policy ● Provision of business service and infrastructure
intervention measures, ADBI organized the ● Increased opportunities for innovation
Industrial Development Planning: Cluster-
Based Development Approach Policy Seminar.
This was the second seminar which ADBI organized on this
The five-day seminar, held in March, drew 18 topic. Find more information about these events at
participants from 9 ADB developing member www.adbi.org/event/2105.clusterbased.development.
countries and one self-financing participant from local.government/.

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CALENDAR
www.adbi.org/calendarofevents/

3–4 May East Asia Conference on Competition Policy and Development
(Hanoi, Viet Nam)
7 May Seminar on Ageing in East Asia (Kyoto, Japan)
8 May Workshop on Ageing in East Asia (Tokyo)
10 May Japan Microfinance Symposium (Tokyo)
5–8 June Workshop on Asian Think Tanks: Strengthening Knowledge Management
and Knowledge Sharing (Tokyo)
12 June Ten Years After the Crisis: Evolving East Asian Financial System and
Challenges Ahead (Tokyo)
25–26 June Infrastructure’s Role in Reducing Trade Costs: Finalization Conference
(Tokyo)*
2–5 July Private Sector Participation in Physical Infrastructure (Tokyo)
9–13 July Local Government Strategic Planning to Improve the Urban Environment:
Linking Local Actions to the Global Agenda (Tokyo)*
(*) Event is pending confirmation.
Dates for all events are subject to change. New events are added to the calendar as they are confirmed.
Please consult the website for the latest information.

ADBI News ADBI Online

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