From Overseas Press

Two challenges for Asia's economy in 2011

(chinadaily.com.cn)
Updated: 2011-04-11 16:48

Asia's recovery is firm, but it needs to tackle two important challenges in order to sustain its growth, said Changyong Rhee, chief economist with Asia Development Bank, in an article in the Straits Times on April 8.

According to Rhee, managing inflation pressure must be the first priority. Rising inflation, particularly the food prices, "could not only undermine the region's recovery, but also aggravate income inequality, hamper political and social stability, and affect growth prospects in the long run," he said.

Although managing inflation is not an easy task, Rhee said, maintaining a coherent policy mix is key to success. "For countries with persistently large current account imbalances and misalignment between their exchange rate and fundamentals, more flexible exchange rates are a better policy. For countries without such symptoms, relying more on temporary policies, such as capital controls, may be an option," Rhee suggested.

He also pointed out that Asia has to find new sources of growth while reducing reliance on the US. As industrial countries are unlikely to drive global demand and growth any time soon, "increasing domestic consumption in Asia" and "strengthening South-South links through recycling of savings to investment in the less affluent South" can fill the gap.

The trend is already happening, said Rhee, as "South-South trade has expanded fast in the past two decades, from about seven percent of world merchandise trade in 1990 to 17 percent in 2009". To maximize its full growth potential, Rhee suggested the South reduce trade barriers in final goods and investment and use its savings for investment through industry migration rather than holding them in safe assets in the West, which will result in more industry migration from Asia to other less affluent developing countries and contribute to the stability of the global economy by promoting global rebalancing.