On September 24, Asian Development Bank President Haruhiko Kuroda was the keynote presenter at a luncheon hosted by SFU Business, the Asia–Pacific Foundation of Canada, and Heenan Blaikie Global Advisors. Below is a recap of his presentation by Jonathan Manthorpe, Asia-Pacific business reporter for the Vancouver Sun.

Asia’s recovery faces huge challenges

By Jonathan Manthorpe, Vancouver Sun  Sepember 27, 2010

Although the developing countries of Asia have weathered the global recession well and even forestalled deeper economic problems world wide, they face daunting challenges, according to the president of the Asian Development Bank.

Speaking in Vancouver on Friday, Haruhiko Kuroda said Asia must address these challenges if it is to ensure balanced, sustainable and long-term growth.

There are still 1.8 billion people in Asia living on less than $2 a day and nearly one billion surviving on the absolute poverty level of $1.25 a day, he said.

The ADB’s vision and mandate is to help foster an Asia and Pacific region free of this poverty, he said.

Kuroda was speaking at the Jack Austin Centre at Simon Fraser University’s Segal Graduate School of Business at a lunch jointly organized by the Asia Pacific Foundation of Canada and Heenan Blaikie Global Advisors.

Kuroda said the ADB is projecting economic growth in Asia this year will be about eight per cent, up from 5.2 per cent last year. This will represent about 46 per cent of world growth in 2010.

But Asia’s growth in 2011 is likely to drop to around seven per cent as governments withdraw the incentive packages that have helped their economies weather the storm.

And, Kuroda said, there are several risks which could seriously affect growth and knock the recovery off track.

One is another recession, especially in Asia’s major export markets of the United States and Europe.

There is also the risk that capital flows become destabilizing. This could happen if Asian governments tighten monetary policy before other regions, and increase interest rates, thus drawing in excessive capital flows of short-term investment “hot” money.

There are also risks, he said, associated with the timing and speed with which stimulus packages are withdrawn.

To avoid these pitfalls, Asia needs to rebalance the relationship between the growth of its export and domestic markets.

As an example, Kuroda said, China has done much to move from dependence on exports to building domestic consumer demand.

But, Kuroda said, “for this to continue, household incomes must increase and already in China wages and salaries are increasing quite rapidly. This will result in much higher household consumption.”

He noted that another stimulus to domestic demand in China is changes in the structure of the economy as small and medium businesses, many privately owned, become an increasingly important part of the economy.

And Beijing’s currency policies, which are seeing a slowly rising value of the yuan, will encourage domestic demand.

Although Asia has done much to pull down barriers to trade in recent years, it needs to do more, Kuroda said. Economic inefficiencies, deficiencies in regional cooperation, and remaining distortions and impediments to trade, labour mobility and capital flows need to be addressed. Another looming challenge to Asia’s stable growth is its poor and patchy infrastructure. In the next decade Asia will need to spend $8 trillion just to support the current levels of economic growth, he said.

Public-private partnerships are critical to successfully meeting this challenge. But governments need to strengthen and reform their legal and regulatory frameworks in order to give private companies the confidence to play their part. Closely linked to infrastructure building are the challenges offered by climate change, Kuroda said.

“Developing Asia’s growth has come, in significant part, at the expense of the physical environment,” he said. “Deforestation, land degradation and water and air pollution are the shadows of this growth.”

One of the clearest ways to promote a “green” agenda, he said, is to expand the use of renewable energy sources.

This can be done by setting energy efficiency targets and providing incentives for high efficiency power plants.

jmanthorpe@vancouversun.com

Original article from the Vancouver Sun posted here.