One would have to search high and low for a community that has as remained unscathed from the recent economic downturn. However, the Asia-Pacific region, as a whole, it the Asia-Pacific region has survived much better than other regions because of the risk and macroeconomic management measures that were developed in the aftermath of the 1997 Asian crisis.
The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)’s study, Economic and Social Survey of Asia and the Pacific, 2010 assesses the critical issues, policy challenges and risks that the region faces in the months and years ahead as it leads the world economy to recovery after the first global economic contraction in modern history. The survey discusses multiple imbalances and development gaps, evaluates their differential impact across countries and sub regions, and identifies key policy responses for the short- and long-term. The report is very particularly relevant to apparel and textile manufacturing as it is a significant industry in the region.
While the economic crisis slowed GDP growth in all countries throughout the region, the countries that depended more on exports and global financial flows suffered more damage. This is understandable when you consider that exports can comprise up to 38 percent of a country’s GDP, not to mention that exports dropped at rates nearly twice those that followed the 1997 crisis.
The report suggests that economies highly dependent on trade with the US and Japan are more vulnerable than others to the collapse in external demand. It’s worth looking at an interesting dynamic mentioned in the report: despite the overall reduction of exports to the US, all ESCAP countries increased their share of the remaining US market.
The study also states that finance costs increase due to reduced export opportunities. In turn, this reduces export performance. The reversal of foreign capital flow can impact the whole country financially, from exchange-rate depreciation to a decline in foreign exchange, which will likely damage the economy as a whole. Governments should work with banks and financial institutions to provide a selection of tools, such as loans and guarantees, and share risks appropriately.
The report discusses additional impacts (e.g. increased unemployment, decreased social protection measures and the continual migration of laborers) before examining how countries that invested in public spending programs aimed at creating employment and strengthening domestic demand fare better than others. Results indicate that monetary policies played a smaller role than fiscal policies in supporting domestic demand.
In times of economic downturn, governments should develop policies that reduce entrenched poverty and protect the population at large from the risk of falling into poverty. Policies should provide social protection that develops short-term safety nets, prevents increases in deprivation, and promotes better chances of individual development. Policies that generate income opportunities and improve access to basic social services, especially in rural areas, are also critical.
Agricultural improvement services can have a large impact in rural communities that are often reliant on agriculture as a source of income. These improvements should include research and development, effective extension services with agronomic support, and increased connectivity through the use of information and communications technology to enable knowledge sharing. Programs should also address measures to improve transport systems and accessible financial support along with risk management tools (such as crop insurance), all of which could significantly contribute to reducing rural poverty.
The authors present future scenarios for: inflation, commodity price volatility, increase in food prices, and an asset price bubble. Here are some conclusions that the authors of the UNESCAP survey shared:
- The system of institutes like the Consultative Group on International Agricultural Research (CGIAR) have a key role in generating new knowledge and technology in agriculture and putting it in the public domain, where it is available to national agricultural research systems for adaptation to their geoclimatic conditions.
- A key element here would be a system that could help small farms benefit from economies of scale in marketing and assist them in meeting international standards.
- The authors suggest that governments could aim to improve the banking architecture by establishing institutions that facilitate financial inclusiveness, such as credit bureaus and credit guarantee funds for microfinance activities. Governments might also undertake large-scale financial literacy campaigns to equip the poor to benefit from financial inclusiveness.
- The report ends on the note of when should governments end stimulus policies and how can they facilitate self-sustaining economic growth. The authors also suggest that boosting domestic demand can make up for some export loss. Countries that are unable to create domestic demand should diversify their markets. Finally, policies that promote long-term structural rebalancing of economies can create healthier long-term trade conditions.
I feel that there is a lot of good information in this report that can be used to create policies that protect vulnerable members of our societies and strengthen economies.
Questions for consideration
Will such policy interventions be possible in all regions? Are there other, non-policy, mechanisms that can provide similar benefits?