Global Imbalances and Crisis: Charting Asia's Recovery
Post-event Statement
It is important to identify the causes and consequences of the global imbalances and the global financial crisis because without such identification it is not possible to respond properly to the negative shocks from the United States and other developed economies. This joint workshop by ADBI and ADB provided an overview and discussion of those issues. We identified two broad causes of the global financial crisis: (i) the creation of excessive liquidity and the consequent housing price bubble in the US; and (ii) the inadequacy of financial supervision and regulation in the face of financial globalization and innovation. Some argue that the global imbalances also contributed to the development of the global financial crisis. This means that rather than policy shock, preference shock such as current account deficits produced excessive consumption over savings in the US, could have caused the widening current account deficit in the US and current account surpluses in Asian economies. A paper by Gochoco-Bautista identified the expansionary monetary policy in last several years. Some participants in the workshop including Dong He and Eli Remolona also confirmed this view. Some participants also warned of the negative impacts on Asian economies from the global crisis. ADB’s Jong-Wha Lee ADB expressed concern on the expected economic downturn in the region and likely impact on coordinated macroeconomic policies in Asia. ADB Dean Masahiro Kawai stressed the importance of the adjustment processes from the crisis, especially the increases in domestic and regional aggregate demands. |
Background
The ongoing financial crisis is wreaking havoc on global economic prospects in the short- to medium-term. While developing Asia was initially perceived to be less susceptible to the ramifications of the crisis, it has become increasingly clear from recent data that this is not the case. Trade data, particularly in the last 3 months of 2008, indicate a sharp slowdown in exports and imports. In many economies, both exports and imports actually began to shrink relative to year-ago figures. Given developing Asia’s heavy reliance on exports to support growth, regional prospects are getting gloomier as the crisis carries on.
The current financial crisis and global economic downturn did not originate in Asia, and, indeed, Asian countries in structural terms are generally in good shape. Nonetheless, Asian economies and financial markets have already begun to feel the impacts of the crisis, and these are likely to deepen substantially over the coming year. The most obvious areas of impact have been exports and equity markets, which have declined sharply across the region, but stresses in currency and credit markets have emerged as well, and domestic demand has softened. This sensitivity has been heightened by the export-led growth strategies followed by many countries.
ADBI is planning a series of conferences related to the crisis, including identifying its likely impacts on Asian countries, developing scenarios for growth re-balancing away from exports, and developing recommendations related to macroeconomic policy, structural and institutional innovations, regional integration and financial reform.
Objectives
This conference provides an overview of the causes and consequences of the crisis and to explore ways for Asia to respond accordingly. The workshop is divided into four sessions. Two sessions deal with the causes and consequences of global imbalances and of the global crisis; two other sessions deal with responding to the crisis through regionally-coordinated efforts, and through rebalancing growth. The workshop brings together experts on the global crisis and on global imbalances to recommend possible ways for Asia to chart its road to recovery, and to provide significant inputs to ongoing projects in ADBI and ADB.
Partners
Economics and Research Department, ADB
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