“Asia and the Global Economy: Leading the Way Forward in the 21st Century”Dominique Strauss-Kahn – Managing Director of the IMF
Opening Remarks at the Asia 21 Conference - Daejeon, Korea
July 12, 2010
It is my great pleasure to welcome you to the Asia 21 conference. I’d like to thank President Lee for his gracious message, and our many Korean partners for making this event possible—our co-hosts, the Ministry of Strategy and Finance, led by Minister Yoon Jeung-hyun; the Korea Development Institute; and the Bank of Korea.
In the wake of the global financial crisis, Asia has emerged as a global economic powerhouse—and no one can doubt that Asia’s economic importance will only continue to grow. But the world is changing, and so too will the way in which Asia will grow and prosper. The decisions made now will impact Asia’s performance for decades to come.
Korea gives us two key lessons in this regard.
First, its experience showcases how the right policies—including sound macroeconomic management and ambitious structural reforms—can deliver formidable economic performance over a very long stretch.
Second, Korea, through its leadership role in the G-20 this year, demonstrates how Asia is reshaping the global economic and financial framework.
For us at the IMF, this conference is important for three principal reasons:
First, we want to take stock of the last 10 years, and see what has been done correctly and what has not been done correctly. We also want to listen to what Asia has to say—about issues and challenges in this region, but also about the policy priorities for countries in other regions. Countries all over the world want to understand how Asia has managed its growth and globalization so successfully. Drawing the lessons of Asia’s many successes is an important objective for this conference.
And thirdly, the conference provides a unique opportunity for us to relaunch—and reinvigorate—our relationship with Asia. As the region becomes increasingly integrated into the world economy, multilateral approaches to global challenges will become increasingly important to this region. This is where the IMF must serve as an effective partner for Asia. For me, it is very important that the IMF become a second home for Asia. We hope that this conference can help.
In my brief opening remarks, I’d like to ask five questions:
The first question is how Asia—a region of tremendous economic dynamism, but also of diverse economic realities—will meet the challenges of the 21st century. This includes finding ways to help Asia’s low-income countries transition to emerging markets, an important issue which my special advisor Zhu Min will address.
The second question concerns what lessons we can draw for other countries from Asia’s resilience during the global financial crisis. In my view, the macroeconomic, financial, and corporate sector reforms put in place over the last decade have played an important role in the region’s resilience. So, despite being hit hard initially, Asia was able to bounce back quickly from the global financial crisis.
Turning to the future and the policy challenges that Asia may face, the third question is how the region can transition smoothly to the post-crisis period. With Asia rebounding so strongly, many economies in the region are quite rightly already unwinding their stimulus measures. The increase in downside risks to global growth—including from the recent turmoil in Europe—means that policymakers need to remain attuned to further possible shocks to global growth and financial markets, which includes capital inflows that can be a threat to fast-growing countries.
The fourth question is how to nurture Asia’s new “second engine of growth”, which is domestic demand. This may indeed be the central question that we will address during this conference. In the past, Asia’s growth was heavily dependent on exports. But with Asia’s major trading partners—in particular Europe and the U.S.—entering a period of extensive balance sheet repair, export markets may not be so buoyant. A second, internal, engine of growth is needed to sustain Asia’s strong performance.
Many of the changes needed to foster this second engine of growth are already underway across the region. These include stronger social safety nets, which can boost private consumption by reducing the need for precautionary saving; better infrastructure, to encourage private investment; financial sector deepening to support both consumption and investment by SMEs, but also by major companies seeking financing for large investment projects; and, where needed, more flexibility in exchange rates.
Finally, let me turn to the question of the implications of Asia’s growing interlinkages with the global economy. As Asia’s economic weight in the world continues to rise, its stake in the economic performance of other countries is rising too. This increases the value—to Asia—of having an effective international policy dialogue—to assess global economic risks, and reach collaborative decisions on the policies needed by each country to tackle global challenges.
In today’s globalized world, coordination is needed much more than in the past. The global financial crisis demonstrated how beneficial such policy coordination can be. Thanks to joint policy action—in particular the major fiscal stimulus—we averted a far greater economic calamity. It is easier to have global coordination when policy makers are facing the same problems. Now, as we enter the recovery phase, this is more challenging. Countries are recovering at different speeds, and have different underlying economic conditions. This calls for different policies for different countries. But cooperation remains critical, and its benefits are clear. Based on the analysis the IMF recently prepared for the G-20, which will be discussed here in Korea at the November Summit, enhanced global policy coordination could boost the global economy by 2½ percent—or $1.6 trillion over the next five years. For Asia, regional GDP would be about $250 billion higher under this better scenario with roughly 14 million more jobs.
The IMF as an effective partner for Asia
What role can the IMF play in Asia? I am eager to hear your views on this important question.
Before providing some of my own thoughts, let me be candid: we have made some mistakes. But we have also learned lessons from our experience during the Asian crisis. We have learned the strength of macro-financial linkages and the importance of balance sheet effects, which can have a devastating impact on the real economy; we have learned the dangers posed by volatile capital flows and that to cope with potential outflows in crisis countries may need a large amount of financing available upfront. We have learned the importance of focusing on essential policies, and of protecting the most vulnerable, when tackling a crisis. These lessons have led to important changes in our work. Among these changes has been the creation of new insurance-type financing instruments, such as the Flexible Credit Line used by Mexico, Colombia, and Poland. This is aimed at helping to prevent crisis by providing financing at the right time and the right amounts when countries have strong policies.
Looking forward, as Asia takes on the challenges of the post-crisis period, the IMF stands ready to serve as a partner. Let me mention three areas in particular where our work can support the region’s interests: analysis of economic and financial risks; improving international policy coordination; and enhancing the global financial safety net.
Analysis of economic and financial risks.
As the global economy becomes increasingly interconnected, spillovers between countries are playing an increasing role. Policymakers around the world—including here in Asia—are seeking to deepen their understanding of these spillovers. The IMF’s analysis can play a useful role in this regard.
International policy coordination.
As I noted earlier, Asia has an increasing stake in effective global policy coordination. And the IMF, as an institution with 187 member countries, plays a central role in making such coordination possible.
Global financial safety net
As the crisis demonstrated clearly, capital flows can reverse very quickly in times of panic—even from countries with sound macroeconomic and financial conditions. Developing an effective global financial safety net is therefore an essential element of a more stable global economy. It is also an important objective for Asia. Korea is providing important intellectual leadership in the G20 on this reform effort, which could include more tailored crisis prevention tools and perhaps multi-country approaches that could mitigate possible "stigma"." The Executive Board of the IMF will be discussing a number of ideas in the period ahead, and I look forward to a lively debate here on this topic.
Finally, for the IMF truly to be a second home for Asia, it must provide space for Asian voices. In 2008, we passed an important, initial package of quota and voice reforms, through which Asia’s voting power in the Fund will increase. We are now working on a second stage—to be completed by the G-20 Summit in Seoul in November—that will do even more to help align Asia’s representation in the Fund with its economic weight in the world. Our member countries have committed to a shift in quota shares to dynamic emerging markets and developing countries of at least 5% from over-represented countries to under-represented countries. This will deliver an additional boost in Asia’s voting share in the IMF. It is also important to have more Asian men and women in the IMF, bringing to the IMF more understanding and knowledge of Asia. I am very happy to have Deputy Managing Director Naoyuki Shinohara and Special Advisor Min Zhu, so that now 40 percent of my management team is from Asia.
Let me conclude:
Asia’s time has come in the global economy, and so it must be at the IMF. Rapid growth has turned the region a global economic powerhouse—and Asia’s economic weight in the world is on track to grow even larger. This has been accompanied, quite rightly, by Asia’s increasing importance—and influence—in global policy debates.
Asia has to become one of the centers of our activity. At the same time, Asia must take a bigger role in IMF; this should be a two-way relationship. I am convinced that this conference can help to boost this relationship.