Policies that work for Asia and the Pacific

The recently launched 2013 Economic and Social Survey of Asia and the Pacific is forecasting growth of 6 per cent for the region in 2013 – up from 5.6 per cent in 2012. Although high for regional growth rates, this is considerably lower than the pre-crisis level.

This subdued growth may translate into an estimated output loss for the Asia-Pacific region of $1.3 trillion by 2017.

The survey also shows that the region's structural impediments have added to the problems arising from the economic and financial difficulties of developed countries.

The rise in inequality, especially in larger countries of the region, has not only significantly reversed economic and social gains, but is also holding back domestic effective demand.

Endemic extreme poverty, vulnerability and economic insecurity in the region are detrimental to drivers of domestic growth. Regional growth is also hampered by significant shortages in infrastructure and the high-resource intensity of its production system.

Most of these structural impediments are due to past policy failures. For too long, macroeconomic policies focused on aggregate debt, deficit and inflation and neglected their developmental roles. It has been assumed that managing aggregate public debt and keeping inflation at some predetermined low levels would deliver development. However, many countries have achieved them at the cost of development, for example, by cutting public investment in key areas and expenditure on education and health.

The 1997-98 Asian financial crisis and the ongoing crisis in developed countries, reveal that while aggregate debt and inflation are useful indicators, their stabilization does not necessarily produce the desired development outcomes. Rather, excessive focus on these aggregate nominal targets has made macroeconomic policies pro-cyclical and intensified the crises.

Where such policies delivered economic growth, it has not been inclusive enough and has not always translated into increased security of jobs and livelihoods. Instead, growth has been mostly jobless.

The survey argues therefore for a shift in macroeconomic policy paradigms. In light of the huge developmental challenges of Asia and the Pacific, associated with the region's high degree of economic insecurity, large development gaps, significant infrastructure shortages and unsustainable environmental impacts, there is clearly a need to find a better balance between the stabilization and developmental roles of macroeconomic policies.

Such a balance could entail changing the way fiscal and monetary policies are designed and implemented, and how issues of public debt or inflation are viewed. In particular, there has to be greater emphasis on the quality and composition of public expenditure, rather than on aggregate budget deficits and public debts, as argued in previous editions of the survey.

A six-point agenda is proposed to enhance the region's resilience and inclusiveness, including the provision of an employment guarantee for a limited number of days (100 days) in a year, basic social services in education and health, income security for older persons and those with disabilities, and ensuring modern sources of energy for all by 2030.

The survey also estimates, as illustrative examples, the public investment needs to deliver this package in ten countries; Bangladesh, China, Fiji, India, Indonesia, Malaysia, Philippines, the Russian Federation, Thailand, and Turkey.

The good news is that this is achievable and affordable.

Total investment for these policies in China for example would amount to 2.6 percent of GDP in 2013, increasing to 3.3 percent in 2020 and 5.2 percent in 2030.

Estimates for India, Malaysia, the Russian Federation, Thailand and Turkey range from 5 percent to 8 percent.

Our analysis also shows that such investment would not significantly jeopardize fiscal sustainability or price stability. In other words, people and planet-friendly growth is affordable and economically sustainable, making this a win-win development agenda for our region. This is greatly encouraging.

These are examples of forward-looking macroeconomic policies because they can both promote sustainable development and lead to sustained, inclusive and equitable economic growth, the importance of which has been recognized in key United Nations documents such as the outcome document of the 2012 Rio+20 conference. ESCAP expects that the 2013 survey will contribute to policy debates about how to achieve the goal of inclusive and sustainable development in the Asia-pacific region.

Dr. Noeleen Heyzer is UN Under-Secretary-General and Executive Secretary of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).