ADBI News www.adbi.org Volume 1 Number 4 October 2007 Capital Flows and Exchange Rates DISTINGUISHED SPEAKER In Professor Hamada s view, current account imbalances across countries are a norm rather than an exception. Koichi Hamada, Professor of Economics at Yale University, addressed invited guests and ADBI staff on capital flows and exchange rates on 24 July. His lecture, in particular, focused on current account imbalances in the US, Japan, and the People s Republic of China (PRC). In the past decade the United States has been running a huge current account deficit while the PRC in recent years has been experiencing a current account surplus, thus joining Japan and others as a large current account surplus country. Professor Hamada conceded that the Plaza Accord had a genuine effect in reducing Japan s current account surplus from a peak of 4.3% of GDP in 1986 to 1.4% of GDP in 1990. In a situation where price and wage movements are sluggish, nominal exchange rate movements can create similar movements in the real exchange rates, which, in turn, can affect the country s current account and macroeconomic performance. However, today he does not recommend a Plaza Accord type of adjustment to correct the PRC s current account surplus because it involves the risk of producing undesirable macroeconomic side effects, as Japan s experience demonstrates. Some noted economists, Professor Hamada pointed out, take the imbalance in the current account as abnormal and hence, in need of correction. Taking a different view, Hamada argued that current account imbalances across countries are a norm rather than an exception. If countries have different rates of time preference, there is no guarantee for the current account to be balanced. For instance, American consumers prefer to consume earlier while East Asian consumers prefer to save and consume later. In this case, it is natural to observe current account imbalances in these countries, and inter-temporal trade of goods will benefit the countries that have different rates of time preference. Policy or exchange rate coordination aimed at addressing current account imbalances across countries, Hamada concluded, is futile and sometimes harmful. View Koichi Hamada s presentation at www.adbi.org/event/ 2320.hamada.distinguished.speaker/. In this issue 1
Past Transformations and Projections for PRC Economy DISTINGUISHED SPEAKER Angus Maddison, Emeritus Professor, Faculty of Economics, Groningen University, presented a paper on Six Transformations in China: 960 2030 AD at ADBI on 1 October. The first transformation relates to the Sung dynasty from 960 1280, when per capita income rose by a third and population almost doubled. There was also a significant opening to the world economy in the southern Sung, Yuan, and early Ming dynasties (1130 1433). In 1300, China was the world s leading economy in terms of per capita income. It outperformed Europe in levels of technology, the intensity with which it used its natural resources, and capacity for administering a huge territorial empire. By 1500, however, western Europe had overtaken China in per capita real income, as well as technological and scientific capacity. The second transformation occurred between 1700 and 1820, when population rose nearly threefold with no fall in per capita income. The third transformation occurred from 1840 to 1950, when China suffered from internal conflict and collusive foreign intrusions on its territory and sovereignty. Chinese GDP (measured at PPP) fell from a third to a twentieth of the world total, and per capita income fell in a period when it rose tremendously in Japan, Europe, and the US. The fourth transformation is the Maoist period (1950 78), which saw a significant recovery of per capita income, but growth was interrupted by disastrous economic and social experiments. In the fifth transformation (1978 2003), China reversed the Maoist policies and adopted a pragmatic reform and open door policy which was successful in sparking growth. There were large gains in efficiency in agriculture, an explosive expansion of foreign trade, and accelerated absorption of foreign technology through foreign direct investment. The sixth transformation is largely forward-looking (2003 2030): Professor Maddison sees catch-up continuing. But he predicts that the pace of progress will slacken as China approaches the technological frontier. By 2015, according to Maddison s predictions, China will have overtaken the US as number one economy in terms of PPP GDP, and by 2030 will be producing nearly a quarter of world GDP. Professor Maddison predicts that the PRC will surpass the US as the number one economy by 2015. View a summary of Angus Maddison s presentation at www.adbi.org/event/2351.maddison.distinguished.speaker/. Voice of a Visiting Fellow Regional and Rural-Urban Income Disparity by Household Income, Mainland PRC Source: China Provincial Statistical Yearbook General predictions for the PRC s economic future may be optimistic, and the expansive trend of interprovincial disparities has slowed down since 2000 and began to decrease somewhat in recent years, but according to ADBI Visiting Fellow Shantong Li, widening income disparities between rural and urban may be cause for concern. The contribution of urban-rural income disparities to total regional income disparities has been widening over the years, reaching 80.4% in 2004. 2
ADBI Welcomes New CBT Director ADBI PEOPLE Worapot Manupipatpong joined ADBI as Director for Capacity Building and Training (CBT) in August 2007. He earned his Ph.D. in finance from the Wharton School of the University of Pennsylvania in 1989. Having been a director at the ASEAN Secretariat for over eight years, he brings extensive experience in managing technical assistance and research projects in support of regional cooperation and integration in the areas of finance, economics, statistics, infrastructure, and science and technology. As a knowledge institute, the ADBI, he believes, has been using its research and CBT products effectively to strengthen development management and policymaking in ADB developing member countries. In his current position, he hopes to be able to further enhance the quality and impact of CBT activities through an even more focused, demand-oriented work program that pays special attention to the development of appropriate content and its effective delivery, as well as careful selection of the target audience. He is also keen to foster closer collaboration with relevant departments of ADBI, ADB HQ, international agencies, and knowledge institutes. Associates Share Parting Thoughts ADBI PEOPLE Two Research Associates recently completed one-year terms at ADBI. Before embarking on their future paths, they took some time to reflect on their experiences at the Institute. Q What contribution are you most proud to have made during your time at ADBI? ML: I am most proud to have assisted Dr. Douglas Brooks in organizing the workshop and conference for the ADBI research project Infrastructure s Role in Reducing Trade Costs. I was also involved in the case study of China in this research project. In addition, I am very proud of the presentation I made at the ADBI Annual Conference in 2006. Working on the Chinese version of ADBI s brochure was another enjoyable project. RL: I hope that I was able to share what I learned in my degree regarding evidence-based policymaking, particularly in making good use of household surveys to make interventions more relevant to the recipients. Q What advice would you give to organizations like ADBI to best deal with development issues? ML: I think that international organizations like ADBI should give opportunities to people from a variety of countries and fields to come together to discuss development issues. RL: I think ADBI is already doing a good job in tackling development issues. The project I was involved in regarding agriculture deals with poverty issues from their core. The project went to the field to understand the issues first-hand from the point of view of the farmers, which I thought was a good idea. Q Ma Liqiang Rouselle F. Lavado How would you sum up your experience at ADBI? ML: One year working at ADBI was a great experience for me. I made many friends and learned a lot. It will be a very nice memory for my life. RL: It was a wonderful learning experience. I met many people from different cultures and the insights I got from them certainly widened my perspective. I learned a lot of things which will help me as I start on my career in the Philippines. 3
Promoting Good Public Governance CONFERENCE A four-day joint Tax Conference with ADB HQ was held on 8 11 October in collaboration with OECD, the International Bureau of Fiscal Documentation (IBFD), and the Tax Bureau of the Ministry of Finance of Japan. Governance is one of the priority themes ADBI works to promote. In accordance with this priority, the objective of the conference was to provide developing member country participants with international knowledge and experience for tax policy design and tax reform as well as to share experiences and establish networks among policymakers responsible for tax policies and administration. Senior tax officials from 32 ADB developing member countries participated in this annual event. Masahiro Kawai, Dean of the Institute and Toshiya View more information about the conference at www.adbi.org/event/2353.tax.conference.2007/. Otsu, Director for International Issues on Taxation, Japan s Ministry of Finance, opened the conference. Participants shared country experiences on tax reforms and exchanged views on the latest development and trends, such as the increasing number of international tax treaties following the ever-growing globalization of economic activities and the continued decline in customs revenues due to the WTO and FTA commitments to reduce or eliminate customs duties on many products. The progress of tax reform measures in response to these trends was discussed, including the increasing use of value-added tax (VAT), its implementation progress and issues, and measures to address transfer pricing and double taxation. Senior tax officials from 32 ADB developing member countries participated in the conference. Together with the Japan Fair Trade Commission (JFTC) and the Viet Nam Competition Administration Department in Viet Nam s Ministry of Trade, on 3 4 May 2007, ADBI cosponsored the Fourth East Asia Conference on Competition Law and Policy, and the Third Top Level Officials Meeting on Competition Policy in Hanoi. The conference comprised presentations from individual East Asian competition authorities and a trial peer review session, with each session followed by discussion and questions from the floor. The objective of the conference was to develop a common understanding among the East Asian economies that the establishment of competition law and its effective implementation are necessary for facilitation of trade and investment, and should be an urgent priority for Facilitating Trade and Investment each economy. Topics discussed in the conference included i) recent development of competition law and policy in East Asian economies and ii) trial peer review on competition law and policy in Viet Nam. Subsequently, the officials meeting discussed issues including i) future challenges for enacting comprehensive competition law and ii) technical assistance activities in the East Asian region and their coordination and cooperation. Continuing the partnership, ADBI will cosponsor the Fourth Top Level Officials Meeting on Competition Policy on 16 April 2008 in Kyoto. The meeting will be held back to back with the Seventh Annual Conference of the International Competition Network, which will be hosted by JFTC on 14 16 April 2008. Both events will take place at the Kyoto International Conference Center. 4
Microfinance Course Delivers Training COURSE The fourth delivery of the Blended Distance Learning Course on Microfinance got off to a good start on 16 August in Tokyo. With three billion low-income people worldwide excluded from formal financial services, the importance of the course is underscored by the awarding of the Nobel Peace Prize to Dr. Mohammed Yunus and the Grameen Bank in recognition of the contribution of microfinance to world peace and stability. Of the over 900 participants in the fourth course, about 250 participated through videoconference in 12 countries while the remaining participants in over 40 countries watched the session through Internet webcasting. The participants include 245 from ASEAN, 123 from Northeast Asia (or non- ASEAN East Asia), 203 from Central and South Asia, 38 from the Pacific, and 71 from Africa, Europe, the Americas, and other locations. The four-month course is jointly organized by ADBI and the World Bank s Tokyo Development Learning Center (TDLC). Using four information and communication technologies self-paced e-learning CD-ROMs, videoconference with international experts, on-line tutoring, and an e- discussion forum the course delivers high-quality training to participants in Asia and beyond. In addition to courseware in English, local-language materials are made available in Chinese, Vietnamese, Thai, Laotian, Khmer, and Bahasa Indonesia. By removing the language barrier, the course effectively reaches out to those working directly with the poor. A large number of the participants are policymakers and staff of projects funded by donor organizations including ADB, International Fund for Agriculture Development, and the World Bank. Thus, the course has immediate policy impacts as well as contributing to improved implementation of microfinance projects. A few years ago, the idea of a course like this would have been nothing more than a dream in someone s fertile imagination, noted ADBI Director for Research Mario Lamberte in his opening remarks. That dream has evolved into one of the most successful distance learning courses, connecting practitioners from Asia to Africa to create a truly global microfinance learning community. To date, the past three deliveries have certified 91 microfinance trainers, and over 1,100 microfinance practitioners have studied in the course. It is our sincere hope, said Lamberte, that you will do your best to master the course materials and thus empower yourselves to become the seeds of growth for microfinance in your corner of the world. View course information at www.adbi.org/event/2240. microfinance.distance.learning.course/. A large number of the microfinance course participants are policymakers and staff of projects funded by donor organizations. 5
ASEAN+3 or ASEAN+6: Which Way Forward? FEATURED PUBLICATION The surge in free trade agreements (FTAs) in East Asia since the Asian financial crisis (see Figure) has prompted a lively debate on the characteristics, impact, and future path of FTAs in the region. This paper, by Masahiro Kawai (ADBI Dean) and Ganeshan Wignaraja (ADB HQ), maps the salient characteristics of East Asian FTAs using a new FTA database, identifies several key issues to be addressed, and explores economic effects using computable general equilibrium analysis. The paper argues that WTO-plus elements need to be Growth of FTAs in East Asia, 1976 2007 Notes: a Concluded FTAs include those signed and/or under implementation; FTAs under negotiation cover those with or without a signed Framework Agreement; and proposed FTAs include official pronouncements of parties to negotiate an FTA or actually conduct a feasibility study. b Data as of June 2007. Source: ADB FTA Database, Asia Regional Integration Center (www.aric.adb.org), as presented by the authors (p. 26) further expanded and the negative aspects of FTAs be minimized. The paper suggests that consolidation of multiple and overlapping FTAs into a single East Asian FTA could help mitigate the harmful noodle bowl effects of different rules of origin and standards and that consolidation at the ASEAN+6 level would yield the largest gains to East Asia while the losses to non-members would be relatively small. To make such consolidation possible, the paper recommends that (i) ASEAN act as the regional hub by further deepening ASEAN economic integration, (ii) the plus-three countries (People s Republic of China, Japan, and Korea) collaborate more closely, and (iii) India pursue further structural reforms. The paper also observes the need for international support, such as WTO-led Aid for Trade (including trade-supporting infrastructure) to facilitate the participation of poorer ASEAN countries. Over time an ASEAN+6 FTA should be connected with NAFTA and EU to further promote global economic integration. Read Discussion Paper 77 at www.adbi.org/discussion-paper/ 2007/09/13/2359.asean.3.asean.6/. Flagship Study Launched on Infrastructure and Regional Cooperation RESEARCH ADBI has recently launched a flagship study on Infrastructure and Regional Cooperation. The objective of this study is to examine the key issues and challenges facing infrastructure in Asia in its ongoing efforts to support regional cooperation. The four broad themes are: (i) (ii) (iii) trade and logistics; institutions, regulations, and policy; financing; and (iv) transnational issues. The study will focus on both software and hardware issues affecting infrastructure, especially when transnational cooperation is required. It will also attempt to outline what the region needs to do in terms of policies and best practices to meet these challenges and address these issues so essential to achieve inclusive growth. The study will be completed in early 2009. 6
Selected Upcoming Events 12 November 12 15 November 19 22 November 26 November Distinguished Speaker Seminar: Todd Sandler (Tokyo) Todd Sandler, the Vibhooti Shukla Professor of Economics and Political Economy at the University of Texas, will present a paper titled Regional Public Goods, Aid, and Development. Cross-border Infrastructure Management: Managing Public Goods (Tokyo) This workshop will provide training for policymakers in charge of regional public goods, specifically on cross-border infrastructure management in the region. Private Sector Participation in Physical Infrastructure (Tokyo) This course is designed to improve the understanding of policymakers of the main challenges to greater private sector participation and investment in infrastructure projects in the region and facilitate accelerated development of policy reform programs that will strengthen the enabling environment and legal and governance frameworks. Distinguished Speaker Seminar: Richard Baldwin (Tokyo) Richard Baldwin, Professor of International Economics, Graduate Institute of International Studies, Geneva, and Policy Director, Centre for Economic Policy Research, will present a paper titled The 3-Trade-Bloc Dance in East Asia: Preliminary Reflections. View all upcoming events at www.adbi.org/calendarofevents/. Recent Discussion Papers Evolving ASEAN+3 ERPD: Towards Peer Reviews or Due Diligence? Authors: Cindy Houser, Masahiro Kawai The ASEAN+3 finance ministers group has decided to integrate the economic review and policy dialogue (ERPD) process with the regional liquidity support facility, called the Chiang Mai Initiative (CMI), and has taken steps to transform CMI into a multilateral arrangement that is more independent of IMF programs. To accomplish the required strengthening of the effectiveness of ERPD, the authors recommend a balance between an OECD-type peer review and peer pressure approach and an IMF-type due diligence approach. Read Discussion Paper 79 at www.adbi.org/discussion-paper/2007/09/20/2363. asean3.regional.financial.cooperation/. Prospects of India Bangladesh Economic Cooperation: Implications for South Asian Regional Cooperation Authors: Biswa Bhattacharyay, Prabir De To maximize the benefits of the region s integration into the global economy, South Asia will need to strengthen regional and bilateral cooperation. This paper discusses various opportunities and associated prospects and problems in strengthening the India Bangladesh economic cooperation and integration agenda in the context of the South Asian Association for Regional Cooperation. Read Discussion Paper 78 at www.adbi.org/discussion-paper/2007/09/13/2360. india.bangladesh.economic.cooperation/. Infrastructure Challenges in South Asia: The Role of Public-Private Partnerships Author: Geethanjali Nataraj This paper examines the existing infrastructure facilities and infrastructure needs of the South Asian region and looks at the role played by public-private partnerships (PPPs) as important tools in enhancing infrastructure development in South Asia. The study points out the constraints to private sector participation in South Asia and looks at the experience of India and a few other countries in the region with respect to PPPs. Read Discussion Paper 80 at www.adbi.org/discussion-paper/2007/09/27/2364. infrastructure.challenges.south.asia/. 7
Asia on the Move Infrastructure development is facilitating Asia s rapid trade expansion by reducing shipping costs and time. An edited volume on the infrastructuretrade nexus is being put together by ADBI Senior Research Fellow Douglas H. Brooks and former Senior Research Fellow Jayant Menon. In mid- October, at the end of his two years at ADBI as a secondee from ADB HQ, Menon said working at the Institute had provided him the freedom to be able to think and to focus on research, away from the hustle and bustle of the big building in Manila. The co-edited volume, Infrastructure and Trade in Asia, is due out in 2008. Coming up: ADBI Annual Conference On 4 December, ADBI will hold its Annual Conference, A Decade of Developments, marking its 10-year anniversary. The conference will highlight topics emphasized by its Deans over the years. Session One, Asian Crisis Ten Years On Financing for the Future, is chaired by Thanong Bidaya, Visiting Fellow, ADBI. Speakers in this session include Peter Petri, Brandeis University and Mohamed Ariff, Malaysian Institute of Economic Research. Session Two, Achieving Poverty Reduction for an Inclusive and Equitable Asia, is chaired by former Dean Peter McCawley, Australian National University. Justin Yifu Lin, of Peking University and Ifzal Ali, ADB s Chief Economist, will present in this session. Session Three, Regional Growth through Integration and Cooperation, is chaired by Isher Judge Ahluwalia, Vice Chairperson, Planning Board, Punjab and member of ADB s Eminent Persons Group. Invited speakers for this session are Antoni Estevadeordal, Inter-American Development Bank and Yuen Pau Woo, Asia Pacific Foundation of Canada. View the agenda and more information about this event at www.adbi.org/event/2367.adbi.10th.anniversary.conference/. ADBI News Publisher: Mamoru Umemoto 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/. ADBI Online 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 8