In Daejeon, Korea earlier this week, a remarkable event took place that enabled the world to hear the voice of Asia and to learn how the region has been able to show such great resilience in the face of the worst global financial crisis since the 1930s. On July 12 and 13, more than 1,000 officials, economists, bankers, analysts, and media assembled for a conference titled Asia 21: Leading the Way Forward, hosted by the Korean government and the IMF. I personally learned a great deal about Asia’s growing stake in the global economy—and the global economy’s growing stake in Asia. As the world strives to leave the crisis behind, the economic center of gravity is shifting increasingly eastwards, and Asia’s role is more vital than ever before.
Our objectives with this conference, jointly organized with the superb help of our Korean partners, were three-fold:
- to discuss the lessons of Asia’s experience during this crisis—and what it might mean for other regions;
- to learn about Asia’s new leadership role in global economic policy—epitomized by Korea’s leadership of the G–20 this year, the first emerging market country to play that role;
- and to renew the Asia-IMF relationship, which has suffered from memories related to the Asian Crisis from more than a decade ago.
What did we learn in these three areas?
1. Asia’s Economic Resilience. There was consensus in Daejeon that Asia has emerged from the crisis as an economic powerhouse. While initially hit hard, Asia has been able to bounce back quickly and return to a strong growth path—7 ¾ percent in 2010 relative to 4½ percent for the rest of the world and about 1½ percent for Europe. Why such Asian resilience? Part of the answer is certainly the wide range of macroeconomic, financial and corporate sector reforms implemented over the last decade. These reforms began, painfully, during the Asian Crisis—but they have been sustained since then and there is no doubt they have helped Asia withstand the brunt of the crisis. That is a lesson for the rest of the world.
Nor is there any complacency in Asia about the challenges ahead. I was struck by the recognition among Asian policymakers and experts that, looking ahead, Asia must continue to build its “second engine of growth”—based on domestic investment and consumption—beyond its clear strength in exports. This is especially the case given that some of Asia’s leading trade partners—in Europe and the U.S.—may be entering a period of relatively low growth.
There was also a lot of discussion—including among Asian business leaders at the conference—that the big issues of poverty and inequality in the region must be addressed if Asia’s progress is to be sustained deep into the 21st century. Interesting to me was that most participants in the conference were confident that today’s low-income countries in Asia comprise the “next generation” of the world’s emerging markets. Many of these poorer countries are implementing the policies needed to develop, grow and—a point of emphasis—attract capital flows in a sustainable way.
2. Asia’s New Leadership in Global Economic Policymaking. As Asia’s economic weight in the world is rising, its voice and representation on the global economic policymaking stage is rising too. There are six Asian nations among the G–20, and Korea is leading the way toward what promises to be a pivotal G–20 summit in Seoul this November. In particular, Korea has placed the issue of strengthening the global financial safety net high on the Seoul agenda. At the Daejeon conference, senior Korean officials including Il Sakong (Chairman of Korea’s G–20 summit presidential commission) and Finance Minister Jeung-Hyun Yoon, emphasized the urgent need for enhancing global liquidity provision.
Asians at the conference were acutely aware that, as the region becomes increasingly globalized, it is also becoming increasingly exposed to spillovers from other regions. This, in turn, increases the imperative of Asia being able to influence the policies of other major economies in order to secure strong, sustainable and balanced growth. Based on recent IMF analysis, for example, enhanced global policy cooperation—now being furthered through the G–20’s mutual assessment process—could result in about $250 billion more in economic growth for Asia over the next five years—and 14 million more jobs. So Asians fully understand that having an effective voice in global economic policymaking is not an option in the 21st century, but rather a necessity. And they are clearly making excellent progress in this area.
3. The Evolving Asia-IMF Relationship. From the beginning, it was my hope that the conference might serve as a platform for a renewal of Asia’s relationship with the IMF. We spoke frankly about the lessons we at the IMF have learned from the Asian Crisis, and how those lessons have helped to change the way we work. A few points that I mentioned during the discussions included: more focused conditionality, a better understanding of balance sheet effects, increased front-loading of resources in a crisis, and greater emphasis on the human costs of economic adjustment.
While I would certainly not claim that all the criticisms of the IMF or bad memories have been eliminated, I will say that I was greatly encouraged that the IMF has learnt the lessons of the past and that it is time to focus on how the Fund might be an even more effective partner for Asia in the future.
Our discussions helped in the sharing of a set of follow-up actions that, I believe, will significantly strengthen our relationship. I called these the “Daejeon Deliverables” and they focus on three main areas:
(i) To make the IMF’s analysis more useful and available to Asia: more focused on early warning of risks, spillover effects and cross-cutting themes, and macro-financial dimensions. In addition—it is clear to me—there is a strong perception in Asia that our analysis and surveillance is not “even-handed” enough in terms of our treatment of various countries and regions. So we need to do a better job there too.
(ii) To strengthen the global financial safety net. In its efforts in this area, the IMF is working closely with Asia—via Korea’s leadership of the G–20—and we are listening to Asia’s voice to help ensure that its needs will be better reflected in the way the safety net is constructed. We are currently exploring several options to strengthen our financing tools to help prevent crises and mitigate systemic shocks, including more tailored crisis prevention facilities and multi-country approaches. These tools would usefully complement countries’ own efforts at insuring themselves against shocks, and may also include cooperation with regional financing mechanisms. There was a great deal of discussion of this “global safety net” issue in Daejeon and, in my view, a great deal of support for the concept.
(iii) To support the further strengthening of Asia’s role and voice in the global economy. This can be done, first of all, by completing the package of so-called “quota” reforms that will boost Asia’s voting power in the IMF. My hope is that this can be achieved by the time of the Seoul summit. In addition, the Fund plans to strengthen its collaboration with Asian regional organizations and to help facilitate—where appropriate—Asia’s rising regional and global cooperation efforts.
Whilst in Korea, I had the privilege of meeting with President Lee to discuss G–20 issues. I also met with young students from all over the region—“the future of Asia.” In these discussions, as well as during the conference itself, I expressed the hope that Asia might come to feel much greater ownership of the IMF and that that the Fund is really serving Asian interests. Indeed, I said that I hoped that the Fund might be seen as a “second home” for the region—and one Asian colleague even reciprocated by saying perhaps Asia can also become a second home for the Fund!
I don’t expect this to happen overnight. But from my perspective, the IMF is ready to do all we can to make it a reality and I encouraged my Asian colleagues to do likewise. Our cooperation can only be effective if it is a two-way street. The conference certainly advanced our mutual agenda in that respect.
Just as there is a new Asia, there is a new IMF too.