Asian economy fragile, careful policies needed: ADB

Aditya Suharmoko, The Jakarta Post, Jakarta | Thu, 01/14/2010 2:24 PM

Asian economic recovery remains fragile and careful policy adjustments, along with increased cooperation between countries, will be needed to sustain growth and cushion the region against future shocks, a study by the Asian Development Bank (ADB) says.

The study, titled "Policy Changes for Asia after the Global Recession: Impact of the Global Economy and Policy Implications", noted that growth in the region is set to accelerate this year as the global economy begins recovery. But it warns that recovery in Asia is still dependent on policy support from developed economies, notably from the region’s largest market, the United States.

Surging capital inflows can cause volatility in exchange rates and domestic liquidity, posing a risk to emerging economies in the region, the study said.

"The region is now showing signs of a V-shaped recovery, with a 6.6 percent growth outlook for this year. While we believe developing Asia is leading the global economic recovery, it is still too early to relax vigorous efforts to restore demand and stabilize financial systems. In particular, exit strategies for fiscal stimulus must be carefully timed," ADB president Haruhiko Kuroda said in a statement.

Poverty reduction will not be sustained at the pace of pre-crisis years before sources of growth are rebalanced toward more domestic and regional demand, he added. It is imperative for the region to bring growth back to its higher trajectory to cover the lost ground on poverty reduction, and to support global recovery, he said.

The study will be presented at a two-day regional forum on the impact of the global economic and financial crisis organized by ADB at its headquarters in Manila starting today. Top officials including policymakers, finance ministers, heads of central banks, business leaders and development experts from nearly 20 countries from developing Asia are taking part in the forum.

The study noted that Asia should continue to strengthen cooperation in the financial sector to prevent future financial turmoil in developed economies.

“Policy makers should avoid using up scarce bureaucratic resources and limited political goodwill on huge initiatives which do not yield tangible benefits at the ground level but should instead focus on smaller scale efforts,” the study said.

Some areas where financial cooperation may be strengthened include bilateral agreements allowing large financial institutions in one country to expand or acquire banks in another, it said.

The study also advised that to support future growth, countries in the region should increase intra-regional trade and take steps to raise productivity and their capacity for innovation. Smaller economies should adopt policies which attract low-cost manufacturers, foreign direct investment and tourism.