A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

www.a dbi .o rg
ADBI News 2010 Volume 4 Number 2

ADBI Proposes Three-pronged CONFERENCE

Strategy for Growth Rebalancing

ADBI Dean Kawai addresses APEC delegates attending the senior officials meeting in Sapporo on 1 June in a joint SOM-SFOM
Workshop on the APEC Growth Strategy.

Global rebalancing strategy should not only be Mr. Kawais speech was a broad interpretation
about addressing current account imbalances, but of the meaning of sustainable growth. He
also about rebalancing towards a more equitable emphasized making opportunities from economic
allocation of resources and rebalancing for growth accessible to the poor and the need for
environmental sustainability. The ADBI Dean, stronger social protection. But he also underscored
Masahiro Kawai, emphasized this three-pronged
growth strategy in a speech that kicked-off the
SOM-SFOM joint workshop on Growth Strategy In this issue
for the Asia Pacific Economic Cooperation
(APEC), held in Sapporo, Japan, on 1 June. Growth Strategy for APEC 12
The workshop was attended by some 150 senior Postcrisis Agenda for Asia 2
trade and finance officials of APEC member Distinguished Speaker Seminar 3
economies. It was jointly organized by the ADBI
Climate Change Adaptation 3
and Japans ministries of finance; foreign affairs;
and economics, trade and industry. Water Resources Management 4
Two main themesrebalancing the regions ADBI-OECD Roundtable 4
economy for growth, on the one hand, and Regional Workshop 5
financing growth, on the otherwere the focus of Featured Publication 5
discussions. Rebalancing for growth tackled global
current account imbalances and the need to adjust Forthcoming Publications 6
domestic spending and production, whereas Upcoming Events 7
financing for growth dealt with green financing; Recent Working Papers 7
infrastructure financing; and financing for Chinas Dollar Peg 8
innovations and technology.

1
 A s i a n D e v e l o p m e n t
the need not to lose sight of the environmental
impact of economic growth programs.
The other speakers put more emphasis on
current account imbalances. Susan Collins of the
University of Michigans Ford School of Public
Policy underscored the decline in US private
savings and the ballooning of the US government
deficit that is driving the external imbalance. The
weak employment figures in the United States
limit the options available to the government, and
she highlighted the need for both deficit and
surplus economies to make adjustments and the
importance of a weak real exchange rate to
improve US exports.
Ming Zhang of the Chinese Academy of Social
Sciences argued that, in contrast to the US
government deficit, the rise in Chinese savings has
A Postcrisis Agenda for Asia
ADBI conducted a seminar entitled Postcrisis
Agenda for Asia at the ADB Annual Meeting in
Tashkent on 3 May. The seminar presented the
highlights of the forthcoming joint ADB/ADBI
book Rebalancing for Sustainable Growth: Asias
Postcrisis Challenge. In the book it is argued that
Asian economies export-led growth model, which
was so spectacularly successful in Asia in earlier
decades, has hit significant limits. Growth in
Asias major export marketsthe US and
Europeis likely to remain sluggish for some
time due to the after-effects of the global financial
crisis. Moreover, export-led growth was
associated with large-scale current account
surpluses, which were not sustainable. In addition,
the export-led growth model contributed to
widening income gaps and deterioration of the
environment. As a result, Asia now needs to
rebalance growth by adopting policies to promote
a greater reliance on domestic and regional
Panel debates Asian growth rebalancing recommendations.
2
B a n k I n s t i t u t e
been mostly driven by an increase in government
and corporate savings, not excessive household
savings. To increase household consumption, he
believes, the Peoples Republic of China needs to
increase its household income share through tax
cuts and government transfers. Concerning the
appreciation of the renminbi, he emphasized that
the exchange rate needs flexibility but that any
adjustment of the yuan would be gradual.
Other discussions focused on green financing
strategies, such as adoption of green certificates
and tax incentives for financial instruments that
invest in green technologies. Other speakers
explored the challenges facing public-private
sector partnerships in infrastructure financing.
See more details about the conference at
www.adbi.org/event/3826.2010.som.sfom.workshop/.
ADB ANNUAL MEETING
demand. Balanced growth, it is argued, means
growth that is consistent with smaller global
imbalances and is less dependent on exports, as
well as growth that is socially inclusive and
environmentally sustainable.
Key issues addressed in the book include: ways
to strengthen Asian policy frameworks to enhance
economic and financial stability in an environment
of volatile capital flows; ways to re-orient the
supply side of the economy to be more consistent
with balanced growth, including investment, trade,
the service sector and green growth; ways to
strengthen social safety nets to enhance the
inclusiveness and social sustainability of growth;
ways to make Asian financial systems more
stable and deeper, so that they can play a greater
role in financing regional development and
promoting financial inclusion; and ways in which
regional cooperation and financial architecture
can contribute to the above goals. Key
recommendations include: enhancing monetary
policy frameworks to take asset prices and
potential bubbles into account; promoting a region-
wide free trade agreement including services and
investment; deregulating services; strengthening
social safety nets; implementing frameworks for
macroprudential surveillance and regulation;
promoting Asian bond markets; and strengthening
regional entities such as the multilateralized
Chiang Mai Initiative.
Read more details of the event at
www.adbi.org/event/3642.postcrisis.agenda.asia/.
 A s i a n D e v e l o p m e n t
Asian Regionalism:
a Better Model for the World
Kishore Mahbubani delivered a lecture entitled
The Secret Formula of Asian Regional
Cooperation at ADBI on 12 April. He pointed out
that the major problem with studies of regional
cooperation is that they treat the European Union
(EU) as the one and only gold standard of
regional cooperation. While recognizing some of
the EUs strengths, Mr. Mahbubani argued that the
Asian
regionalism
is a multi-
civilization
model.
Strategic Assessment for
Climate Change Adaptation
Developing Asian countries, as a group, are the
ones most threatened by the impact of climate
change. The impact on the agricultural sector is felt
mainly through higher temperatures and altered
rainfall patterns. Although some effects will be
positive, at least in the short term, the primary
impact in most Asian countries will be negative,
harming livelihood activities, reducing irrigation
water supplies, and altering food production systems.
Some 45 senior officials from agricultural
ministries and environmental ministries gathered in
Colombo, Sri Lanka, from 8 to 11 June for a
regional workshop on Strategic Assessment for
Climate Change Adaptation. The key
developmental risks posed by climate change and
the necessary adaptation actions to be taken were
discussed and it was agreed that setting priorities
for action involves strategically assessing the
exposure to threats, determining sensitivity to a
changing climate, and assessing the sectoral
capacity to adopt. It was further agreed that key
priorities for initial action should include
expanding the knowledge base on planning tools,
supporting adaptive agricultural research, and
raising awareness and communication among
policy makers. It was acknowledged that linking
B a n k I n s t i t u t e
DISTINGUISHED SPEAKER
EU has several key weaknesses, namely that it is a
mono-civilization entity and that it has a large
amount of political and economic dishonesty
within its member countries (the latter
demonstrated, in Mr. Mahbubanis view, by the
EUs response to Greeces crisis). The strengths of
Asian regionalism, he argued, are that it is a multi-
civilization model; that there have been no wars in
recent years; and that it is pragmatic. There are
weaknesses, though, such as low levels of trust and
internal political problems. He concluded that what
is developing in Asia in the form of cooperation
among ASEAN and ASEAN Plus processes may
be a better model for regionalism than the EU.
Read a more detailed summary of this event at
www.adbi.org/event/3645.mahbubani.distinguished.speaker/.
See the video of this seminar at
www.youtube.com/watch?v=g0J7PkrckG8&feature=related.
WORKSHOP
existing policies on climate risk with others such as
drought management, structural adjustments, crop
insurance schemes, subsidies, etc., for better
targeted and coordinated actions, is needed
urgently. The workshop concluded that regional
cooperation can contribute to improving adaptive
capacity in the areas of climate data acquisition,
building up analytical and monitoring capacities,
moderating, and the supporting process of strategy
development.
Micro-adaptation strategies focus on climate resilient water
saving infrastructures.
Read more details of the event at
www.adbi.org/event/3836.climate.change.adaptation.natural.
resource.mngt/?sectionID=35.
3
 A s i a n D e v e l o p m e n t
Institutional Framework for IWRM Needed
Appropriate and sustainable water resources
management is of crucial importance for developing
countries. While the concept of integrated water
resources management (IWRM)meaning that all
the different uses of water resources are considered
togetherhas been acknowledged as a useful tool
to improve the current situation, an institutional
framework is needed to improve IWRM
sustainability, above all for developing a unified
policy and to secure funding.
A seminar on Exchanging Asian and European
Experiences and Case Studies on IWRM was
held in Madrid from 24-28 May, co-hosted by
ADB and the Ministry of Economy and Finance of
Spain. Participants exchanged experiences on
IWRM and explored ways to improve water
security in Asia through better IWRM and water
governance. In particular, Spains long history of
private sector participation in river management
and trans-boundary river management and the way
Why Investment Matters!
Investment is a major driver of our economies.
Indeed, strong domestic and foreign investment
has been a key element in developing Asias
impressive record in economic development and
poverty reduction.
Looking ahead, to what extent can investment
contribute to addressing Asias post-crisis
challenges? This question was at the top of the
agenda of the inaugural ADBI-OECD Roundtable
on Asias Policy Framework for Investment held
on 6-8 April 2010.
Participants discussed a broad range of issues
from the role of investment in recovery from the
crisis and the outlook for investment in Asia, to
4
B a n k I n s t i t u t e
SEMINAR
it has managed to unify its Water Policy with the
EU Water Framework Directive was thought to
contain useful lessons in terms of creating a
common framework for IWRM in Asia.
Visit to the Ebro River Basin. The river is monitored and
managed by use of state-of-the-art remote sensing equipment.
Read more details of the event at
www.adbi.org/event/3825.asian.european.experiences.iwrm/
?sectionID=35.
ROUNDTABLE
investment in green growth and in infrastructure
for a seamless Asia. They concluded that
investment can play a leading role in rebalancing
growth toward greater reliance on domestic and
regional demand, and in making growth greener
and more inclusive.
But reforms are necessary to remove pro-export
policy biases, and to provide greater incentives for
green investment. It is also critical for investment
policy frameworks to abide by the following
principles at the heart of the OECDs Policy
Framework for Investment: policy coherence, non-
discrimination, transparency, accountability, and
regular evaluation.
Tadahiro Asami, Secretary-
General of the Business and
Industry Advisory Committee
to the OECD, talks about
building a better business
environment and the benefits
of freedom of investment in
Asia.
Read more details of the event at
www.adbi.org/event/3430.adbi.
oecd.roundtable.asia.economy/.
 A s i a n D e v e l o p m e n t
How to Strengthen Corporate
Environmental Management in Asia?
While the private sector has always been the
primary engine of growth across Asia-Pacific, the
growing influence of companies in the economic
sphere is increasingly raising concerns about their
potential environmental and social impacts. Such
concerns are manifested in the current debates on
climate change, environmental degradation, or
greening the markets. A regional workshop on
Corporate Environmental Management: from
Policy to Practice, held in Bangalore, India, from
3-6 May 2010 for senior officials and private
sector managers, looked at major corporate
initiatives to improve environmental and economic
performance and the supportive policy
environment under which they can be scaled up.
The main recommendations that emerged from
the deliberations include the need for concerted
Twenty seven delegates from Asia participated in the workshop held at the Indian Institute of Management, Bangalore, India.
Featured Publication
Trade Facilitation and Regional Cooperation in Asia
Edited by Douglas H. Brooks and Susan F. Stone
Asias rapid development has been heavily
dependent on markets external to the region.
However, given the unlikely timely recovery of the
United States or Europe there is an urgent need to
develop domestic and regional markets. While
greater integration has long been a regional goal, its
importance has never been more pressing. To
facilitate trade and promote growth and regional
integration, and to counteract declining markets in
other regions, Asian countries have announced large
expenditures for developing infrastructure. Thus, a
look at how investment in regional infrastructure
B a n k I n s t i t u t e
WORKSHOP
effort in implementing more win-win solutions so
that low carbon economic development can take
place with the active participation of the private
sector. To further promote sustainable corporate
practices, governments should provide tangible
incentives through such measures as tax exemptions,
seed financing, subsidies, low-interest financing,
and favorable treatment in public bidding. It was
concluded that, in line with such incentives, the
following four strategies would strengthen
environmental excellence of corporations:
information disclosure; cooperation along the supply
chain; engaging with employees and communities;
and participating in setting global standards.
View speeches and workshop materials at
www.adbi.org/event/3653.corporate.environmental.
management/?sectionID=35.
promotes and supports
interregional trade growth
has never been timelier.
While the focus is on
informing policymaking in
Asia, the findings also
have relevance for other
regions.
Read or order Trade Facilitation and Regional Cooperation in
Asia at www.adbi.org/book/2010/07/05/3924.trade.
facilitation.regional.cooperation.asia/.
5
 A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Forthcoming Publications

The Asian Tsunami: Aid and Reconstruction After a Disaster

Edited by Sisira Jayasuriya and Peter McCawley
The death toll following the 2004 Asian tsunamiclose
to 230,000 peoplewas stunning. The devastation that
the tsunami caused highlights the need to strengthen
approaches to disaster risk reduction activities across
Asia. Summarising hundreds of reports and articles
about the disaster, this book underlines the fact that
global disaster risks are highly concentrated in poor
countries. And within those countries, it is usually
poorer communities who are especially hard-hit when
disasters strike. This is the first
serious attempt at an overview
of the impact for this major
event and for anybody with an
influence on disaster response
policy in Asia, this book should
be compulsory reading.John
Weiss, University of Bradford,
UK

Managing Capital Flows

Edited by Masahiro Kawai and Mario B. Lamberte
This book provides analyses that can help policymakers
develop a framework for managing capital flows that is
consistent with prudent macroeconomic and financial
sector stability. While capital
inflows can provide emerging
market economies with
invaluable benefits in pursuing
economic development and
growth, they can also pose
serious policy challenges for
macroeconomic management
and financial sector supervision.
The expert contributors cover a
wide range of issues related to
managing capital flows and
analyze the experience of emerging Asian economies in
dealing with surges in capital inflows. They also discuss
possible policy measures to manage capital flows while
remaining consistent with the goals of macroeconomic
and financial sector stability. Building on this analysis,
the book presents options for workable national policies
and regional policy cooperation, particularly in
exchange rate management. Containing chapters that
bring in international experiences relevant to Asia and
other emerging market economies, this insightful book
will appeal to policymakers in governments and
financial institutions, as well as public and private
finance experts. It will also be of great interest to
advanced students and academic researchers in finance.

ADBI Dean Kawai in

the European press

It is in Asia that investors should be

Top man at Asian Development Bank Institute
has soft spot for Viet Nam

Asia is the only region that grows sustainably

after the financial crisis, Masahiro Kawai
proclaims cheerfully in an exclusive interview
with De Tijd, a Belgian broadsheet newspaper
that mainly focuses on business and economics.
And I also do not see that changing
immediately. As head of the knowledge center
of the Asian Development Bank he is perfectly
placed to analyze the region.

ADBI is now on Twitter, where new research, events, and speeches are announced. Visit our page at
www.twitter.com/ADBInstitute.

6
 A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Selected Upcoming Events

International Cooperation in Times of Global Crisis: Views from G20 Countries (Delhi)
1617 The objective of this conference is to reflect on the effectiveness of the G20 forum for international
September cooperation in the areas of economic and financial policy, and ways to improve it.
www.adbi.org/event/3917.intl.cooperation.global.crisis.g20.countries/

Skills Development in the Post-Crisis Context (Tokyo)

2830 This conference will deal with skills development to support re-balancing growth and building effective
September local partnerships.
www.adbi.org/event/3723.adbi.oecd.post.crisis.context/

Reforming Services for Inclusive and Sustainable Development of Asia and the Pacific (Bali,
Indonesia)
1112 The purpose of this conference is to examine regulatory issues and liberalization in the services sector and
October to assess their impacts on inclusive and sustainable development in Asia and the Pacific.
www.adbi.org/event/3640.regulatory.reforms.liberalization.services/

Innovation for Balanced and Sustainable Growth (Beijing)

2426 This roundtable will address innovation today; making innovation work for development; and green
November growth and technological transfer.
www.adbi.org/event/3919.adbi.oecd.roundtable.sustainable.growth/

Recent Working Papers

Japan Bank Crisis Institutions for Asian Connectivity

Authors: Mariko Fujii, Masahiro Kawai
Study of Japans measures to cope with its banking crisis,
including regulations and governmental support. The authors
warn that if the authorities do not address the banking sector
problem promptly, the crisis will prolong and economic
recovery will be substantially delayed. They also draw lessons
that could be applicable to other countries.
Read Working Paper 222 at www.adbi.org/working-paper/
2010/06/29/3922.lessons.japan.banking.crisis.1991.2005/.
Author: Biswa Bhattacharyay
Study of how to make Asia more economically sustainable and
resilient against external shocks through increased regional
connectivity. The author draws linkages between infrastructure
connectivity, growth and development, governance, and
institutions in Asia, and explores the benefits the region could
achieve by addressing needed connectivity enhancements.
Read Working Paper 220 at www.adbi.org/working-paper/
2010/06/25/3915.institutions.asian.connectivity/.

Financing Asias Infrastructure: Modes of Development
and Integration of Asian Financial Markets
Author: Biswa Bhattacharyay
Exploration of the issues and challenges in financing
infrastructure for seamless Asian infrastructure connectivity
and for other high priority development financing needs. The
author seeks methods and instruments to help direct Asian
and international resources to cost-effectively and efficiently
support infrastructure and other development needs.
Read Working Paper 229 at www.adbi.org/working-paper/
2010/07/12/3937.financing.asia.infrastructure/.
Rebalancing Growth in the Republic of Korea
Authors: Joonkyung Ha, Jong-Wha Lee, Lea Sumulong
Study of the effect of exchange rates on the Republic of
Koreas trade and the extent to which this causes external
imbalances. The authors use econometric analysis to show that
the Republic of Koreas external imbalances are caused not
only by external factors, but also reflect internal and policy
factors.
Read Working Paper 224 at www.adbi.org/working-paper/
2010/07/01/3925.rebalancing.growth.korea/.

The Benefits of Regional Infrastructure Investment in
Asia: A Quantitative Exploration
Author: Fan Zhai
Capitalizing on recent estimates of infrastructure financing
requirements in Asia, this paper frames a scenario for
infrastructure development in the region and estimates the
external effects of infrastructure investment. It also assesses
quantitatively the economy-wide welfare effects of
developing regional infrastructure in Asia, using a global
computable general equilibrium model.
Read Working Paper 223 at www.adbi.org/working-paper/
2010/06/30/3923.regional.infrastructure.investment.asia/.
Prospects for Regional Cooperation between Latin America
and Caribbean and Asia Pacific: Perspective from East Asia
Authors: Erlinda M. Medalla, Jenny D. Balboa
This paper explores the potential for regional cooperation
between the Asia and Pacific region, on the one hand, and Latin
America and the Caribbean, on the other. It also provides
recommendations to enhance the economic partnership of the
two regions. Interregional cooperation could also help the two
regions seek ways to deal with the current global economic
crisis through a range of opportunities to stimulate the economy.
Read Working Paper 217 at www.adbi.org/working-paper/2010/
05/25/3840.regional.cooperation.america.caribbean.asia.pacific/.

7
 A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Will Abandoning the Dollar Peg Help the Peoples

Republic of China Rebalance its Economy?*
By Willem Thorbecke, senior research fellow, ADBI

Will the Peoples Republic of Chinas (PRC) affecting the cost competitiveness of a much wider
decision to ditch the dollar peg help rebalance the share of the value-added than would happen with
global economy? By abandoning its de facto dollar only a renminbi appreciation.
peg and adopting a regime characterized by a However, the PRCs dollar peg had prevented
multiple-currency basket-based reference rate, the Asian countries from appreciating together. With
PRC may facilitate a concerted appreciation in the the PRCs currency pegged, neighboring countries
region, helping the region to redirect production competing with the PRC felt they also had to
away from western markets and towards domestic prevent their currencies from appreciating. When
consumers. currency markets opened on 21 June 2010 after the
The PRCs trade surplus has been concentrated in announcement by the Peoples Bank of China, the
processing trade. Processing trade refers to a renminbi and other East Asian currencies
customs regime under which parts and components appreciated together.
are imported into the PRC duty free and used to If the PRC can gradually increase the band
produce final goods that are re-exported to the rest of around its new reference rate, the huge surpluses
the world. Neither the imported inputs nor the final generated within East Asian production networks
assembled goods enter the PRCs domestic market. would cause currencies in the region to appreciate
PRCs Trade Balance by Customs Regime together. Market forces could allocate these
appreciations across supply chain countries based
on their value-added in processing trade. Stronger
exchange rates would then reduce processed
exports to the US and Europe, helping the region to
redirect production away from western markets
and towards domestic consumers.
PRCs Processing Trade, 2006-2009
Republic of Taipei,China ASEAN4 Japan Singapore Hong Kong, US Europe ROW
Korea China
Imports for processing (%)
2006 15.08 19.04 10.51 15.89 2.63 2.11 5.23 4.99 24.52
2007 15.24 18.75 10.65 16.11 2.40 1.98 4.93 5.03 24.91
2008 15.63 18.07 10.26 16.20 2.28 1.62 5.20 5.72 25.01
2009 16.95 16.96 9.73 15.53 2.18 1.32 4.80 5.51 27.03

The table below shows that two-thirds of Processed exports (%)

2006 3.95 2.19 3.21 10.35 2.96 22.34 25.23 17.85 11.90
2007 3.98 1.92 3.25 9.35 2.84 22.42 23.54 18.59 14.10
imports for processing come from East Asia while 2008 4.75 1.88 3.27 9.22 2.79 21.01 22.20 18.71 16.16
2009 4.96 1.86 3.40 9.13 3.36 20.57 22.68 17.50 16.54
only 5% each come from the United States (US) Balance in processing trade (billions of dollars)
2006 (28.29) (50.01) (17.40) 1.76 6.65 107.24 111.98 75.06 (18.12)
and Europe. It also shows that about 20% of 2007
2008
(31.57)
(27.07)
(57.18)
(55.71)
(19.18)
(16.72)
(1.63)
0.99
8.73
10.19
131.18 127.25 96.29 (4.65)
135.76 130.20 104.67 14.46
processed exports go to East Asia; the US; Europe; 2009 (25.50) (43.72) (11.41) 3.56 12.72 116.46 117.61 84.93 9.92

and Hong Kong, China. The PRC thus runs large Notes: ASEAN4 includes Indonesia, Malaysia, Philippines, and Thailand.
Europe includes Austria, Belgium, Denmark, Finland, France, Germany,
deficits with East Asia and large surpluses with Greece, Ireland, Luxembourg, Netherlands, Italy, Portugal, Spain,
Europe and the US. Given this pattern, an Sweden and UK. Source: China Customs Statistics.

appreciation throughout East Asian supply chain *The views expressed in this paper are the views of the author and do
not necessarily reflect the views or policies of ADBI. This feature is an
countries would help rebalance processing trade by extract from www.voxeu.org/index.php?q=node/5266.

ADBI News ADBI Online

Publisher: Takashi Kihara
ADBI News reports quarterly on the activities of the Asian
Development Bank Institute. The views expressed in this
newsletter do not necessarily reflect the views or policies
of the Asian Development Bank Institute or the Asian
Development Bank. Materials may be reprinted with credit
given to ADBI News. To send comments or to request a
free subscription, e-mail adbinews@adbi.org; fax a
message to +81-3-3593-5571; or write to ADBI News,
Kasumigaseki Building 8F, 3-2-5, Kasumigaseki,
Chiyoda-ku, Tokyo 100-6008, Japan. For the web version,
go to www.adbi.org/newsletter/.
To read ADBI News online, go to
www.adbi.org/newsletter/
For information, send an e-mail to info@adbi.org or go
to www.adbi.org
For publications, go to www.adbi.org/publications/
To read daily development-related news and
analysis, go to www.adbi.org/enewsline.cover. Sign up
to receive E-Newsline daily.
Register for free e-mail alerts when new material is
posted on our website.
www.adbi.org/email.notification/register.php