ESCAP update

Recently released by ESCAP was the year-end update of the economic and social survey of Asia and the Pacific for 2012, according to which the ongoing recession in the US and the EU is beginning to take its toll on the Asia Pacific region.

Reduced demand in the West is affecting this region with the impact most felt in the two largest countries in the region – China and India. GDP growth for the region is now expected to be 5.6% instead of the earlier projected 6.5% and the forecasted GDP for 2013 will be only a moderate increase at 6.3%.

Globalisation, which has come to stay, turning the world into one global village, brings with it the good and the bad. When the going was good and the developed countries were doing well, benefits of globalisation were felt in other parts of the world.

The developing countries, some of which have been termed ‘emerging economies,’ which are the future leaders, are still dependent to a large extent on the markets of the West and difficulties in the West have strong impact on such economies too even if their economies are rather strong comparatively. When the emerging economies are affected, lessened demand from them can affect the others in the region by way of reduced exports.

Among the challenges faced by the Asia Pacific region due to the financial crisis in the West as pointed out by ESCAP are: the impact of a ‘fiscal cliff deadlock,’ which could affect growth in the Asia Pacific countries (China, Singapore, Hong Kong and Malaysia will be most affected), the third round of quantitative easing in mid 2012 has affected currencies and asset prices in this region making economic management more complicated, substantial impact on inclusive and sustainable development, decline in jobs and income growth, and fewer people are forecast to be able to pull themselves out of poverty.

One factor which is acting as a stabiliser is that foreign remittances from workers, which is an important foreign exchange earner, did not decline. However, many migrant workers suffer at the hands of unscrupulous recruitment agencies due to the absence of legal frameworks to enable migration through formal channels, although some countries have entered into bilateral arrangements to protect their workers. If the region is to maximise benefits from labour migration, regional cooperation is critical.

The region also has to deal with its own challenges such as rising inequality and energy and infrastructure shortages, resulting from past policy mistakes and inappropriate policy responses. Undertaking supportive measures at domestic level and enhancing regional cooperation are suggested to address short and long term issues resulting from challenges of slowing demand in the developed world and domestic structural impediments.

Making the development process more inclusive and sustainable is suggested as the solution to invigorating domestic drivers of growth. The use of well targeted fiscal and monetary policies directed to productive and social sectors of the economy which can generate high employment and have low carbon intensity and strengthening and expanding the existing mechanisms to enhance regional cooperation to deal with common challenges are also suggested for this purpose.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)