Asia-Pacific Region: Gearing Up for the Next Transformation
IMF News, September 6, 2017
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- Authors: Christine Lagarde
- Published: September 6, 2017
Introduction: Asia Today and Tomorrow
- Asia’s future is built on its cultural diversity, resourcefulness, and entrepreneurship.
- Over the past decade, the Asia-Pacific region has contributed two thirds of global growth, and now accounts for about 44 percent of global GDP.
- Emerging and developing Asia contributed 56 percent to global growth from 2007-2016 (GDP measured at purchasing power parity).
- New vulnerabilities include high corporate debt, the risk of protectionism, population ageing, and lower productivity growth.
- Policy response emphasis: bold policy actions and strong international cooperation; “relentless focus on training, on the nitty-gritty of economic reform.”
Seizing the Demographic Opportunities
- Demographic dynamics:
- Young and growing populations in India, Indonesia, and the Philippines present potential to reap a demographic dividend.
- Rapid ageing in China, Japan, Korea, and Thailand could lead to smaller workforces and potentially lower productivity growth.
- Quantified impacts:
- IMF analysis shows that a growing workforce can add one full percentage point to annual GDP growth over the next three decades.
- We estimate that ageing countries could face lower annual GDP growth, again by up to a percentage point.
- Policy levers to increase labor force participation and inclusiveness:
- Boost the proportion of women in the workforce (examples: reform secondary earner taxation; boost childcare benefits and tax incentives for part-time work in Korea and Japan).
- Expand girls’ access to high-quality education and promote women’s access to finance in emerging and developing countries such as Cambodia and India.
- Strengthen social safety nets and pension systems (example: Korea’s budget includes transfers to the elderly, subsidies for job-seeking youth, and higher unemployment benefits; stronger pension systems facilitate transition to consumption-led growth in China).
- Potential GDP gains from closing gender gaps:
- Japan: boost GDP by 9 percent.
- Korea: boost GDP by 10 percent.
- India: boost GDP by 27 percent.
Boosting Productivity
- Long-term importance: productivity growth is the most important source of higher income and rising living standards.
- Regional patterns:
- Countries such as Bangladesh, India, and Indonesia benefit from steady investment that can boost innovation and potential growth.
- Sharp slowdown in productivity growth since the global financial crisis observed in China, Japan, Korea, and Thailand.
- Quantified counterfactual:
- We estimate that, if productivity growth had followed its pre-2008 crisis trend, overall GDP in the Asia-Pacific region would be about 9 percent higher today.
- Policy recommendations to raise productivity:
- Foster innovation through tax incentives for research and development, and increased investment in infrastructure and education reform.
- Emphasize vocational training to reduce skills mismatches (Korea and Vietnam highlighted for educational achievement).
- Reduce overly stringent regulations to encourage entrepreneurship and new ventures, including in smartphone apps, e-commerce, and fintech.
- Expand trade to promote innovation-sharing and investment in new technologies and efficient practices.
- Trade evidence:
- China’s integration into the global trading system accounted for as much as 10 percent of the average overall productivity increase in advanced economies between the mid-1990s and mid-2000s.
- Social and distributional considerations:
- Structural change can cause job losses in shrinking sectors and social challenges; countries and the international community share responsibility to pursue better and smarter trade agreements with protections for labor and environmental standards.
The IMF as a Partner
- IMF’s role: engage through analysis, policy advice, hands-on assistance, and training to strengthen institutions and economic management.
- Country example:
- Myanmar: IMF helped modernize tax administration, revamp the central bank and foreign exchange market, build a statistics program, and strengthen the anti-money laundering regime.
- Institutional adaptations and cooperation:
- Reassessment of the role of capital flow management measures since 2010 (Korea chaired the G20 in 2010).
- Efforts to strengthen the global financial safety net by enhancing the IMF toolkit and deepening cooperation with regional financing arrangements, including the Chiang Mai Initiative.
- Governance changes: with the most recent quota reforms, the BRIC countries are now among our top 10 shareholders.
- Framing: the IMF positions itself as a “fitness coach” helping members manage demographic pressures, climate change, and new technology.
Conclusion
- Asia’s next transformation requires continued “training” in policy reform, education, and institutional strengthening to improve lives across the region and globally.
- The region’s young entrepreneurs and students exemplify the potential to lead the next transformation.
Speech by Christine Lagarde, IMF Managing Director, International Conference, Seoul, September 6, 2017.