The Recovery in Developing Asia: Prospects and ChallengesConference on the Post-Crisis Growth and Poverty Reduction in Developing Asia

Hanoi, Vietnam

Anoop Singh Director

Asia and Pacific Department

March 22, 2010

Outline

A Multi-speed Global Recovery Asian Low-Income Countries

(LICs):

Achievements and Challenges The Role of the IMF

2

3

A Multi-Speed Global Recovery

4

-10

-5

0

5

10

15

04 05 06 07 08 09

World

Emerging

Industrial

Real GDP Growth(Percent; quarter on quarter annualized)

Global growth has resumed, boosting exports...

Source: IMF, Global Data Source and staff calculations.

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Nov. 09

Emerging

Advanced

World

Merchandise Exports(Annualized percent change of 3mma over

previous 3mma)

…but the advanced economies’ recovery is sluggish.

2009 2010 2011

Prelim Proj. Proj.

World -0.6 3.9 4.3

Advanced Economies -3.1 2.1 2.4

United States -2.4 2.7 2.4

Euro Area -4.0 1.0 1.6

Japan -5.0 1.7 2.2

Emerging and Developing Economies 2.3 6.0 6.3

China 8.7 10.0 9.7

India 5.6 7.7 7.8

Brazil -0.4 4.7 3.7

Emerging Asia 5.6 8.1 8.0

ASEAN-4 0.9 4.6 5.2

5

Source: World Economic Outlook.

Emerging Asia is leading the global recovery.2

00

6Q

12

00

6Q

22

00

6Q

32

00

6Q

42

00

7Q

12

00

7Q

22

00

7Q

32

00

7Q

42

00

8Q

12

00

8Q

22

00

8Q

32

00

8Q

42

00

9Q

12

00

9Q

22

00

9Q

3

-15

-10

-5

0

5

10

15

Emerging Asia

G2

Other Emerging Economies

Industrial Asia

Real GDP Growth(Quarter-on-quarter, SAAR; in percent)

6

2006

M01

2006

M04

2006

M07

2006

M10

2007

M01

2007

M04

2007

M07

2007

M10

2008

M01

2008

M04

2008

M07

2008

M10

2009

M01

2009

M04

2009

M07

2009

M10

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-0.599999999999999

-0.399999999999999

-0.199999999999999

5.55111512312578E-16

0.200000000000001

0.400000000000001

0.600000000000001

retail sales

cci (-5)

stock prices (-1) (RHS)

Selected Asia 1/: Stock prices , Consumer Con-fidence Index (CCI) and Retail sales (year-on-year percentage change)

1/ Includes Australia, Hong Kong, Indonesia, Korea, Thailand, and Taiwan.

The global outlook, however, is unusually uncertain.

+ A stronger-than-expected improvement in financial market sentiment

+ Stronger confidence effects boosting private demand

− Intensification of market concerns about fiscal sustainability in some industrial economies

− Diminished room for policy action in many advanced economies

7

Asian LICs: Achievements and Challenges

8

Impressive growth, and significant progress in reducing poverty.

9

Real GDP Growth(Average 2000–08, in percent)

Poverty Rate for Selected Asian LICs (In percent of population)

Source: World Economic Outlook.

10

Asian LICs weathered the global crisis well.

-7

-6

-5

-4

-3

-2

-1

0

LICs ASEAN-4 NIEs G-3

200820092010

1/ G-3 includes the US, European Union and Japan.

1/

Real GDP Growth in Comparison with Pre-crisis Average (2000–07) (percent)

Export Growth(3-month moving average, SAAR)

The near-term growth outlook is good.11

Asia: Real GDP(Year-on-year percent change)

Average of 2000–07 2008 2009 2010 2011

Asian LICs 6.3 6.1 4.7 5.6 6.2Bangladesh 5.8 6.0 5.4 5.4 5.9Cambodia 9.6 6.7 -2.7 4.3 6.8Lao P.D.R. 6.6 7.8 7.6 7.2 7.4Mongolia 6.6 8.9 -1.0 8.6 6.5Nepal 3.8 4.7 4.0 4.1 4.9Papua New Guinea 2.2 6.7 4.5 6.8 5.1Sri Lanka 5.1 6.0 3.5 5.5 6.5Vietnam 7.6 6.2 5.3 6.0 6.5

Emerging Asia 7.8 7.1 5.6 8.1 8.0 NIEs 5.0 1.7 -1.2 4.8 4.7 ASEAN-4 5.2 4.6 0.9 4.6 5.2 China 10.1 9.6 8.7 10.0 9.7

India 7.2 7.3 5.6 7.7 7.8

Source: World Economic Outlook.

However, there are near-term challenges— inflation is rising and some face external pressures.

-5

0

5

10

15

20

25

Jan-

07Ap

r-07

Jul-0

7O

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n-08

Apr-

08Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9

NIEsASEAN-4 (excl. Vietnam)

12

Emerging Asia: Consumer Prices(3-month percent change of 3-mma, SAAR)

Current Account Balance(In percent of GDP)

Source: World Economic Outlook.

— LICs

There are also vulnerabilities from fiscal deficits and relatively high public debt.

13

Fiscal Balance (2008–10)(PPP-GDP weighted average, in percent)

Public Debt (2008–10)(In percent of GDP)

Source: World Economic Outlook and IMF staff calculations.* Excludes Nepal.

How can Asian LICs become the next generation of emerging economies?

14

Nominal per Capita GDP(2008, in U.S. dollars)

Illustrative per Capita GDP Growth (in U.S. dollars)

15

Business Climate (Rank among 185 countries,

Rank #1 = best climate)

Evidence points to building stronger institutions, macro stability, financial development , and a business climate.

Source: World Bank, Doing Business Report

01234567

Institutions

Infrastructure

Macroeconomic stability

Health & primary

education

Higher education & training

Goods market efficiencyLabor market

efficiency

Financial market sophistication

Tech. readiness

Market size

Business sophistication

Innovation

Asian Low-income Countries (average) 2/Malaysia and Thailand (average)

Source: World Economic Forum, Global Competitiveness Report, 2009-2010Note: 1/ For selected Asian countries. Each factor is scored in the 1–7 scale with 1 being the poorest quality and 7 being the best. 2/ Including Bangladesh, Cambodia, Mongolia, Nepal, Sri Lanka, and Vietnam.

Global Competitiveness Index1

(Higher score = more competitive)

Strengthening public infrastructure and human capital will clearly also be of central importance.

16

Source: World Economic Forum.

Infrastructure Index(Higher score = better)

Source: UNDP.

Human Development Index(Combines education, health and income,

higher score = better)

0

1

2

3

4

5

6

7

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Providing a more attractive environment for foreign direct investment will help develop export industries.

17

Exports to GDP(Average 2007–09, in percent)

* Excludes resource-based economies.

FDI plus Portfolio Investment to GDP (Average 2007–09, in percent)

18

The Role of the IMF

19

The IMF has responded on several fronts. Increasing global liquidity

IMF members’ central bank reserves were augmented with US$283 billion in new Special Drawing Rights (SDRs)

LICs received around US$ 18 billion

More resources for IMF lending IMF’s loanable resources were tripled to US$750

billion In 2009, US$3.8 billion in new concessional loans

were extended; a further US$8 billion will be made available in the next two years

Borrowing limits have been doubled for all countries

The cost of borrowing for LICs was reduced to zero percent through 2011 (¼ percent thereafter)

Lending facilities have been improved and made more flexible

20

The IMF has satisfied an unprecedented demand for assistance from a diverse range of member countries.

IMF Programs and Precautionary Credit Lines, 1997–2009

LVA

ARM

SRI

MNG

SYC

THAIDN

KOR

ARG

PHL

IDN

UKR

BRA MEX

RUS

COL

TUR

IDN

ARG

BRA

TUR

URY

BRA

COL

ARG ARG

TUR

IRQ

ISLROM

HUN MEX

POLCOL

UKR

BIHSER

PAK

BLR

GEO GTM

-30

-25

-20

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1997 1999 2001 2003 2005 2007 2009

Per

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GD

P 1

/

Size of bubble = access in percent of quota

1/ Maximum cumulutive decline in three years from program inception

100 percent of quota

21In Asia, programs with Mongolia and Sri Lanka have helped stabilize the economy and facilitate a return to growth.

Sri Lanka

Change in Reserves and Growth (2007–11)

Mongolia

Thank you