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ADBI News
2011 Volume 5 Number 3

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Are Asias Actions Sufficient to Limit Global Warming?

FLAGSHIP STUDY

ADB Vice President Bindu N. Lohani, Columbia University Professor Jeffrey Sachs, and ADBI Dean Masahiro Kawai at the first technical workshop for the ADB-ADBI flagship study on Climate Change and Green Asia, held in Bejing on 1314 June.

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Asias emerging economies do not produce most of the worlds greenhouse gas emissions, their rising output accounts for the largest share of the projected global increase. Governments in the Asia-Pacific region have reached a consensus on the need for deep cuts in emissions over the coming decades and are working toward an international agreement to achieve this objective. As part of the ADB-ADBI flagship study on Climate Change and Green Asia (CCGA), a technical workshop was held in Beijing on 1314 June to assess Asias Progress in Tackling Climate Change and Promoting Green Growth. Interim results of the 20 background papers being prepared for the study were presented by leading think tank experts at the workshop. They show that Asias emerging economies may be facing a number of development challenges, but they are also adopting dynamic and pro-active low carbon green approaches that will pay dividends. The benefits of emission reductions are difficult to quantify, but, when non-market impacts and co-benefits such as cleaner air and improved energy security are factored in, robust action makes good fiscal sense for Asias emerging economies. About 15 policymakers who joined the workshop agreed that if the highest ambitions of all

Asian countries associated with the voluntary pledges are implemented, annual emissions could be cut to a safer level. The cost can be minimized if effective policy instruments, with a focus on carbon pricing, were applied across all emission sources, including all countries and sectors. Setting national or sector-level targets, expressed as levels per unit of economic output, is one way of encouraging emerging economies to reduce emissions without undermining growth,

In this issue
Emerging Economies and Climate Change 12 Role of Key Emerging Economies 2 New Trade Policy Challenge 3 Restart Doha Round 3 Asian Currencies Section 45 Recent Publication 5 South-South Cooperation 6 Distinguished Speaker 6 Selected Events 7 Recent Working Papers 7 The Rich Universe of Microfinance 8
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which was the key message of Prof. Jeffrey Sachs of Columbia University, who made a special presentation on the subject. He said that a technology road map must be developed for each country and sector to augment the effectiveness of public and private funding aimed at cutting emissions. The flagship studyan unprecedented partnership between ADB-ADBI and 25 think

tanks of the regionaims to develop an effective policy framework based on the principles of equity, market orientation, and regional cooperation to accelerate Asias shift to low carbon, green development. I
For more information on this workshop and ADB-ADBI flagship study, please visit: www.adbi.org/event/4554.adb.adbi.eri.workshop/.

The Role of ASEAN, the Peoples Republic of China, and India for a Balanced, Sustainable, and Resilient Asia
The growth of Asia, and to some extent of the world, is being driven by the ACI economies of the Association of Southeast Asian Nations (ASEAN), the Peoples Republic of China (PRC), and India. If the remarkable expansion of the ACI economies continues, they are likely to triple their per capita incomes, which will bring the majority of their people out of poverty by 2030. However, the path to success is not pre-ordained because ACI economies face many risks and challenges, such as improving the economic well-being of their citizens; alleviating the middle income trap and inequalities in human development, health care, education, and job opportunities; developing the financial sector; managing food, energy, water, and other resources; improving infrastructure; tackling rapid urbanization; and promoting environmentally sustainable, balanced, and resilient growth. To see where the ACI economies are headed, ADBI and ADB headquarter departments have joined forces to embark on an extensive study of the Role of Key Emerging EconomiesASEAN, PRC, and India (ACI)for a Balanced, Sustainable, and Resilient Asia. The study aims to examine and assess various economic, social, and policy issues that these economies must tackle

MAJOR STUDY

to address developmental challenges up to 2030. The initial findings of the study show that ACI economies will need new growth engines, major investment, effective policies, and political cohesion to realize the promise of the Asian century. ASEAN, the PRC, and India are expected to comprise more than half of the worlds population and economic growth in the coming decades, so their policies and strategies will define, first, whether they will enjoy cooperative or competitive relations with each other, and second, how they will affect world markets and global resources. To seize the opportunity of the great transformation of Asia, the ACI economies must take a multi-layered approach to decision-making and cooperation at the regional and global levels. To sustain growth, greater economic resilience based on flexible markets and institutions, policy space for emergencies, and efficient national and regional institutions will be essential. Regional and global cooperation in trade, investment, national and regional infrastructure connectivity, and disaster management is needed to sustain and improve ACIs competitiveness and productivity. To succeed in creating a balanced, sustainable and resilient Asia, the ACI economies will have to capitalize on their past experiences, learn from advanced nations, and leverage the energy, knowledge, and talent of their people. I
As a part of this study, ADBI is also undertaking two other studies: (i) ASEAN 2030: Growing Together for Shared Prosperity to examine the prospects and challenges for ASEAN member countries beyond the creation of the ASEAN Economic Community in 2015; and (ii) The Implications of the Rise of ASEAN, the Peoples Republic of China, and India for the World Economy to understand how the rise of the ACI economies will affect other segments of the world economy and how to ensure a harmonious and peaceful rise of Asia and the rest of the world.
For more information on this workshop and ADB-ADBI flagship study, please visit: www.adbi.org/event/4338.emerging.asia.2030.challenges/.

International and regional policymakers, academics, scholars, think tanks, private sector experts and ADBI/ADB staff meet for the ADBI/ADB study on the Role of Key Emerging EconomiesASEAN, PRC, and Indiafor a Balanced, Sustainable and Resilient Asia

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Meeting the New Trade Policy Challenge

With global trade patterns in flux, governments across Asia and the Pacific face a range of challenging new issues: What are the impacts of the global financial crisis on national trade policy? How do the stalled Doha Round trade talks affect strategic policy decisions? What are the implications of the rapid spread of free-trade agreements (FTAs)? How can countries position themselves for success amid the gathering momentum behind large intra- and inter-regional FTA proposals? As officials work through these questions, regional trade negotiations are becoming increasingly complex. Dealing with traditional tariff and non-tariff barriers is no longer enough. Successfully concluding modern trade agreements requires insight and expertise on a range of new issues including investment, competition, government procurement, intellectual property rights, environment, and labor standards. More than 50 middleand senior-level trade officials from 29 countries across Asia and the Pacific attended the workshop New Issues in Trade Policy: Challenges and Responses from Asia at Harsha Vardhana Singh, ADB Headquarters in Deputy Director General, WTO, Manila, Philippines, on addresses the workshop (Photo Credit: Eric C. 2226 August to get a Sales/ADB) critical overview of key

WORKSHOP

trade policy issues facing Asia and examine their implications with peers and experts from around the region. Topics examined included: The dynamics of trade and production networks, recent developments in the Doha Round and at the World Trade Organization, new issues in trade policy (government procurement, intellectual property rights, labor, environment) with a focus on implications for the Asia-Pacific region, and approaches to a region-wide FTA in Asia. In a special address to the workshop, Harsha Vardhana Singh, Deputy Director General at the World Trade Organization, noted the significant challenges facing the Doha Development Round negotiations. The way out requires leaders and policymakers to recognize that the multilateral system is essential for seeking national solutions, he said. Mr. Singh said a three-pronged effort is required to build on the global trade system. First, keep the present multilateral trading system strong and effective. Second, build on the existing structure, such as through the Doha Round negotiations. And third, policymakers must remember they are operating in an ever more interactive and inter-dependent world. The workshop was developed by ADBI and ADBs Office of Regional Economic Integration as the first capacity development program of the Asian International Economists Network (AIEN at www. aienetwork.org). I
For more information on the workshop see: www.adbi.org/ event/4621.asia.trade.policy.challenges.issues/.

How to Restart Services Negotiations?

How can the stalled Doha Round of negotiations in services be restarted? The ADBI-PECC Conference on Services Trade: New Approaches for the 21st Century at the Chinese University of Hong Kong on 13 June aimed to answer that question. The conference focused on how multilateral rules in services can be made more attuned to the 21st century business realities where services are playing an increasingly crucial role. Scholars, policymakers, and private sector representatives discussed options on fixing the General Agreement on Trade in Services (GATS) and developing options that would eliminate architectural weaknesses in the agreement, including having a stand-alone services accord as a potential GATS Plan B. The conference looked at the weaknesses of GATS and domestic factors that contribute to the difficulty of

CONFERENCE

services trade negotiations. Weaknesses of the services negotiation include: exclusion of investment and competition policy, which is tightly connected with services; unreadability and uncertainties in the interpretation of the GATS text and schedules; mercantilist approach in the request-offer modalities and public opacity of services offers; slowness of the incremental approach; and absence of regulators from the negotiating table. The domestic factors include a lack of information on the services economy; policy uncertainty that leads to negotiators over-defensiveness; lack of domestic regulatory reform impetus; and the absence of coordinated domestic strategies for services development. I
For more information on the conference see: www.adbi.org/ event/4375.adbi.pecc.regional.trade.investment.services/.

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Asian Currencies Section

The Yens Fetters: A Comparative Study of the Macroeconomic Performance of Japan in Asia
Professor Koichi Hamada, Tuntex Professor of Economics at Yale University and Professor Emeritus at the University of Tokyo, delivered a lecture on The Yens Fetters: On the Comparative Performance of Japan and Asian Countries at ADBIs Distinguished Speaker Seminar Series on 5 August 2011. Prof. Hamada said that Japan suffered little from the Lehman crisis that started in 2008 in the United States (US) and spread to Europe. Central banks in the US and Europe expanded the money supply or their balance sheets while the Bank of Japan did not follow suit. Japan accordingly

DISTINGUISHED SPEAKER

experienced a drastic real and nominal appreciation of the yen, and its indices of industrial production declined more sharply than the countries that were engulfed by the Lehman shock. He examined Asias economic policies and growth since January 2007 and found the following: India; Indonesia; the Philippines; the Republic of Korea; and Taipei,China; which expanded their money supply, experienced real currency depreciation and an increase in production; the Peoples Republic of China, Singapore, and Thailand, which expanded their money supply, experienced real currency appreciation and a rise in production; Malaysia, which expanded its money supply, saw real currency appreciation and a decline in production; and Hong Kong, China, which expanded the money supply, experienced real currency depreciation and a drop in production. Japans policy reactions and macroeconomic performance, Prof. Hamada concluded, appear to be an outlier when compared with other developed nations and most Asian economies. He attributed Japans sluggish growth to inappropriate monetary and exchange policies. I
For more information see: www.adbi.org/event/4667.hamada.distinguished.speaker/.

Professor Hamada gives his view on Japans policy reactions to the global financial crisis.

Internationalization of the Renminbi

Professor Yu Yongding, former director-general of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, delivered a lecture on the internationalization of the renminbi at ADBIs Distinguished Speaker Seminar Series on 17 June 2011. The Peoples Republic of China (PRC) aims to promote the internationalization of the renminbi to eliminate Chinese firms exposure to exchange-rate risks, improve funding efficiency for Chinese financial institutions to boost their competitiveness in the global financial markets, reduce transactions costs that will spur trade with its neighbors, lessen the need to hold huge foreign exchange reserves, and eventually make the renminbi one of the
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Professor Yu gives his take on the prospects for the internationalization of the renminbi.

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worlds major reserve currencies. The PRC made an important step toward the goal of internationalizing its currency when it announced a pilot Renminbi Trade Settlement Scheme in 2009. Prof. Yu said that the biggest success of the PRCs efforts at internationalizing its currency is the surge in renminbi deposits in Hong Kong, China, which has happened mainly on the anticipation of significant renminbi appreciation in the near term. Because of the expected appreciation, the internationalization of the currency has created a clear pattern of asymmetry. For example, foreign exporters tend to accept payments in renminbi, but foreign importers do not want to pay Chinese exporters in renminbi. One negative result of

renminbi internationalization is the PRCs burgeoning foreign exchange reserves, which the renminbi internationalization aims to reduce. In conclusion, Prof. Yu said that pushing renminbi internationalization using artificial incentives before reforming the domestic financial markets will undermine the stability of the PRCs financial system. Liberalizing the domestic interest rate and making the exchange rate flexible should take precedence over renminbi internationalization. As history shows, a countrys ambition to internationalize its currency can happen only after capital account liberalization has occurred. I
For more information see: www.adbi.org/event/4588.yongding.distinguished.speaker/.

Recent Publication
ADBI-NEAR book: The Global Financial Crisis, Future of the Dollar, and the Choice for Asia
This book contains papers delivered at the conference The Global Financial Crisis, Future of the Dollar, and the Choice of Asia held in Seoul, Republic of Korea, on 1 June 2009. It also contains verbatim records of the round table discussions at the conference. The participants candid comments on such topics as the economic rise of the Peoples Republic of China, the future of the dollar as a reserve currency, and the prospects for economic recovery offer valuable insights into the thinking of leading scholars and policymakers as Asia worked to recover from the global financial crisis that had begun two years earlier. The crisis has generated many important debates and posed several major challenges for the world economy and Asia. It has raised the questions of whether the United States (US) will be able to remain the central economic power in the postcrisis period, and whether emerging Asia with the Peoples Republic of China, India, and ASEAN at its core will play a much bigger role in the world economy. The crisis has also cast doubt on the future role of the US dollar as the most dominant key currency and it has increased concern that the US dollar may not be strong forever. Asia needs to E-newsline Brings Asia to Your Inbox
For a daily wrap up of development news and events in Asia, subscribe free to ADBIs e-newsline. Concise summaries of news, opinions, and editorials from an Asian perspective are delivered daily to your inbox. To learn more about e-newsline and to subscribe, visit: www.adbi.org/e-newsline/. 5

be prepared for eventual dollar depreciation, beginning with a serious discussion about regional exchange rate policy coordination. Asian countries need to discuss how Asian cross rates can remain relatively stable in the event of a sharp and rapid depreciation of the US dollar against Asian currencies. From the perspectives of preserving macroeconomic and finance sector stability and securing international price competitiveness, coordinated currency appreciation is highly desirable. Collective currency appreciation in Asia can also facilitate the regions growth shift away from excessive export dependence on the US market towards growth led by regional demand and the nontradables sector. The introduction of an Asian currency unit, consisting of the ASEAN+3 currencies and the Hong Kong dollar, will be useful in strengthening the regions policy dialogue for greater exchange rate policy coordination. The volume aims to identify key policy measures to be taken by Asian governments to achieve stable and sustainable economic growth for all. I

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Identifying Good Practice in South-South Cooperation

The global development aid architecture is changing rapidly. New players, new issues, and new approaches are driving a reassessment of the way aid is delivered. The potential of South-South and Triangular Cooperation to transform approaches to capacity development is among the key opportunities being explored to reinvigorate existing aid relationships. ADBI is working with the global Task Team on South-South Cooperation to help identify good practices in South-South knowledge exchange and formulate policy recommendations on scaling-up South-South initiatives for consideration at the 4th High-Level Forum on Aid Effectiveness in Busan, South Korea, in late 2011. The Task Teams analytical work is centered on the development of case stories and case studies documenting the experience of recent and ongoing South-South Cooperation initiatives. More than 150 case stories have been gathered from governments, civil society and multilateral organizations around the world; and 31 in-depth case studies are under way. On 1516 June case study authors from Asia and Latin America participated in the South-South Knowledge Exchange: Global WorkshopTowards Good Practices for Busan in Bangkok, Thailand. The Task Team will finalize its inputs to the 4th High-Level Forum in September when policymakers, practitioners, academia, and other stakeholders gather to identify key policy messages from the case study findings. I

Southern academia are leading case studies on South-South Cooperation initiatives (Photo Credit: Adik Bandoro). For more information on this workshop see: www.adbi.org/ event/4623.south.south.knowledge.exchange.workshop/.

Towards an ASEAN Economic Community

The Association of Southeast Asian Nations (ASEAN) seeks to establish an ASEAN Economic Community (AEC) by 2015. Will it be in place by 2015 as planned? Visitors to an ADBI Distinguished Speakers Seminar titled ASEAN Economic Integration Issues and Challenges on 3 August heard one of the central actors in the AEC process, ASEAN Secretary-General Surin Pitsuwan, deliver his views on the state of play. He pointed out that ASEANs important role in the region is not by choice but by necessity. Expediting AECs establishment to 2015, from its original 2020 target, reflects the aspiration of ASEAN leaders to quicken economic integration and to meet the challenge of the erosion of ASEANs competitiveness on the emergence of the Peoples Republic of China and India, as well as to maintain ASEANs centrality amid the proliferation ASEAN Secretary-General Surin of FTAs that the Pitsuwan sets out the ASEAN Economic Communitys challenges. groups members
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have concluded with other trade partners (which in several cases aim at complete market liberalization before 2015). While the mitigation of tariff barriers may be attainable, the introduction of a common regulatory structure to govern the single market and production base may require more time than expected, as various pressure groups and national interests may clash over the harmonization of rules or the definition of new ASEAN standards. The liberalization of investment and service trade, the lifting of non-tariff barriers, and the introduction of a dispute-settlement mechanism may require more time than the few years that remain before the 2015 deadline. The slow progress in creating a regional bureaucracy to govern emerging ASEAN-wide markets highlights the need to strengthen ASEAN's institutional processes. To monitor progress toward 2015, ASEAN has developed a scorecard system to make transparent each members performance in fulfilling commitments. The seminar tied in closely with one of ADBIs research projects, ASEAN 2030. (http://www.adbi.org/ asean.2030/) I
For more information on this event see: www.adbi.org/ event/4671.pitsuwan.distinguished.speaker/.

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Selected Events

17 November 2011 30 November 2011 2 December 2011 1819 January 2012

New Thinking on Social Security in Asia (Tokyo) The conference is to highlight emerging themes in pension reform and their implications for Asia. ADBI-ASAHI Shinbun Joint symposium on Implications of the Rise of ASEAN, Peoples Republic of China and India (ACI) for Japan (Tokyo) The symposium will provide a forum for discussing with policymakers of the ACI economies and Japan policies and strategies that can best achieve a harmonious and peaceful Asia. ADBI, Tokyo, Reform of the International Monetary System (Tokyo) The conference will discuss what reforms and innovations are needed to reform the international monetary and financial system to promote financial stability and sustainable economic growth for emerging economies. ADBI-OECD Conference on Services Trade in Selected Sectors: Audiovisual services, Higher Education, and Financial Services (New Delhi) This conference will discuss the regulatory environment in which service providers operate and the trade barriers that confront them in Asian markets.

Recent Working Papers

Institutions for Economic and Financial Integration in Asia: Trends and Prospects
Author: Giovanni Capannelli
The author discusses how Asias institutional architecture for economic and financial integration is taking shape, suggesting the need to strengthen existing institutions that promote Asian regionalism and to create new ones.
Read Working Paper 308 at www.adbi.org/working-paper/ 2011/09/07/4689.economic.financial.integration.asia.trends. prospects/.

Information Disclosure Strategies for Green Industries

Authors: Venkatachalam Anbumozhi, Qwanruedee Chotichanathawewong, and Thirumalainambi Murugesh

The authors review the economic and legitimacy theory behind environmental information disclosure and analyze the current practice and programs adopted in industrialized and industrializing countries.
Read Working Paper 305 at www.adbi.org/working-paper/ 2011/08/22/4678.info.disclosure.strategies.green.industries/.

Bond Market Development in Asia: An Empirical Analysis of Major Determinants

Author: Biswa Nath Bhattacharyay
The author identifies the determinants of bond market development in Asian economies, through examining its relationship with selected key financial and economic factors, and provides policy recommendations for further developing Asian bond markets.
Read Working Paper 300 at www.adbi.org/working-paper/ 2011/07/28/4659.bond.market.development.asia/.

Understanding the Impact of the Economic Crisis on Child and Maternal Health among the Poor: Opportunities for South Asia
Authors: Azra Abdul Cader and Lakwimashi Perera
The authors provide an overview of child and maternal health in the South Asia region and recommend that interventions take into account a series of factors if the impacts of the economic crisis are to be minimized.
Read Working Paper 293 at www.adbi.org/working-paper/ 2011/07/01/4624.impact.economic.crisis.child.health.poor/.

The Great Liquidity Freeze: What Does It Mean for International Banking?

Authors: Dietrich Domanski and Philip Turner (WP 291)

The authors examine why the funding crisis that followed the bankruptcy of Lehman Brothers in September 2008 was so much worse than other past major bank failures and why it has proved so hard to cure.
Read Working Paper 291 at www.adbi.org/working-paper/ 2011/06/24/4619.great.liquidity.freeze.intl.banking/.

The Role of Macroprudential Policy for Financial Stability in East Asias Emerging Economies
Author: Yung Chul Park
The author analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies.
Read Working Paper 284 at www.adbi.org/working-paper/ 2011/05/26/4556.macroprudential.policy.financial.stability. east.asia/.

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The Rich Universe of Microfinance

financial inclusion has jumped to the top of the international agenda. It is imperative to minimize the adverse effects on poor people of the global financial crisis, which originated in the United States, the United Kingdom, and a few other European countries, which had highly developed and sophisticated financial markets but lacked effective financial Lili Wang addresses the ADBI-AFDC-ABAC International Seminar on Financial Inclusion supervision and regulation. for Central Asia, the Caucasus, and South Asia, held in Urumqi, PRC, 1214 July 2011. The evidence shows that microfinance can be a powerful tool for improving At their November 2010 Summit in Seoul, G-20 financial inclusion and poverty reduction. leaders said that financial inclusion is fundamental Microcredit can finance micro and small for improving the livelihoods of the poor and in entrepreneurship. Microsavings can provide a safe supporting micro-, small- and medium-sized and profitable way of storing savings for poor enterprises as engines of economic growth and job households. Microtransfers can allow migrants to creation. And at their Kyoto meeting in 2010, send money home safely and cheaply. APEC Finance Ministers launched a Financial Microbanking can help the poor, whose incomes Inclusion Initiative to identify concrete actions that are often irregular, better manage their daily lives. financial policymakers can take to expand the And microinsurance can facilitate risk reach of financial services to the underserved. management for small farmers and micro and It was with this inspiration that the ADBI small enterprises. recently organized two policy dialogue events on Discussions at these two policy dialogue events financial inclusion issues. The first was organized focused on the effective institutions and sound and with the Shanghai-based Asia-Pacific Finance and well implemented regulation that are crucial to Development Center, and addressed financial enable microfinance markets to function inclusion in Central Asia, the Caucasus, and South efficiently, notably in areas such as credit Asia. The second was held in partnership with the information, legal frameworks, and consumer APEC Business Advisory Council, and dealt with protection. Another theme was the importance of the challenges facing the Asia-Pacific region. close partnerships between government, business, Financial inclusion is one aspect of inclusive and nongovernment organizations to facilitate the growth, which requires high and sustainable development of microfinance. I growth to create economic opportunities, and social inclusion to ensure equal access to those For more information visit: www.adbi.org/event/4516.adbi.afdc.abac.seminar/. opportunities. Over the past couple of years,
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ADBI News reports quarterly on the activities of the Asian Development Bank Institute. The views expressed in this newsletter do not necessarily reflect the views or policies of the Asian Development Bank Institute or the Asian Development Bank. Materials may be reprinted with credit given to ADBI News. To send comments or to request a free subscription, e-mail adbinews@adbi.org; fax a message to +81-3-3593-5571; or write to ADBI News, Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. For the web version, go to www.adbi.org/newsletter/.