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ADBI News
2012 Volume 6 Number 1

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Lessons from Japan

CONFERENCE

Dean Kawai highlights the economic challenges facing Japan and the Republic of Korea at the conference, Lessons from Japan: Is Japan Koreas Future? in Seoul on 12 March.

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and the Republic of Korea (henceforth, Korea) face many similar challenges that reflect comparable economic structures, social traditions, demographic trends, and geographical proximity. Japan, which has led Korea in economic development and demographic maturation, could serve as guide to Koreas expansion. The biggest challenge for both countries is to secure sustainable growth by implementing structural reforms to raise productivity and improve social safety nets while keeping fiscal policy on a sustainable path. ADBI and Northeast Asia Research (NEAR) Foundation jointly held the conference Lessons from Japan: Is Japan Koreas Future? in Seoul, Korea, on 12 March, to shed light on structural reforms needed to spur growth in Japan and Korea. The conference also commemorated the Great East Japan Earthquake of 11 March 2011. But its broader aim was to identify challenges facing the Japanese and Korean economies and the need to implement structural reforms to support growth and adopt adequate social safety nets and other policies to cope with the aging of society while maintaining fiscal sustainability. Dean Kawai spoke on the challenges confronting Japan from the 11 March 2011 triple disaster of earthquake, tsunami, and nuclear

accident, as well as longer-term issues such as the aging of society, stagnant productivity in some sectors, high government debt, and falling long-term growth rates. He argued for further structural reforms, including promoting green industries and knowledge intensive sectors, encouraging research and development in technology, reducing the corporate tax rate, reforming social security, putting Japans fiscal situation on a sustainable basis, and expanding free trade agreements in the Asia-Pacific region. Professor Chung-Young Ahn of Chung-Ang

In this issue
Lessons from Japan Lessons from the Eurozone Crisis The Evolving Global Economic Architecture Recent Books Media Coverage Boosting MSMEs Upcoming Events Recent Working Papers Climate Change and Green Asia 12 2 3 45 6 6 7 7 8
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University in Korea, argued that Japan and Korea need to expand free trade agreements and encourage inward foreign direct investment. Jun Saito, special advisor to the Japan Cabinet Office, spoke on the need to reform Japans social security system such as health care and pensions. Dr. Yong-Ha Kim of the Korea Institute for Health and Social Affairs found that Japan and Korea ranked relatively low on an international comparison of health care systems. Dr. Takahiro Ono, a senior economist at the Asian Disaster Reduction Center in Kobe, reviewed the experience of Japans 11 March 2011 triple disaster

and concluded that there should be less emphasis on physical structural measures and more on soft measures such as the provision of accurate information, communications, and preparedness. Dr. Sok-Chul Kim of the Korea Institute of Nuclear Safety reviewed Koreas nuclear safety preparedness in light of Japans Fukushima Daiichi Nuclear Power Plant accident, and found that there were greater safety concerns than realized. I
For more information on this conference please visit: www.adbi.org/event/5010.adbi.near.conference.japan. korea.future/.

Lessons from the Eurozone Crisis: Achieving Financial Stability

The 20072009 global financial crisis and its aftermath, most notably the eurozone sovereign debt and banking crisis, have led to a renewed emphasis on policy measures to ensure macroeconomic and financial stability to support sustainable growth. Emerging economies are vulnerable to volatile capital flows that may destabilize their economies and financial systems. Such vulnerability can be dealt with through macroprudential measures, including capital controls, and implementation of regional and global financial safety nets. To address this concern, ADBI and the Policy Research Institute (PRI) of the Japan Ministry of Finance, jointly held a conference on Achieving Financial StabilityLessons from the Eurozone Crisis for Macroeconomic and Financial Stability in Tokyo on 14 March. The aim of the conference was to identify reforms and innovations needed to contribute to financial and fiscal stability to obtain sustainable economic growth for Asian emerging economies, with a particular emphasis on the lessons from the eurozone sovereign debt and banking crisis. Yasushi Kinoshita, director general of the Ministry of Finance International Bureau, delivered a keynote address that highlighted the need to expand financial cooperation in Asia by strengthening the Chiang Mai Initiative Multilateralization financial safety net. Dean Kawai and Peter Morgan, senior consultant for research at ADBI, described institutional structures that could strengthen the role of central banks in contributing to financial stability, while Larry Wall, senior advisor at the Federal Reserve

CONFERENCE

Bank of Atlanta, described steps that the US Federal Reserve Board has taken to strengthen financial stability regulation in the US. Managing volatile capital flows is a major concern for Asian emerging economies. Robert McCauley, senior economist at the Bank for International Settlements, identified unexpected and perhaps perverse tendencies of emerging economy central banks to recycle safe assets back to advanced economy investors during crises. Shinji Takagi of Osaka University noted that Asian economies need to ease capital account restrictions, but that restrictions could provide insurance against disruptive capital outflows, especially if they are supplemented by regional cooperation efforts. Udaibir Das of the International Monetary Fund argued that sovereign debt sustainability should be taken into account in financial stability assessments. Participants agreed that the eurozone experience shows that monetary union in Asia requires a cautious approach, that Japan must take fiscal consolidation seriously, and that a stronger regional financial safety net is needed. I
For more information on this conference please visit: www.adbi.org/event/4873.adbi.pri.financial.macroeconomic. stability/.

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Reforming the Global Economic Architecture

The global financial crisis has spurred debate about the shortcomings and reform of the global economic architecture (GEA). ADBI and the S. Rajaratnam School of International Studies (ISIS), Nanyang Technological University, Singapore, jointly held the conference, The Evolving Global Economic Architecture: from a Centralized to a Decentralized System, in Singapore on 2627 March, to identify and assess reform of the GEA to promote financial stability and sustainable economic growth for emerging economies. It covered a broad range of thematic areas, including oversight institutions and the evolving global economic architecture, global and regional financial safety nets, global and regional financial regulation, WTO and regional trade agreements, global and regional security arrangements, and the World Bank and regional development banks. Bilahari Kausikan, permanent secretary, Ministry of Foreign Affairs, Singapore, delivered a keynote address that highlighted the changing balance of global economic power and its implications for Asia. Dr. Pradumna Rana of ISIS gave an overview of the post-Bretton Woods GEA, the post-global economic crisis GEA, and the expected evolution to a decentralized GEA with a greater role for regional institutions. A key lesson of the recent financial crises has been the need to establish a regional financial safety net to aid countries hit by rapid capital outflows. Dr. Reza

CONFERENCE

Siregar, a senior economist at the newly established ASEAN+3 Macroeconomic Research Office (AMRO), which is the surveillance arm of the Chiang Mai Initiative Multilateralization (CMIM), Asias financial safety net, described AMROs responsibilities, resources and plans. Jay Menon, principle economist, OREI, ADB, provided perspective on the roles and prospects of AMRO and CMIM, including their relationship with the International Monetary Fund. Implications of changes in financial regulation after the global financial crisis have important implications for Asia. Erik Berglof, chief economist of the European Bank for Reconstruction and Development, discussed lessons from the eurozone crisis for financial regulation, and argued that the Vienna Initiative of 2009 has played an important role in stabilizing the crisis. Dean Kawai and ADBI Senior Consultant for Research Peter Morgan highlighted regional-level financial regulation developments in Asia and the European Union. Ganeshan Wignaraja, principal economist, OREI, ADB, and Professor Michael Plummer of Johns Hopkins University Bologna, analyzed recent advancements in regional free trade agreements, including trans-pacific partnerships. I
For more information on this conference please visit: www.adbi.org/event/5016.adbi.rsis.conference.global. architecture/.

Dean Kawai joins a panel discussion on reform of the global economic architecture at the conference The Evolving Global Architecture: From a Centralized to a Decentralized System, which was held in Singapore, from 2627 March.

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Recent Books
Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia
The 19971998 Asian financial crisis highlighted shortcomings in Asian financial markets, notably the underdevelopment of domestic bond markets and deficiencies in corporate governance, transparency and financial regulation. Since then, Asian financial markets have made considerable progress. In light of the experience of the global financial crisis, Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia develops concrete recommendations for financial sector reform and regulation in Asian economies aimed at preventing the recurrence of systemic financial crises, improving the ability to manage and resolve crises, managing capital flows and promoting the development of Asian bond markets. The focus of the book is on longer-term structural measures. It explores areas such as the scope for regional monitoring and cooperation, deepening and integration of Asian bond and money markets, liberalization and regulation of capital flows, and issues related to macroprudential oversight, regulatory structure and cooperation as well as the role of state intervention in crisis resolution in the financial sector. I

Service Sector Reforms Asia-Pacific Perspectives

Services hold the key to increased productivity and dynamic growth. Previously unthinkable technologies have resulted in a multitude of new avenues for trade in services, and the future holds still greater possibilities. Yet understanding services remains a challenge. To design domestic reforms, policymakers want to have a clearer idea about how the concessions they made on services in various trade agreements or in the unilateral liberalization of key service sectors have contributed to growth and human development. However, very few studies have been undertaken to shed light on such questions. The papers in this volume were presented at the conference Reforming Services for Inclusive and Sustainable Development in Asia and the Pacific, organized by ADBI and its partners, the United Nations Economic and Social Commission for Asia and the Pacific, and the Asia-Pacific Research and Training Network on Trade. The book has three main conclusions. First, there appears to be a link between regulatory
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restrictions in services, wage inequality, and access to services. Second, the service sector faces major data problems that need to be tackled to improve and increase analytical work in this area. Third, an out-of-the-box approach to services policy reform that goes beyond a narrow focus on market access is needed. I

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Monetary and Currency Policy Management in Asia

Monetary and Currency Policy Management in Asia draws lessons from the financial crisis of 19971998 and the global financial crisis of 20072009, and makes concrete macroeconomic policy recommendations aimed at minimizing the impacts of an economic and financial downturn, and setting the stage for an early return to sustainable growth. The focus is on short-term measures related to the cycle. This is one of the first books since the global financial crisis to specifically and comprehensively address the implications of the crisis for monetary and currency policy in emerging market economies, especially in Asia. Most of the empirical work in the book focuses on Asia. But the issues discussed are by no means region-specific. The Asian regions recovery ahead of other regions has led to a resumption of strong capital inflows and attendant currency appreciation pressure, thus presenting challenges macroeconomic policy management. I for

Services Trade: Approaches for the 21st Century

Employment in the services sector in the Asia and the Pacific region has increased significantly over the past 20 years, yet exports of goods from members of Asia-Pacific Economic Cooperation (APEC) are five times larger than exports of services. Services Trade: Approaches for the 21st Century explains why the services sector has been the neglected component of international trade, and focuses on the three broad explanations of a lack of awareness of the contribution of services to the economy, concerns over the impact of services openness, and inadequacies in negotiating modalities. The task force that prepared the report makes two proposals to boost trade in services. First, governments should establish regulatory principles for services, taking into account the distinctive character of the sector. Second, governments should consider whether services negotiations should be pursued on a stand-alone basis, i.e., independently of negotiations on agricultural and manufactured goods. The book arises from a conference held in Hong Kong, China, in June 2011, jointly organized by ADBI and the Pacific Economic Cooperation Council. I

To order or download these books, please go to the following web links:

Implications of the Global Financial Crisis for Financial Reform and Regulation in AsiaEdward Elgar: www.e-elgar.com Service Sector Reforms Asia-Pacific Perspectivesavailable for download at www.adbi.org/book/2012/03/01/5011.service.sector.reforms.asia.pacific/ Monetary and Currency Policy Management in AsiaEdward Elgar: www.e-elgar.com Services Trade: Approaches for the 21st Centuryavailable for download at www.adbi.org/book/2012/02/01/4848.services.trade.approaches.21st.century/

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Media Coverage
Dean Kawai was interviewed by The Japan Times, the Asahi Shimbun, and EURObiZ Japan magazine. CBT Director Yuqing Xing was interviewed by Shanghaidaily.com and Chinadaily.com CBT Associate Turdakun Tashbolotov was interviewed for the website Equilibri. The ADBI publication The Asian Tsunami: Aid and Reconstruction After a Disaster was cited in a Japan Times article:
www.japantimes.co.jp/text/fl20120129x1.html

Pacific region. Asia Pathways regularly publishes opinion pieces by ADBI professional staff, top analysts, and prominent academics from around the world. An article by former ADBI visiting fellow Dr. Masahiko Aoki was re-published in The Japan Times:
www.japantimes.co.jp/text/eo20120305a3.html

Asia Pathways, ADBIs blog, went online in early January. The blog offers a thoughtprovoking addition to online resources on economics and development in the Asia and

Boosting Micro, Small and Medium Enterprises

WORKSHOP

Access to finance for micro, small and medium enterprises (MSMEs) is a critical constraint in emerging markets. MSMEs play a vital role in economic development by providing gainful employment and lifting people out of poverty. Helping MSMEs open the door to financing was the focus of the workshop Implementing Best Practice Regulatory Principles and Proportionate Regulation to Support MSME Access to Finance, which was CBT Director Dr. Yuqing Xing advises workshop participants analyzing held in Melbourne, Australia, from 59 proportionate regulations on MSME finances. March. More than 20 government officials from 14 Asia-Pacific countries attended MSME finance experts and practitioners from the training program that was jointly organized by Australia, India, Japan, the Philippines, and New ADBI and the Australia APEC Study Centre. Zealand shared their views and experiences with The workshop focused on regulatory issues workshop participants. Attendees were divided relevant to augmenting MSMEs access to finance into four groups on the last two days of the as well as proportionate regulations needed to training program. Led by a resource speaker, each maintain robust growth of microfinance. In group analyzed a regulatory issue related to addition, several innovative financial models such MSME finance and made a group presentation. I as bank agent and mobile banks were For more information on this workshop please visit: introduced in the workshop. www.adbi.org/event/4996.support.msme.access.finance/.
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Selected Upcoming Events

56 June

Supporting Equitable Economic Development in ASEAN: Experts Meeting on Agricultural Productivity and Natural Resources Management (Tokyo) This meeting will examine the different aspects of the CLMV countries (Cambodia, Lao PDR, Myanmar, and Viet Nam) with a focus on Agricultural Productivity and Natural Sources Management in preparation for the pilot phase of the CLMV project that aims to narrow the development gap between CLMV and other ASEAN countries. NBER Japan Project Conference (Tokyo) This conference, which is an annual event organized by ADBI in collaboration with the National Bureau of Economic Research and with other renowned think tanks, will present recent studies on structural changes in the Japanese economy, including trade dynamics, monetary and fiscal policy, labor markets and social protection spending.

2930 June

Recent Working Papers

Effective Development Aid: Selectivity, Proliferation and Fragmentation, and the Growth Impact of Development Assistance
Author: Takashi Kihara
This paper examines several indicators of effective development aid, focusing on the contributions of major bilateral donors including Japan. The empirical analyses of selectivity, proliferation/fragmentation, and growth impacts of their aid delivery revealed that, taking a long-term and regional perspective, Japan has been selective and focused in delivering growth-enhancing aid.
Read Working Paper 342 at www.adbi.org/working-paper/ 2012/01/30/4847.effective.development.aid/.

Services as a New Engine of Growth for ASEAN, the Peoples Republic of China, and India
Authors: Ben Shepherd and Gloria Pasadilla
An increasing services orientation is likely to be a key feature of the economies of the Association of Southeast Asian Nations (ASEAN), the Peoples Republic of China, and India (collectively referred to as ACI) over the medium-term. This paper aims to present a compendium of relevant data on the state of the services sector in the ACI countries, focusing on its contribution to overall economic activity, employment, and growth.
Read Working Paper 349 at www.adbi.org/working-paper/ 2012/03/06/5017.services.new.engine.growth.asean.prc.india/.

Regional and Global Monetary Cooperation

Authors: Mario Lamberte and Peter J. Morgan
The increasing occurrence of national, regional, and global financial crises, together with their rising costs and complexity, have increased calls for greater regional and global monetary cooperation. This is particularly necessary in light of volatile capital flow movements that can quickly transmit crisis developments in individual countries to other countries around the world.
Read Working Paper 346 at www.adbi.org/working-paper/ 2012/02/21/5006.regional.global.monetary.cooperation/.

Strengthening Financial Infrastructure

Authors: Peter J. Morgan and Mario Lamberte
This study provides comparative perspectives on the current and prospective situation of financial market development in ASEAN, the PRC, and India, identifies key priorities for strengthening financial infrastructure to promote financial development and regional integration, and produces policy recommendations at the national, sub-regional and regional levels.
Read Working Paper 345 at www.adbi.org/working-paper/ 2012/02/17/5003.strengthening.financial.infrastructure/.

International Financial Integration and Crisis Intensity

Author: Andrew K. Rose
This paper analyzes the causes of the 20082009 global financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. The analysis is conducted on a cross-section of 85 countries. It is found that more financially integrated countries do not seem to have suffered more during the most serious macroeconomic crisis in decades.
Read Working Paper 341 at www.adbi.org/working-paper/ 2012/01/25/4845.intl.financial.integration.crisis.intensity/.

Lessons of the European Crisis for Regional Monetary and Financial Integration in East Asia
Author: Ulrich Volz
The debt crisis in several member states of the euro area has raised doubts on the viability of European Economic and Monetary Union (EMU) and the future of the euro. While the launch of the euro in 1999 stirred a lot of interest in regional monetary integration and even monetary unification in various parts of the world, including East Asia, the current crisis has had the opposite effect, even raising expectations of a break-up of the euro area.
Read Working Paper 347 at www.adbi.org/working-paper/ 2012/02/21/5007.lessons.european.crisis.east.asia/.

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Low-Carbon Innovation Holds the Key for Asia

The climate change and green growth debate has focused on reducing the carbon emissions of high-income countries. But Asia, with its low per-capita emissions, is keen to promote low-carbon development because it offers the regions emerging economies an opportunity to pursue inclusive and sustainable growth in a resource-constrained world. At a policy conference organized for the ADBI-ADB study on Climate Change and Green Asia, which was held in Seoul, 3031 March, some 25 senior policymakers discussed the key findings of the study and scrutinized the recommendations, which are summarized as: For Asia, low-carbon growth is not just for climate change mitigation. It steers countries away from dependence on the highly volatile fossil fuel market and opens new job opportunities for people. The policy actions taken have been commendable, but implementation must be strengthened and the low-carbon development agenda needs to be expanded to effectively cover all economic sectors beyond energy. Asias ambitious low-carbon development agenda can be achieved by harnessing the full range of available policy instruments, including market-based instruments. Clear long-term targets and plans, systematically designed policy interventions, E-newsline Brings Asia to Your Inbox
For a daily wrap up of development news and events in Asia, subscribe free to ADBIs 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/.

Bindu Lohani, ADB vice president; Masahiro Kawai, ADBI Dean; Seung-Soo Han, former Prime Minister of the Republic of Korea and current Chairman of the Board of Directors of Global Green Growth Institute; and Seok-Joon Cho of the Korea Meteorological Administration, attend the policy conference, Climate Change and Green Asia, which was held in Seoul, Republic of Korea, 3031 March.

and coordinated implementation provide proper business signals that are key to effective action. Low-carbon innovation holds the key for developing Asia to decouple future economic growth from its dependency on fossil fuels. Leveraging and catalyzing low-carbon financing, especially through private capital, requires focused policies. Developing countries need to create an appropriate policy and legal environment to attract more private sector participation. Developing Asia has great opportunity to tap regional cooperation potential in advancing the low-carbon green growth agenda through market and non-market based approaches. All this calls for an institutionalized mechanism at the regional level. I
For more information on this conference please visit: www.adbi.org/event/5018.climate.change. green.asia.policy.conference/.

Publisher: Takashi Kihara

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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/.