Governments and monetary authorities in emerging East Asia need
to cooperate more on currencies and other policies to turn the swift post-crisis
recovery into more balanced, long-term growth, according to the Asian
Development Bank (ADB). Average growth is expected to be 7.3% in 2011 after
growing 8.8% in 2010.
"Regional exchange rate cooperation - - if handled wisely -
can ensure intra-regional exchange rate stability while allowing inter-regional
flexibility; thus helping promote intra-regional trade and investment, and
rebalance the region's sources of growth,"latest edition
of ADB's Asia Economic Monitor said the special section of the
The report says emerging East Asia's large, long-standing trade
surpluses against developed economies' increasing debt have raised tensions
culminating in calls for emerging East Asia to allow its currencies to
appreciate to match its growing economic strength. Asia's swift recovery from
the recent global crisis is also drawing foreign investment to the region.
Managing capital inflows to prevent asset price bubbles has also become a
"Rapidly growing interdependence in trade and finance and the
increasing importance of spillovers and contagion effects within the region make
regional exchange rate cooperation essential," said Iwan Azis, Head of ADB's
Office of Regional Economic Integration that prepared the report. "At the
same time, regional currency flexibility against major currencies outside the
region would help emerging East Asia better manage capital flows and respond to
The Asia Economic Monitor suggests the best way forward
would be for East Asian economies to adopt informal monitoring zones for their
exchange rates against an external reference currency or a basket of currencies.
Any big shift outside those non-binding zones would prompt confidential
discussions to reduce deviations. Over time these arrangements could become more
The report assesses the outlook for emerging East Asia, which
comprises the 10 economies of the Association of Southeast Asian Nations, plus
the People's Republic of China (China); Hong Kong; South Korea and Taiwan.
The report notes that the weaker outlook for the global economy
coupled with the phasing out of fiscal and monetary stimulus within the region
means economic growth in the region should moderate next year.
Average growth in emerging East Asia is likely to be 7.3% in
2011 after growing 8.8% in 2010. In its
Asian Development Outlook 2010 Update, published in September, ADB had
predicted growth of 8.4% for the region this year after a 5.4% expansion in
2009. The 2010 upgrade was in large part due to the faster-than-expected growth
in China which ADB now sees at 10.1% this year. That is higher than its previous
forecast of 9.6% in September. ADB still expects the Chinese economy to expand
9.1% in 2011.
In a separate
special note reassessing the overall performance of developing Asia - that
is, 45 developing economies of Central Asia, East Asia, South Asia, Southeast
Asia and the Pacific - - ADB upgraded its 2010 forecast to 8.6% from the 8.2% it
forecast in September. The 2011 forecast for developing Asia is still 7.3%.
Growth in Central Asia is now forecast at 5.9% this year,
against a previous forecast of 5.1%. ADB still expects the economies of South
Asia to expand 7.8% in 2010, with the Indian economy set to grow 8.5%. Southeast
Asia will grow 7.5% in 2010, up from the 7.4% forecast in September. The
forecast for the economies of the Pacific remains the same at 4.3% in 2010.
"The V-shaped recovery has run its course in emerging East
Asia and the challenge for the region is to put in place national policies that
will translate swift recovery into long-term growth," said Azis.
The ADB said risks to the outlook for the region are also higher than they
were six months ago. Policy challenges stem from the relatively weak recovery in
advanced economies, potentially destabilizing capital inflows, inflation and
asset price bubbles in some countries, and protectionism.