MANILA - Asian economies should brace for the worst after the global economic
and financial crisis last year wiped US$9.6 trillion from the region's
financial assets' values, said the Manila-based Asian Development Bank (ADB).
The regional bank said in a study released during an ADB-sponsored forum in
Manila this week that the figure represents losses in equity and bond markets,
including those backed by mortgages and other assets, and the depreciation of
many currencies against the US dollar. Excluded are financial derivatives such
as credit default swaps. The losses, equivalent to a year's worth of the
region's gross domestic product (GDP), account for one-fifth of the US$50
trillion in financial losses globally, the ADB said.
"This is by far the most serious crisis to hit the world economy
since the Great Depression. While this crisis originated in the US and some
European countries, by now no region or country is insulated," said ADB
president Haruhiko Kuroda.
Asia was hit harder than other parts of the developing world because the
region's markets had expanded more rapidly, the ADB said. The value of
financial assets to gross domestic product (GDP) rose to 370% of GDP in
developing Asia in 2007, from 250% of GDP in 2003. In Latin America, in
comparison, the ratio rose by only 30%, with the result that estimated losses
on financial assets were a much lower US$2.1 trillion, or 57% of GDP, it said.
The study provided clear proof of the close connections between the markets and
the economies around the world, leaving few, if any, countries immune to
financial or economic fallout. There had earlier been speculation, since
disproved, that certain Asian markets had "decoupled" from US demand through
diversification of exports to other regions.
"Most emerging market economies, including in developing Asia and Latin America
are at a crossroads, and the next 12 to 18 months will be very difficult," the
report said. Kuroda in his speech expressed concern over what he called "four
inter-related impacts" of the global economic downturn on Asia. These include:
Reduction of exports with the attendant effects, not only in export-oriented,
value-added industries themselves, but in industries across the entire value
chain. This impact could manifest itself in the form of unemployment and a
reduction in GDP;
An increase in outflow of foreign direct investment from Asia's financial and
capital markets resulting in depressed domestic equity markets and contributing
to conservative lending strategies;
Credit availability will be constrained, particularly for labor-intensive small
and medium-sized enterprises;
Reduced remittances received from overseas migrant workers as the host country
economy slows down and capital expenditures are reduced.
The forum, launched to discuss the impact of the crisis on Asia, was attended
by senior policymakers, heads of central banks, the private sector and academe.
Other participants included former International Monetary Fund (IMF) managing
director Michel Camdessus, former Philippines president Fidel V Ramos and
former Japanese finance vice minister Makoto Utsumi.
Kuroda said he remains confident that Asia will be one of the first regions to
emerge from the global economic and financial crisis, and it will emerge
stronger than ever before. The ADB study sees a recovery beginning late this
year or in early 2010.
As it seeks to head off further damage in the region, the ADB has called for a
200% increase of its own capitalization, which stood at US$56 billion as of
end-2007. "ADB needs an immediate and substantial capital increase, and we are
asking our shareholders to reach an agreement by the upcoming annual meeting of
the bank in Bali, Indonesia, in May," Kuroda said during a press briefing.
"We must work together to ensure that developing Asia has sufficient access to
financing-through a mix of loans, grants, and credit guarantees," he said,
citing the bank's development agenda, which covers infrastructure, education,
and public health. ADB is "raising by several billion US dollars" its lending
portfolio this year to assist its member-countries through new loans,
guarantees and co-financing schemes, the official said.
Meanwhile, Camdessus called for an immediate overhaul of the IMF, the global
lender of last resort, saying the current global crisis should not have
happened if the lessons of the 1997-98 Asian crisis had led to the adoption and
vigorous implementation of reforms of the international financial architecture.
"We must now intensify work on designing and putting in place a new global
financial architecture with the instruments to making the recovery a lasting
one," Camdessus said. He suggested the creation of a " brand new IMF" with a
new governance group to address "the most severe global crisis seen in our
lifetime and [it] has not bottomed out."
Camdessus said a new IMF should undertake an uncompromising surveillance of all
financial developments and to initiate and coordinate new regulations to
prevent abuses and maintain financial stability. These steps should be founded
on the principles of universality, legitimacy, fairness of representation,
subsidiarity, efficiency and accountability, he said.
In calling for a new governance group in the IMF, Camdessus said all countries
must be represented at all levels of governance and that the Group of Eight
leading industrialized economies should relinquish its self-attributed
responsibilities to a global financial and monetary governance group as a new
IMF's most senior decision-making body.
The new governance group, he proposed, could start with 25 members, comprising
finance ministers and central bank governors, to improve the voice and
representation of the fast-growing emerging countries. "Similar changes in the
governance and operations of the World Bank, the ADB and other multilateral
agencies should also be adopted in the spirit of subsidiarity," Camdessus said.
The sheer severity of the present situation should open the eyes of world
leaders to establish a right way towards a new financial architecture no later
than 2010. "Credibility of the [IMF] depends on realigning the powers of the
institution as soon as possible," he said.
But Asian developing and emerging countries must take ownership of this new
architecture to ensure that it meets the challenges of a more globalized world,
he said.
They must also engage in active and forceful use of voting powers in the World
Bank and the IMF, pursue regional cooperation in various forms, improve
national regulatory and supervision systems and help correct global
macroeconomic and structural imbalances.
"Asia has all the needed reasons and experience to contribute towards building
a new financial architecture," he said. "This is truly the hour of Asia."
Al Labita has worked as a journalist for over 30 years, including as a
regional bureau chief and foreign editor for the Philippine News Agency. He has
worked as a Manila correspondent for several major local publications and wire
agencies in Australia, Hong Kong, Malaysia, Singapore and the United Kingdom.
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