Financial Crisis Presents Opportunity for Asia

By Michael Barker

The Global economic crisis should be viewed by Asia’s policymakers as an opportunity to expand investment in “desperately” needed public goods, economist Jeffrey Sachs told an ADB audience.

Professor Sachs, director of the Earth Institute at Columbia University and a special advisor to UN Secretary General Ban Ki Moon, was speaking at ADB Headquarters today as part of the Distinguished Speakers Program.

In a lecture titled "Achieving Global Cooperation on Economic Recovery and Long-Term Sustainable Development", Prof. Sachs said that with the drop in external demand for Asian exports, the region will “have to rely on public spending,” such as infrastructure, health, education and energy reforms.

“Asia needs all of that desperately,” Prof. Sachs said. “This is still the region of the world with the fastest urbanization, with the most dramatic need for pollution control, for cleaning up the energy sector, for cleaning up the rivers, for sustainable urban development, for accommodating the migration of hundreds of millions of people from rural areas to urban areas. I like to view this crisis as an opportunity for Asia given the chronic underinvestment in public goods. Public spending has a very high social return and also has a very high macroeconomic purpose right now."

He said that with around $4 trillion in foreign exchange reserves, large current account surpluses and low inflation, Asia is well placed to expand public spending.

“Asia can continue to have robust growth even as the exports decline,” Prof. Sachs said. “[but] it's going to have to be an Asian-led effort within Asia.”

The substantial reserves of Asia's two largest economies - Japan and China - would be key to a quick recovery.

He advocated that Japan, with $1 trillion in reserves, adopt a more expansionary stance on monetary policy, and making long term yen credit lines more readily available in the region — particularly in South Korea and ASEAN —to help boost growth. Meanwhile, China’s “main role should be to keep the Chinese economy growing and keep buying from the rest of the region.”

He described the ADB's role as helping economies in the region with long-term financing.

With the region's macroeconomic strengths, the crisis should be viewed as an opportunity to rebalance public and private sectors, and short-term macroeconomic with long-term investment interests, he said.

Source: http://www.adb.org/Media/Articles/2009/12767-asian-financial-crisis