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Asia forges ahead

Finance Blogger: Anthony Harrington Anthony Harrington

According to a recent speech by John Lipsky, the first deputy managing director of the International Monetary Fund, global growth should bounce back to around 4% in 2010, with Asian economies leading the way. That, of course, is old news, but the conference Lipsky was addressing was concerned with finding ways or ideas for ensuring that Asia’s rapid growth translates down to a better life for the poorest in the region. As Lipsky reminded his audience, “There are still large income disparities and poverty remains a significant problem—a great challenge is to ensure that all Asians benefit from the region’s dynamism.”

“Money is once again pouring back into the region, with net portfolio capital inflows surging close to historic highs, undoing much of the damage done by the sudden halt to capital inflows at the height of the global credit crunch.”

Taken as a whole, emerging Asia is expected to grow by 8.5% through 2010, with China and India leading the way. Asia’s other developing economies also weathered the crash in reasonable shape. The IMF divides Asia into developing economies and emerging economies. The latter, being at a far earlier stage, with generally fragile economies, got hit hardest by the global downturn. Across Asia, despite the growth, those at the bottom of the pyramid were faced with soaring food prices and a general choking off of whatever cash was trickling down to the lowest levels in the economy.

The concern for the IMF is that, prior to the crash, the region was making headway in rolling back poverty. The number of east Asian citizens living in dire poverty (which means earning under US$2 a day), Lipsky says, had fallen from 1 billion in 1990 to below 500 million just pre the crisis. This rate of improvement is unprecedented in world history, but according to the IMF the downturn pushed some 14 million Asians back into poverty, with rural areas particularly hard hit.

The greatest promise for the future, and for continuing strides to be made against poverty, he argues, lies with the increasingly vibrant regional trade network within Asia. He comments:

“If we look at the pre-crisis period, trade flows outside emerging Asia tripled between 1990–2006, while inter-regional trade involving emerging Asia rose by a factor of five, and intra-regional trade within emerging Asia increased by 8.5 times. Emerging Asia’s growth was driven by trade in intermediate goods, reflecting vertical specialization. A sophisticated production network arose, facilitating ‘catch-up’ through technology transfers, with China at the center, as a destination for intra-regional exports and the region’s leading export platform.”

“Asia’s developing economies are very well poised to step into this production nexus and to move up the value chain. This was the path taken by today’s dynamic emerging markets, and I see no reason why the region’s ‘verging on emerging’ economies should not follow in their footsteps,” he comments.

To achieve this, the region is going to have to work on developing its infrastructure, especially in the fields of transport, energy, and communications, and countries in the region need to strengthen social safety nets, he warned.

The Asian Development Bank has forecast that Asia-Pacific countries need to invest some $8 trillion over the next decade. That is a huge sum by any standards and the results of that kind of spend would be extremely far-reaching, and not just within Asia.

Further reading on Asian growth

Tags: Asia , demographics , IMF , infrastructure , poverty , World Bank
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