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“The Asian Outlook”
Summary of Remarks by
Ifzal Ali
Chief Economist
Asian Development Bank (Manila)
April 3, 2007
Dr. Ifzal Ali addressed the National Economists Club on the remarkable expansions of the developing Asian economies. His appearance was part of the U.S. launch of the Asian Development Bank’s flagship publication, Asian Development Outlook 2007: Growth and Change. Dr. Ali sketched the soaring economies of Asia’s developing countries in great brushstrokes, emphasizing (1) their recent annual growth of 8.3%, the highest in 11 years; (2) the “blistering pace” of growth in India and the People’s Republic of China, together accounting for 70% of the very strong 2006 growth in developing Asia; (3) the pressures of overheating on the economic imbalances and social fabrics; and (4) the building up of foreign currency reserves, a problem of real success rather than an old burden.
He commented that the strong growth in 2006 has led generally to the need for macroeconomic stabilization through monetary policy to curb consumption and investment, fiscal prudence, and the active management of growing foreign exchange reserves. Dr. Ali noted several potential downside risks to the outlook: an asset market reversal; the adoption of protectionist policies by the older industrial economies; geopolitical spillover risks from Afghanistan or pandemics such as SARS; and local political crises, such as those which have occurred already in Thailand, Bangladesh, and Fiji. A tsunami could also cause a local downturn.
Despite these risks, Dr. Ali foresaw continuing robust growth this year, with annual growth rates for these countries only slightly slower this year and next (a “gentle slowdown” from 2006’s 8.3% to 7.6% this year and 7.7% in 2008). Dr. Ali discussed the varying conditions of East Asia in general, with emphasis on China and Korea; of South Asia in general, with specifics on India and Pakistan; plus Southeast Asia in general, and Indonesia, Viet Nam, and the Philippines. The countries vary widely. The challenges for China are to restrict investment growth, to increase private consumption, and, in so doing, to rebalance the economy. As a more mature economy, South Korea is quite different. Its global competitiveness is declining, particularly in services, which (along with small and medium sized companies) accounts for 80 percent of its employment. India has a vast peasant population that needs millions of new semiskilled jobs for displaced agriculture workers. A basic challenge in the region is that most of the poorest people in the world live in South Asia, where any rise in the cost of food threatens their survival.
For an American audience, Dr. Ali’s theme of growth in developing Asia was inseparable from a second theme of wider economic integration and globalization. Dr. Ali anticipates that ties between the developing Asian economies and the older industrial countries will continue to strengthen through investment. In addition, he noted that many of the developing Asian countries need reforms, particularly in their educational systems in order to create a more effective work force. In the Q & A period, the first question concerned how Islamic radicalism might affect growth in Indonesia and Thailand. Ali answered that they had been the most moderate of Islamic countries, and that they had experienced disruptions only after their annual economic growth fell below 8 %, disaffecting younger men who were first entering the economy. Another questioner asked whether the stated economic figures for China could be accurate —whether inflation could be so close to 1 % when it appeared that all-time-high growth (11 %) had also taken place. Dr, Ali said that the figures were said to be true, with a key factor in the inflation rate being that increases in the cost of food are not allowed. In fact, Dr. Ali replied, growth in China may well be higher than that measured by official statistics. Another questioner asked about “token” amounts of foreign investment in Viet Nam by the Asian Development Bank. Dr. Ali said they were a more like a vote of confidence than a subsidy, and reflected the fact that Viet Nam had learned from China and opened its markets. It needs only a more mobile and skilled work force.
A member of the audience asked why Japan was omitted from Dr. Ali’s and the Asian Development Bank’s analysis and data, since many economic trends in the region reflect ties to Japan and Japan is the largest economy in the region. Dr. Ali replied that the ADB’s annual publication focuses its resources on the 43 developing Asian countries.
Dr. Ali commented that another 15 or 20 years of development might bring India and Pakistan up to the current level of economic success in China.
He noted that the warming climate trends ahead will probably deprive India and China of some arable farm land, making it necessary to buy the more abundant grains of America and Canada to feed new industrial populations.
Dr. Ali has been the Chief Economist of the Asian Development Bank since 2002. He joined the ADB in 1984 and has assumed various key positions with the Bank since then. Prior to joining the ABD, he was Chairman of Economics in the India Institute of Management in Ahmedabad. He earned his Ph.D in Economics from Johns Hopkins.
Dr. Ali’s talk was part of his road show launching the Asian Development Bank’s (ADB) latest flagship publication Asian Development Outlook 2007: Growth and Change, which can be found on the ADB’s website at: http://www.adb.org
His lunch slideshow is available online.
