Introduction

Since the beginning of the second quarter of 2009, Asia has staged an impressive recovery. The People's Republic of China (PRC), Indonesia, Republic of Korea, and Singapore grew by an average annualized rate of more than 10% and emerging Asia should grow by more than 5% in 2009 (International Monetary Fund [IMF] 2009). Asia has benefited from a strengthening of domestic demand and exports, but the IMF (2009) has raised doubts about whether the recovery can be self sustaining even if the United States and Europe fail to pull themselves out of the current recession. All Asian countries, including the PRC, struggled with falling exports and stagnant domestic demand in a global economy plunged into a state of extreme volatility and uncertainty following the collapse of Lehman Brothers. To break free of the crisis, they have implemented stimulus packages of varying proportions consisting of increases in public spending, tax cuts, and the expansion of credit at lower interest rates. To return to the path of pre-crisis growth in East Asia, however, these stimulus measures will need to be followed by and combined with institutional and policy reforms that reorient long-term growth such that it depends more on domestic demand. The purpose of this policy brief is to articulate the rationale behind these policy changes and reform.

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