Transcript of a Press Briefing on the IMF Asia and Pacific Regional Economic Outlook
September 16, 2006David Burton, Director, IMF Asia and Pacific Department
Singapore, September 16, 2006
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Director, Asia-Pacific Department
Deputy Director, Asia-Pacific Department
Deputy Director, Asia-Pacific Department
Deputy Director, Asia-Pacific Department
Sr. External Releations Officer, External Relations Department
Ms. Bhatt: Good afternoon, and welcome to this press briefing on the IMF's latest report on the Asia-Pacific Regional Economic Outlook. I am Gita Bhatt from the External Relations Department. I want to introduce those at the table. David Burton, at the center, is the Director of the Asia and Pacific Department. To my immediate right is Steve Dunaway, Deputy Director of the Asia and Pacific Department. To David's right is Wanda Tseng, Deputy Director of the Asia and Pacific Department, and to her right is Dan Citrin, also Deputy Director of the Asia and Pacific Department of the Fund. Copies of the report and the press release are available in the back of the room and also on the press desk. I will now turn to Mr. Burton for his opening remarks and then we will open the floor for questions. Thank you.
Mr. Burton: Well, good afternoon, and let me add my welcome to Gita's to this press conference for our regional economic outlook. As everybody knows, this is the first time the Annual Meetings have taken place in Asia since those in Hong Kong almost a decade ago and much has changed since then, I am happy to say. Since then, Asia has recovered from its financial crisis and it has really re-established itself as the most dynamic and rapidly growing region in the global economy.
Since the outlook for the region was covered quite extensively in the World Economic Outlook press conference, I will just give a very brief overview of how we see the prospects for the region. As you heard in the WEO press conference, Asia is expected to continue its strong economic performance of recent years. Growth in Asia as a whole-that is emerging and industrial Asia-is expected to reach about 7 1/4 percent this year, declining slightly to 7 percent next year. The moderation in growth next year reflects some easing of export performance, we expect, as growth in industrial countries slows. At the same time, with the interest rate cycle in the region likely nearing its peak and oil prices, while still high, are expected to stabilize, indeed they have been coming down in recent days, we think domestic demand in the region should hold up quite well. The current account surplus for the region reflected in these developments is projected to be broadly unchanged and next, at around 3 1/2 percent of GDP.
Turning briefly to inflation, this seems to be quite well under control. I think this is, in part, because many countries in the region have been proactive in tightening monetary policy. Relatedly, exchange rate appreciation in a number of countries has also helped keep inflationary pressures under control. Inflation expectations also remain in check and, for this reason, we expect a fairly benign outlook for inflation next year. In particular, I would mention that in those countries where inflation has picked up, such as Indonesia and the Philippines, or did pick up I should say, it is now coming down and is expected to continue to do so next year.
One thing I would note, though, as a word of caution is that producer price inflation is running quite a bit higher than consumer price inflation in most countries, and it is possible that businesses may begin to pass on higher costs of doing business as corporate profits get squeezed. Also, labor markets are tightening somewhat in the region and demand side pressure on prices could begin to build. So, it is important that central banks continue to be vigilant and to monitor developments closely.
As regards capital markets, prospects for capital flows to emerging Asia also remain pretty good. Early in May and June this year, we saw quite a bit of volatility in global financial markets, but Asia road this turbulence out quite nicely. I think what this episodes illustrates is the region's resilience to that sort of turbulence, which reflects, I think, an extended period of reform and strengthening of macroeconomic policy frameworks in recent years. I think as subsequent financial market developments make clear, with markets bouncing back, that investors have not changed their positive view of the region. I think all this bodes well for a continuation of capital flows, especially FDI. It is possible that portfolio flows could moderate next year as global monetary tightening likely continues.
Of course, as you heard in the WEO presentation, there are downside risks to this outlook and I think these have probably increased certainly since our last recent regional economic outlook. I think the most important risk for Asia, which is a very open region, is that of a more rapid slowdown in the U.S. than currently foreseen in our baseline scenario. In particular, and there has been a lot of talk about this, if there is a larger correction in the U.S. housing market than currently expected, this could have a significant impact on demand in the U.S. and on Asia's exports, and indirectly thereby on domestic demand in the region. As I mentioned, oil prices, although they have declined in recent days and we expect them to stabilize on average next year, there is a potential for them to spike upwards. If this were to coincide also with a cooling in the global economy, that could create difficulties for Asia as well as other regions.
Finally, and especially if the first two risks I mentioned were to materialize, investors again could turn away from emerging markets, which could slow growth and weaken regional financial markets. What I would like to stress, though, is that, while there are these risks, I think with the strengthening of policies and policy frameworks in the region in recent years, Asia is really quite well-placed to cope with these sorts of risks if they were indeed to materialize.
So much for the outlook, the short-term outlook. The boom in Asia is now in its fifth year and I think it is natural to ask whether the region can sustain this sort of impressive performance over the medium term. Obviously, much will depend on global economic developments. The region does face a number of important challenges of its own and what I want to do now is touch briefly on some of the challenges, a nonexhaustive list, but the challenges that we discussed in our current regional economic outlook.
First, and I think this has been a bit of the theme of the presentations the Fund has made on the World Economic Outlook, sustaining Asia's growth is going again to require some shift away from heavy dependence on exports and more toward domestic demand. Obviously, the strategy of export-led growth has been a successful one for a long time in Asia, but we think some rebalancing of growth would make the region less vulnerable to shifts in the global economy and would allow people in the region to begin to benefit, I think, more from the rapid growth that has been and we expect to continue to take place.
Now, in past regional economic outlooks we have examined this issue from a variety of angles, including the scope for further recovery investment in the region. This time, we have looked specifically at consumption in emerging Asia and the scope for it to increase. Consumption in the region, at least as a share of GDP, is quite low by international standards and has not really kept up with rapid GDP growth. The prospective aging of Asia, which will, I should add, bring its own challenges, including on the fiscal side, will tend in any event in coming years to raise consumption, perhaps considerably in some cases. But we also think that economic policies can play a supporting role. In particular, work in our regional outlook suggests that policies which reduce the need for precautionary saving, especially those that enable adequate provision of education, healthcare and social safety nets, and that also enhance the access of households to bank lending and capital markets, can help bolster consumption going forward and strengthen domestic demand in Asian economies. Obviously, the situation, though, varies quite a bit from country to country.
Another thing we looked at this time, and this is a little bit unusual for us, is that we looked at income distribution issues, because there has been quite a bit of talk about this around the region. We wanted to just establish the facts and look to see whether there were any implications for macroeconomic policies, which is very much our business. What we found was quite interesting. We did find that there is a growing inequality in the region and this is a relatively new thing for the region. I think after quite an extended period in which emerging Asia experienced the best of both words, that is rapid growth and increasing equality, more recent years have seen rising inequality and polarization, including along geographic and urban-rural lines. This is of interest and of concern, particularly because rising inequality can make it more difficult to reduce poverty, and also because there is some evidence, some reason to believe that large income disparities can in fact lower growth and lead to higher macroeconomic volatility.
Now, I should say that the work that we have done is preliminary, but we find that there really is not any single factor that can explain this trend of rising inequality. Interestingly, we found that really the Asia crisis has not played any role other than a very temporary one in perhaps one or two countries. It is something that predates the Asia crisis and a trend that has been going on for quite awhile and has continued since the Asia crisis. Our analysis suggests that there is really no one measure, not one single cause of it and no one single measure that can reverse it. As I say, while our analysis is not exhaustive, we do suggest a number of policy initiatives that might help ameliorate it or address it. These include things like higher and more effective spending on education, greater provision of economic infrastructure, especially in less well-off regions, reforms of labor markets that make them work more effectively, and elimination of barriers that the poor face in accessing the financial sector.
Finally, a third challenge, and this is something that was sort of picked up in both the first two challenges, is further financial sector development, we think, is one of the keys to continued economic success in Asia. Now, a lot has already been done on this front in recent years in many economies, but I think that there is scope to do more. Asia's financial sectors have become increasingly integrated with world financial markets and this has certainly played an important role in the development of the region's capital markets, but intraregional financial integration remains much less advanced and there are a lot of initiatives taking place now on this front around the region. But I think further progress in this area could provide additional stimulus for capital market development. In particular, it would provide firms and consumers greater access to regional savings, which I know is something that regional policymakers attach importance to. It can also help raise the efficiency of financial intermediation and make investment, including for small and medium enterprises, easier. Also, I would note that the development of equity markets, which is another area we have looked at in some detail in our regional outlook, would allow more people in the region to share in the region's rapidly growing corporate profits. By raising disposal incomes potentially, it would also help boost consumption and strengthen domestic demand.
So, to sum up, 2006 and 2007 are expected to be good years for Asia. While the global economic environment poses a number of downside risks, I think the region is well placed to ride them out if they materialize. Over the longer term, as I have just discussed, there are quite difficult challenges for Asia to face, but I think there is every reason to believe that Asia, with its long tradition of effective policymaking, will be able to deal with those two and continue its strong economic performance.
I will stop there and we will turn it over to questions from the floor.
Question: Mr. Burton, there was an interesting session this morning, a plenary session on China and India on the development of the financial sector. There was nobody from the Fund on that panel and there were some questions, I think, that people might be interested to know what the Fund thinks about, the Fund's opinion on those questions. One of the key questions there was the desired timeframe for capital account convertibility for China and India. Could you comment on that, please. Could you also comment on the preconditions that you would like to see in place in these countries for capital account convertibility and the likely effects of capital account convertibility when it does happen.
Mr. Burton - Unfortunately, I was not myself at that session you mentioned; I was tied up elsewhere. These are certainly interesting questions. I will say a few words and I will also turn to my colleagues, Steve Dunaway and Wanda Tseng, who lead the teams on China and India, respectively, to say a bit more.
In recent years, as an institution, I think we have done quite a lot of thinking about capital account convertibility. We have come to the conclusion that it is best to take it generally fairly cautiously, not something to be rushed into, and that there are important preconditions that need to be met. I would mention two, in particular. One is that the macroeconomic framework needs to be sound. Fiscal policy needs to be in good shape. You do not want to have strong external balance of payments pressures or potential pressures as one liberalizes the capital account. Secondly, and very importantly, you want the financial sector to be in good shape before you liberalize the capital account and I think that is why we say it is wise for China to move relatively cautiously because, while it has made some progress in strengthening its financial sector, it still has some way to go. So, it is right to take this gradually.
Another point I would just note, sort of turning it around a little bit, it is not, however, necessary to a completely liberalized capital account to move toward a more flexible exchange rate, and that is something that we have seen in India. India has adopted a more flexible exchange rate effectively without moving very far with capital account liberalization. China is moving in that direction, too. But let me stop there. Perhaps I could ask Steve, and then Wanda to say a little bit more about the particular issues in China and in India.
Mr. Dunaway: Picking up on David's last point, let me say that between Larry Summers and Barry Eichengreen's statements this morning, I think that there is very little that we would disagree with, that we would wholeheartedly endorse the positions that they advanced. In particular on this question of exchange rate flexibility and liberalization of the capital account, we in fact two years ago wrote a policy development paper called The Cart Before the Horse which deals specifically with this question and explains that, in looking at the experiences of other countries, those that have succeeded best were the ones that prepared themselves for capital account liberalization by pursuing a flexible exchange rate, that that helped to develop some of the institutional structure that they needed to cope with.
I think Governor Zhou also raised an interesting point this morning in terms of, as he put it, what comes first, whether the chicken or the egg, how fast you proceed with capital account liberalization, and do you make sure that all the preconditions are in order or do you move ahead because the process tends to then help reform, particularly in the financial system. There, it is more of an art than a science in terms of trying to figure out exactly what the correct speed is. That is, I think, something that the authorities recognize and that they are looking at how they can proceed as quickly. They also see the interrelation to the overall development of the economy and the point that David made in talking about the region as a whole in terms of bringing about the shift in the composition of demand and shifting it more toward self-sustaining domestic demand instead of growth being led by exports.
Ms. Tseng: As you know, the government has recently commissioned the Report, which revives discussion about capital account convertibility in India. With India's very rapid growth and integration with the world economy, I think this is something that we very much welcome, because I think, as you know, from the Tarapore Report, it also talks about the other reforms which are needed to support capital account convertibility, in particular the focus on fiscal consolidation to reduce the government's borrowing requirements. I think this is very much in line with the government's plans on the fiscal responsibility legislation so I think it could be a self-reinforcing reform.
I think the other aspect that the report highlighted is the need to strengthen the banking system and it makes a number of proposals, in particular reducing the government's share in the state banks to below 51 percent and I think that is something that we would very much welcome. In addition, I think it talks about broader reforms in the financial sector in terms of developing money and bond and foreign exchange markets. So, I think that it is a very good time for India to consider a gradual liberalization of capital account in tandem with the other reforms that they are contemplating.
Question: Mr. Burton, you mentioned actually that inflation in Asia or in Asia Pacific is pretty much under control. I am just wondering, we have incredible inflation rates, we have just had incredible inflation rates in Indonesia, in the Philippines. Singapore and Malaysia, of course, have a much better record on that. That leads me to the question what is a good, benign, and acceptable inflation rate compared to Europe, where we have a target of 1-percent by the European Central Bank; what is a good environment in that perspective for Asia, developing Asia?
Mr. Burton: Well, the weighted average inflation for this year and next we see is around 3 percent in Asia. When I was talking about the region as a whole, I was talking about a rate of around 3 percent and that is a relatively benign and quite a reasonable rate of inflation. You are right, inflation in some countries has shot up quite a bit; in Indonesia last year it shot up when there were very large increases in petroleum prices in the fourth quarter and it shot up to a 12-month rate to 17 percent, or something like that, but it has come way down now. If you look at it at sort of a quarter-to-quarter moving average rate now, it is running 6-7 percent, which is still a bit on the high side, I would say, but it has come way down and is under control. In the Philippines, inflation is in that sort of range and is coming down. In both of those economies, ultimately you would like to see inflation lower than that. The important point is that in both cases it is coming down and it is under control, and monetary policy has been proactive and effective in bringing it under control. As I say, for the region as whole, the weighted average of around 3 percent is quite an acceptable one.
Question: My question is this morning China Central Bank Governor Zhou said the band within which the yuan trades against the dollar will be widened in [inaudible]. So, what is your comment on his words, and do you agree with China's current exchange rate policy?
Mr. Burton: Well, as I mentioned earlier, unfortunately I had another engagement and I would have loved to have been there this morning and I was not, so I do not know exactly what Governor Zhou said. I think the move last July, when they introduced greater flexibility, was a good one. I think there is scope now for the rate to be somewhat more flexible than it has been and for the potential flexibility even in the current system to be used more fully. If Governor Zhou was talking about widening the band, I think that would also be a reasonable thing to do if that is what he had in mind. As I said, I did not hear what he said and I do not want to comment on what he said until I actually get a chance to see in detail his remarks.
Question: Vietnam has one of the fastest growing economies behind neighboring China, but there are warnings of the quality of growth. What is your view and what are the challenges facing the country?
Mr. Burton: Vietnam is certainly a very vibrant economy and it is growing very fast. We have been a little bit concerned and the authorities, and the authorities I think, also, about the quality of growth and they need to make sure that investment is efficient, because investment is high and it is important that for growth to be sustainable, that investment is efficient. I think there the two things that will be critical going forward are to continue with reforms of the state-owned enterprises, where a lot of the investment is taking place, and also to continue with the reforms of the banking system, which provide a lot of the credit for the investment. So, with reforms of the banking system and reforms, further continuing reforms of the state enterprises, I think that will contribute to making sure that the investment that takes place is efficient and the growth that is generated is sustainable. But Vietnam is doing very well. Its record is impressive, and it has been proceeding with reforms. It just needs to keep going down that road.
Question: What is your view about proposals for Asia to move toward a unified currency similar to Europe? Will it ever happen and will it benefit the region?
Mr. Burton: I think Asia having a unified currency is something that at best is really a long way off. I think the experience of Europe shows that you need fairly stringent preconditions to be met before you could introduce a common currency. You need a lot of macroeconomic convergence. Also, countries need to be willing to give up sovereignty over monetary policy, and I think Asian economies are at very different stages of development. They have different political systems at this point. So, it seems to me that they are quite away from being at a point where introducing a common currency would be a viable thing to do.
That said, the sort of moves toward regional financial integration that are taking place are sensible ones and desirable ones. There are various initiatives to open financial markets to each other to improve market infrastructure, to have common trading platforms. Those sorts of moves toward financial integration, I think, are both desirable and feasible, but I think a common currency is something that is really quite a long way off at best.
Question: I just want to check, the developing countries' monetary policies and the South Asian monetary policies, do you think it is good enough to protect the poor? That is one question. The second one is on worker remittances. I noticed that you have a little box story on it. My country, Sri Lanka, has been pushing for increased worker remittances simply to cushion itself against the oil shock. It is something that you guys have been pushing for or is it just that we are short of cash?
Mr. Burton: Well, the main goal of monetary policy is to maintain financial stability and low inflation. I think South Asian economies have been doing a reasonable job of that. Inflation in your country, Sri Lanka, has picked up a bit and is somewhat on the high side so they need to be vigilant to bring it down. Inflation in India has also picked up a little bit. The central bank has been taking steps to raise interest rates and it needs to continue to be vigilant on that front. Inflation in Bangladesh, too, for that matter, has picked up a little bit there, too. But you sort of linked monetary policy to the poor. Well, as I say, monetary policy's main task is to keep inflation low. High inflation is one of the most damaging things for the poor there is, because the poor are the least able, of all segments of society, to protect themselves from inflation. So, having an effective monetary policy that keeps inflation low is important from a poverty perspective. Obviously, it is not necessarily the most important tool for addressing poverty, but it is necessary to have low inflation from that perspective.
You asked about our box on workers remittances. I think what has been happening to workers remittances is very interesting. They have been very strong all around the region and they have in fact been something that has been helping the region cope with shocks like high oil prices. So, while import bills have been going up, workers remittances have also been going up and we do see some evidence of a bit of a correlation with oil prices. This may be partly because quite a lot of the workers are in the Middle East and, as oil prices go up, Middle East pay may go up and workers remittances go up, so there is a bit of a natural hedging that takes place there. While a motive of workers remittances may be to support people back home, there is also an investment motive, too. We find that countries that have good financial systems and sound macro frameworks actually tend to do better in terms of getting workers remittances in than countries that have less good financial systems. So, to some degree, you can almost view workers remittances almost as a capital flow or capital flow-like to some degree.
Question: Do you foresee Japan's economic expansion to last well beyond 2006, and what are some of the key challenges facing Japan's economy in the next few years?
Mr. Burton: In a nutshell, the answer is yes, we do see Japan's expansion continuing beyond this year. We see it slowing a little bit next year, closer toward potential, about 2 percent. But let me ask Dan Citrin to talk a bit more. He is our Mission chief on Japan and he can give you a better answer than I.
Mr. Citrin: As David said, yes, we do see the expansion continuing. Recent data have been a little bit mixed, but if you look at the fundamentals, both the corporate sector remains very strong with profits remaining very high, and the household sector is strengthening with the labor market tightening and regular employment now beginning to pick up. So, the fundamentals are much stronger, the financial system is in good shape. We do see the economy continuing to grow. This year, I think our WEO projections show growth of 2.7 percent this year, slowing to around 2 next year, but this mainly reflects a slowdown toward a trend rate of growth and with the economy approaching full capacity.
Now, looking forward, I think the challenges are twofold. First of all, while there has been pretty good progress over the last couple of years, the fiscal deficit remains quite high and public debt has been growing quite significantly over the previous year. So, we very much share the Japanese government's intention to bring the deficit down gradually over the next 5-6 years. Certainly, especially given the strength of the economy at present, we have advised them to be as ambitious as possible in bringing the debt down. The other big challenge, of course, is how to deal with the prospective aging of the Japanese population which, as you know, the projection suggests that the population may shrink by something like 30 percent at the same time that the dependency ratio rises significantly over the next 2-3 decades. I think there, in addition to fiscal consolidation, the main thing is to pursue very vigorously the structural reform agenda on a wide front to try and get productivity growth up. Certainly, this is important not only to sustain growth but to reduce the burden on the working age population as the age structure changes over time.
Question: You mentioned about reform in Vietnam's banking system. It is really a concern in Vietnam now. How do you reform in the banking system? One colleague from the IMF said that Vietnam's financial system is fairly vulnerable, so what do you think about its vulnerability on the eve of opening up to competition and privatization?
Mr. Burton: Well, I think reasonable progress has been made in Vietnam on banking system reform. They need to do more, obviously, and keep going with it. Opening up to WTO, will put some more pressure on the banking system. In one way it is quite good, because it creates strong incentive to speed up reform, but continuing the reforms of the banking system in Vietnam is undoubtedly a priority.
Question: I have got two questions on the robust growth of the Asian economy. First, will the painful lessons learnt from the crisis back 1997 be easily forgotten? Will the government repeat some of these mistakes again in the fundamentals of the country's economy? Second, the robust growth also allows for Asian businesses to buy over large cooperations in Europe and the U.S. with some resistance and some context alluding to discrimination. So how does the IMF see this phenomenon?
Mr. Burton: Asian economies are doing well. They are not only growing well, they have been strengthening their macroeconomic frameworks. They have been, most of them, introducing more flexible exchange rates which will help them ride out shocks. Most of them have built up reserves to comfortable or more than comfortable levels. So, I see them all, although to differing degrees, but I see them all in reasonably comfortable positions and, as I mentioned earlier, well placed to ride out shocks. So, I do not see significant evidence of an inclination to repeat earlier mistakes. I think the pain of the Asian crisis is still fresh and they will go to considerable lengths to avoid a repeat of that. On the other question, obviously the IMF is against any sort of discrimination in the treatment of attempts to purchase companies across country borders.
Question: I would like to return to the subject of Japan for a moment. Perhaps I could address my question to Mr. Citrin. Is the IMF at all concerned that the Bank of Japan may have been too quick to raise interest rates and that it may be too aggressive going forward, and that that could cause problems for the economy? Also, are you concerned about the potential for tax increases in Japan which are already being discussed? Would that potentially harm your outlook?
Mr. Citrin: I know that there has been some renewed concern that the Bank of Japan may have tightened prematurely, because of the revision in the CPI data, which showed that the rate of increase in prices was somewhat lower than had been previously measured. You know, I think that notwithstanding the small downward revision in prices, we continue to believe that the Bank of Japan transitioned from its crisis prevention monetary policy of quantitative easing toward a more normal conduct of monetary policy earlier this year. The economy has obviously recovered. Prices had been showing positive growth and even under-somewhat lower, but even under the new measure. The time had come to exit toward a more normal conduct of monetary policy.
Now, going forward, we argued even prior to the prices being revised that, given the risk of slipping back into deflation, and notwithstanding the fact that growth was quite strong, given the risk of avoiding a slip back into deflation and the fact that inflationary pressures were very mild and there was no sign of any real quick up-tick in inflation, that the Bank of Japan should raise interest rates very gradually and continue to sort of, if you want to put it this way, lag behind the curve. We at the same time, under the new framework, the Bank is looking at a range of indicators, forward-looking indicators on a wide front in addition to prices, asset price movements and pace of investment and other activity-related indicators in deciding when and how much to reduce the sort of unusual degree of monetary stimulus that remains in the pipeline, and we agree with that approach. But we do not believe that they will be tightening prematurely and that they will be very gradual. So, we remain confident that the Bank will move forward appropriately.
On the risk of tax increases, as I said already in my response to the previous question, we believe that the time is now for fairly aggressive fiscal consolidation. Given the size of the job and given the fact that they reduced spending quite significantly already for a number of years, they will have to consider increasing taxes at some point in time to successfully achieve their fiscal objectives. Now, how much they do on the spending side and how much they do on the tax side, and exactly when and how is up to them to decide, clearly. The public sentiment argues in favor for doing as much as possible on the spending side first, and that seems to be a reasonable approach.
Question: I have a question regarding reserves. I realize that collective reserves here are $1.6 trillion, I think, but people are saying that with high oil prices and transfer of money from Asia and oil-importing countries into oil-exporting countries, is something measuring like about $800 trillion a year or something, given the (broad price?) current level. Already last year we have since, since 2005, collective reserves in Asia has been halved and you reckon that it will continue to stay at that level and keep going down. I just want to see going forward what might be the implications for the region if this were to continue, given that we are unlikely to see oil prices going back to 35- or 25-dollar barrels. One last question is related to China. I want some kind of confirmation. I have been told that private (development?) in China, like about 50 percent of it resides-3 percent of population-in coastal areas seems to me a very exaggerated figure and wonder whether you could give me a sense of the disparity of income with China.
Mr. Burton: On the first question, I mean reserves in have continued to go up. They have not been halved at all. It is true that many countries in Asia, those that are not oil producers, have experienced higher oil import bills, and in most cases that has cut current account surpluses. In one or two cases, current accounts have moved into deficits. But for Asia as a whole, the current account is in surplus to the tune of about 3 1/2 percent of GDP. Reserves across the region have continued to rise, so there really is not an issue there along the lines that you suggested.
On China and income disparities, if you look at our chapter on polarization, on income inequality and polarization, there is an inequality between the rich and poor, but there is also sort of polarization across regions both in China and in India, for that matter. Steve tells me that per capita income in Shanghai is around $4,000 whereas in the Western provinces it less than a thousand dollars and, in some parts they are really quite low. So, there has been a rise in income inequality in China in recent years. I know that it is something that is of considerable concern to the leadership and they are taking a range of steps to try to address the issue.
Ms. Bhatt - Thank you very much. Thank you for coming.