Inclusive, Balanced, Sustained Growth in the Asia-Pacific

1. A Regional Framework for Inclusive, Balanced, Sustained Growth

A Regional Framework for Inclusive, Balanced, Sustained Growth 1 1 A Regional Framework for Inclusive, Balanced, Sustained Growth Yongfu Cao, Wendy Dobson,Yiping Huang, Peter A. Petri, Michael Plummer, Raimundo Soto and Shinji Takagi I. INTRODUCTION The Asia-Pacific region is at the forefront of the recovery from the global economic crisis of 2008–09. But despite the region’s strong economic fundamentals, major challenges lie ahead in exiting interventions adopted in the crisis and building solid foundations for future growth. There is still ample risk of slow growth and persistent unemployment, reemerging global imbalances, and financial volatility. The policies that stopped the economic freefall — huge stimulus packages in China, Japan, the United States and even small economies like Singapore, and massive financial bailouts in the West — were urgent, relatively easy to sell politically, and to a large extent forced by circumstances (particularly the fall of Lehman Brothers). They were deployed under extraordinary time pressures and have proved remarkably successful. 2 Yongfu Cao et al. But sustained recovery will require tackling different problems, including but not limited to current account imbalances among the United States, China, Japan and other economies. U.S. consumers are not likely to drive world demand in the near future and Asian consumption and investment will have to emerge as new engines of growth. The policies used to fight the crisis, successful as they were in averting a larger calamity, did not directly address this transition and some have been counterproductive from a long-term perspective. The best outcomes — inclusive, balanced, sustained (IBS) growth — will require shifting the policy mix from crisis intervention to structural reforms. These will need to change economic relationships within economies and among them. The mix will be varied and complex, addressing household and government finances, investment incentives, risk management, infrastructure, productivity, and other fundamental determinants of growth. The policy mix should also foster new engines of growth in the AsiaPacific by focusing the region’s entrepreneurship, innovation and resources on common priorities. Concerted regional initiatives could, for example, target cleaner and more reliable energy; energy-saving transport and new vehicles; more efficient irrigation; critical public services and social safety nets; and products and services to meet the needs of ageing populations. This study argues that IBS growth is feasible in the Asia-Pacific. The region’s dynamic, emerging economies have led the global recovery and the United States, despite its ailing financial sector, has also turned the corner. Global imbalances are, for now, at acceptable levels and can be kept so with forceful policies. Addressing the key threats to global recovery — weaknesses in financial oversight and limits to growth based on massive international capital flows — are widely considered essential. If actions are now taken to address these threats, the crisis will have ultimately made the world economy stronger and more resilient. International cooperation has been, and remains, central to the recovery. By articulating a shared strategy for growth, governments can enhance the consistency of policies and the stability of the business environment. They can signal common purpose and commit to holding each other accountable for keeping growth on track. Markets and investors critically depend on such signals in the uncertain aftermath of the crisis. The G-20, now the premier global consultative mechanism, is a promising platform for cooperation and it gives the Asia-Pacific a voice A Regional Framework for Inclusive, Balanced, Sustained Growth 3 commensurate with its economic importance. This global process needs to be complemented with regional cooperation. Asia-Pacific institutions — including ASEAN, ASEAN+3, the East Asian Summit, APEC and smaller groups — can add value by translating global goals into executable initiatives. This report, itself the product of region-wide collaboration, explores a coherent regional strategy both from the “top down” and from the “bottom up” in the economies that will have to implement it. Asuccessful post-crisis strategy calls for putting growth on a sustainable footing by changing the behaviour of governments, firms and households. It calls for leadership, discipline and popular support. Not only academic, business and policy experts, but also citizens need to understand the issues and choices. Assisting such analysis and dialogue is the primary goal of this study. II. A FRAMEWORK FOR POST-CRISIS GROWTH The crisis required emergency interventions to prevent financial systems from collapsing and to halt the calamitous decline of economic activity that began in 2008. The post-crisis economy will require policies that prevent future financial...