If you are convinced that Anglo-Saxon forms of economic governance observed in the US and UK emphasizing financialization and consumption are now history, then you should also believe that export-led growth which counterbalanced debt-fueled consumption binges in the former countries are similarly endangered.
It seems that our colleagues over at the Asian Development Bank are coming to a similar judgment. For once, I am glad that a major international meeting is being held in a tony resort area. You see, the Asian Development Bank (ADB) is currently holding its annual meetings in Bali, Indonesia. Especially now when tourism in the region is sagging, it is good that these lenders are putting their money where there mouth is at by creating demand within Asia. That's a good example from Haruhiko Kuroda, the ADB president. Here is the part of his opening address where he discusses a "new development paradigm" in which unwinding global imbalances makes more balanced growth conditioned on both domestic and export demand necessary:
With global imbalances now unwinding, Asia needs to adjust. The transfer of savings from one part of the world to another worked well when advanced economies could absorb production from developing economies. But the current state of the global economy suggests that era has passed. By rebalancing export-driven growth with a greater reliance on domestic demand and consumption, Asia can lead the way in charting a new, globally beneficial development course. Asia's export-led growth has delivered enormous benefits and will continue to do so.On the last point, also see a recent post on major LDCs wanting more say in international financial institutions like the IMF.
Protectionism--within the region or elsewhere-must be avoided at all costs. But let us also recognize that a stronger and more resilient regional economy, with multiple sources of growth, will also contribute to a stronger, more vibrant, and more resilient global economy.
To rebalance growth, developing Asian countries need to reinforce domestic demand and revitalize their domestic economies. They need to spend more on health, education, and social security to reduce household needs for precautionary savings. They need strategies to transfer more corporate savings to households to encourage greater consumer spending. And they also need the policies that promote small and medium-sized enterprises and service industries to better align domestic production with domestic demand. In designing our country-level operations, ADB will work closely with governments in the true spirit of partnership to find effective and concrete solutions.
Rebalancing also requires a stronger and more stable regional investment climate to channel savings into effective and efficient investment within the region. Over the past several years, ADB has worked with the Asian Bond Markets Initiative to enhance transparency, remove obstacles to investment, broaden the investor base, and improve related institutions.
To further strengthen the investment climate, Asia needs a seamless infrastructure, which includes physical assets and the enabling policies, regulations, and institutions. ADB's infrastructure investments last year totaled more than $5 billion in transport and energy alone. But with financing needs estimated at $750 billion a year, much more needs to be done. Our Asian Infrastructure Financing Initiative, unveiled last year, is a step in that direction. Later today, we will launch an important new book entitled Infrastructure for a Seamless Asia, focusing on major issues in regional infrastructure to the year 2020.
Greater exchange rate flexibility with the world's major currencies will ease the change in the region's production structure. In the current global economic environment, the exchange rates of economies with excess savings will tend to appreciate under more flexible management, encouraging greater consumption.
Concrete steps to promote regional trade will speed up the rebalancing process. A larger Asian market will allow for economies of scale, encourage greater specialization, and increase the scope for trade in finished goods. In these uncertain times, a push for more openness within the region will also keep the forces of protectionism at bay.
Ultimately, the correction of global imbalances requires a concerted global effort. All countries must take into account the spillover effects of their policies on the rest of the world. It is also important to create a financial architecture that gives developing countries a voice more commensurate with their share of world output and trade.