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ADBI News 2008 Volume 2 Number 2
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
ADBI is undertaking a study on Infrastructure gas). The study will examine both software and
and Regional Cooperation in close collaboration hardware issues affecting infrastructure and
with ADB headquarters. This study is the second regional cooperation.
ADB flagship study, following the Emerging Asian The study aims to serve as a definitive
Regionalism study, which was completed in May. knowledge product primarily for policymakers in
Infrastructure plays an important role in the region. It is intended to provide policymakers,
promoting rapid economic growth in Asia and concerned officials from private and public sectors,
making the growth more inclusive by allowing its and other experts involved in Asian infrastructure
benefits to be shared with poorer groups and with information and guidance on key issues
communities, particularly in remote areas and concerning developing regional infrastructure
small and landlocked countries. Infrastructure can projects through regional cooperation. It will
also facilitate the access of the poor to basic contribute to the ongoing dialogue on regional
services and help to increase their capacity for economic cooperation in Asia. The study will
generating income. The rapid economic growth in attempt to outline what the region needs to address
several major developing countries has caused in terms of policies and best practices to meet these
huge and visible pressure on infrastructure. Lack of challenges.
adequate infrastructure can hinder potential The study is being undertaken in two segments
growth, weaken international competitiveness, and and will be published in a two-volume book. The
hamper poverty reduction efforts. Regional first segment is currently engaging experts to
cooperation can play a crucial role in meeting prepare around 20 discussion papers on relevant
infrastructure needs in Asia through formulating, topics falling under 4 broad themes: (i) trade and
financing, and implementing regional logistics; (ii) policies and institutions; (iii)
infrastructure projects and maintaining existing financing infrastructure; and (iv) transnational
infrastructure. infrastructure networks. It will also discuss policy
The objective of this study is to examine key recommendations. The second volume of the book
issues and challenges facing infrastructure and will be prepared based on selected discussion
regional cooperation in Asia. The study focuses on papers.
broad and cross-cutting issues through both The inception workshop for the study at ADBI
empirical and case studies. Examples of best on 1820 February 2008 brought the participation
practices will be drawn mainly from key sectors of 40 regional professionals and experts, organized
(sub-sectors) such as transport (roads, railways, a core study group for the project, and conducted
airways, and ports) and energy (electricity and brainstorming sessions. The authors of discussion
The inception workshop for the study was attended by 40 regional professionals and experts.
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
papers and book chapters presented their ideas for infrastructure in several groupings, including
discussion in order to refine them and ensure that Central Asia Regional Economic Cooperation, the
their research would be cohesive with the thematic Greater Mekong Sub-region, South Asia Sub-
components of the overall study. regional Economic Cooperation, and the Pacific.
Background papers highlighting the vision and The second workshop will be conducted in two
goals of infrastructure and regional cooperation in parts: one on financing infrastructure and policies
Asia were also presented by regional experts. and institutions to be held on 1213 June 2009 in
Experts from the United Nations Economic and New Delhi and another on trade and logistics and
Social Commission for Asia and the Pacific transnational infrastructure networks on 34 July
(UNESCAP) spoke on Pan-Asia highways, 2009 in Bangkok. At these events, the paper and
railways, and energy networks. Sub-regional chapter authors will present their drafts. The drafts
strategies for infrastructure and regional will be improved based on comments offered by
cooperation were also presented by ADB experts policymakers and experts from India and Thailand
with focus on issues and challenges of at the events.
A high-level conference on managing capital flows managing surges in capital inflows. One was
was held on 14 March 2008 as the third in a series making the fiscal policy stance countercyclical to
of conferences for the project Managing Capital surges in capital inflows to reduce the risk of an
Flows: Search for a Framework under the overheating economy and the appreciation pressure
umbrella of the ADBI-supported Asian Policy on the domestic economy. Second was the use of
Forum. The participants included senior officials of effective measures to control capital inflows,
the ministries of finance and central banks of bearing in mind the not-so-successful experience
ASEAN+3 and India, multilateral agencies, of Thai control introduced in December 2006.
academics, and members of the research team Another option could be organizing collective
consisting of international experts and prominent action at the regional level that can increase the
researchers from Asian think tanks. options available to individual countries. An
The participants discussed the projects findings example is regional exchange rate coordination,
thus far, noting that despite sizeable current where collective appreciation would spread the
account surpluses, many emerging Asian adjustment costs across Asia.
economies have received significant private capital Download papers from the project for free at
inflows (see Figure). www.adbi.org/research.managing.capital.flows.papers/.
Sterilization, a tool applied by
many emerging Asian economies Capital Inflows in Emerging Asia (in billion US dollars)
to prevent real exchange rate
appreciation and overheating, has
become increasingly costly as
foreign capital continues to flow
into these economies. Moreover,
results of country studies suggest
that such foreign exchange
intervention has had limited
effectiveness in preventing real
appreciation over the medium
term, as inflation eventually picks
up. An alternative policy
response discussed was
establishing a credible reserve-
sharing arrangement at least at
the regional level. Note: THA=Thailand, SIN=Singapore, KOR=Republic of Korea, PRC=Peoples Republic of
China, MAL=Malaysia, VIE=Viet Nam, INO=Indonesia, IND=India
The participants also Sources: Balance of Payments Statistics (International Monetary Fund), World Development
discussed other options for Indicators (World Bank).
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
Note: GDP figures are expressed in US dollars at market exchange rates.EU 4 includes France, Germany, Italy and the United Kingdom.
Source: Wolfensohn Center for Development at Brookings.
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
finance minister level, has developed into a valueswhich focus on nation-states and national
representative and effective forum that will be power politics and promote singular economic
geographically and culturally diverse and broadly models and political valuesto new order global
representative of global population distribution, values that focus on global society and new
economic weights, and geography. multilateralism and accept the coexistence of diverse
Finally, Mr. Linn introduced a new set of global models of market economy and political systems.
values for better global governance, which is Read a more detailed summary of Mr. Linns lecture at
important to make the shift from the old order global www.adbi.org/event/2493.linn.distinguished.speaker/.
Vito Tanzi, former State Undersecretary for shifted upward from national governments to
Economy and Finance, Ministry of Economy and international or global institutions.
Finance, Italy and former Director, Fiscal Affairs Mr. Tanzi noted that in the period following
Department, International Monetary Fund, World War II, national governments faced
delivered a seminar on the future of fiscal increasing pressure to maintain economic stability
federalism on 20 February 2008. Focusing on the and to provide their citizens with essential public
creation of supranational institutions to manage services. The size of the government grew rapidly,
externalities associated with the globalization of as did its power and economic role.
economic activities, Mr. Tanzi argued that The central governments growing size and
responsibilities and powers are being progressively rising share of public spending in the GDP,
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
Over 30 senior officials and members of the access to new technology the private sector offers
Central Asia Regional Economic Cooperation to the CAREC region.
(CAREC) trade and infrastructure sector Takehiro Hashimoto, Division Director,
coordinating committees participated in an ADBI Macquarie Japan, the seminars keynote speaker,
seminar on Private Sector Participation and underlined the enormous interest of the private
Investment in Physical Infrastructure for sector in global infrastructure investments as
CAREC in Tokyo, 57 March 2008. ADBI demonstrated by the huge increase in the number
organized the seminar in coordination with ADB of infrastructure investment funds worldwide.
headquarters, and with the collaboration of the Drawing on Macquaries extensive infrastructure
European Bank for Reconstruction and experience in Asia and worldwide, Mr. Hashimoto
Development, the Islamic Development Bank, the provided a private sector investors perspective
World Bank, and a number of private sector of the main challenges to accelerating the
organizations representing investor interests. publicprivate partnership process and the
Masahiro Kawai, Dean of ADBI, in his opening development of a bankable pipeline of projects
address, highlighted the dynamic transformation for the CAREC region.
and remarkable economic growth experienced by The seminar aimed to enhance the
the CAREC region over the last two decades. He understanding of participating senior policymakers
emphasized that infrastructure development and of the benefits and main challenges to achieving
the policy reform efforts now underway by many greater PPPs for infrastructure development across
countries in the CAREC region, particularly those the CAREC region. The participants reviewed the
to improve governance and encourage private links between infrastructure development and
sector development and investment, will be economic growth and poverty reduction, and
important drivers for sustaining this strong assessed the infrastructure financing challenges
economic performance in the medium to long term. faced by the CAREC region. They focused on the
Sean OSullivan, Deputy Director General of opportunities and advantages PPPs offer, the
ADBs Central West Asia Department, welcomed modalities that have evolved, and the key policy
the CAREC delegates and underlined the issues that need to be addressed by governments in
importance of connectivity for the CAREC region. the region for projects to be bankable. They also
He highlighted the need to further accelerate reviewed energy and transport case studies to
infrastructure development across the region to determine those points of project design or
improve connectivity, expand trade and access to negotiation that enabled the deal to be successfully
markets, and support broader economic growth. Mr. concluded or resulted in a breakdown of the deal
OSullivan pointed out the important role for the process. Each of the eight CAREC country
private sector to support infrastructure development delegations, through facilitated group sessions, was
in CAREC. In addition to recognizing the potential able to identify those priority policy issues that
private sector financing offers to expand investment need to be profiled in their respective countries to
currently sourced by CAREC country governments, strengthen the PPP enabling environment and
Mr. OSullivan placed significant emphasis on the better enable a pipeline of bankable infrastructure
extensive infrastructure management expertise and projects to be developed for the CAREC region.
View speeches and seminar materials at www.adbi.org/event/2485.infrastructure.carec/.
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
ADBI and the Organisation for Economic Co- advanced significantly with total local currency
operation and Development (OECD) held their bonds outstanding expanding from US$400 billion
ninth roundtable on capital market reform in Asia, in 1997 to US$3 trillion at end-June 2007. During
entitled Ten Years after the Financial Crisis: the same period, the share of corporate bonds rose
Prospects towards the Future, on 2627 from 28% to 41% of total local currency bonds.
February 2008 at ADBI. The series started in 1999 East Asian equity markets also expanded
as a forum for discussion on issues related to substantially with their market capitalization
capital market reform in Asia. The opening increasing from about US$840 billion in 1997 to
remarks were given by Masahiro Kawai (Dean, US$4.7 trillion in 2006 with initial public offerings
ADBI), Adrian Blundell-Wignall (Deputy Director, reaching US$66 billion in 2006. Capital market
Directorate for Financial and Enterprise Affairs, development has also benefited from regional
OECD), and Andrew Sheng (Chief Adviser, China initiatives such as the (ASEAN+3) Asian Bond
Banking Regulatory Commission). About 60 Markets Initiative and the Interlinked ASEAN
participants representing capital market authorities, Security Market Initiative.
ministries of finance, central banks and monetary Infrastructure investment needs for Asia and the
authorities, and the private sector from selected Pacific were estimated at US$228600 billion a
OECD and East Asian countries participated. year, with a financing gap of US$180200 billion.
The participants discussed the recent With limited fiscal space, filling this financing gap
development of Asian capital markets, best would require an increase in private sector
practices in capital market regulation and corporate investment through publicprivate partnerships.
governance, progress of regional initiatives for Capital market can support publicprivate
capital market development and integration, the partnerships by facilitating access to financing by
roles of capital markets in supporting private sector investors, including through
publicprivate partnerships in infrastructure infrastructure funds.
investment, and the challenges of mitigating Despite significant advances in financial and
financial market turbulence. capital market development, the United States
Significant progress has been made on capital subprime crisis highlighted the remaining need for
market reforms, including adoption of international (i) better understanding and monitoring of the
standards and market practices, adoption of risks involved in the securitization process, (ii)
national capital market master plans, and the greater transparency and disclosure, (iii) better
streamlining of regulatory infrastructure to risk assessment/management by financial
enhance surveillance and enforcement. institutions, and (iv) closer coordination among
Bond markets in emerging East Asia have policymakers.
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
More than two billion people in the world depend also be harmful. In addition, the ability of biofuels
on agriculture for their livelihood. In Asia, where to reduce greenhouse gas emissions is unclear.
poverty is largely a rural phenomenon,
governments are in a constant search for effective Development Implications
strategies to develop agriculture. Two important
recent developments have emerged: organic crops Assessment of the poverty impacts of organic rice
and energy crops (biofuels). Because both and energy crops such as jatropha and cassava
developments are taking place largely in marginal revealed that both types of crops would lead to
areas where the majority of the poor reside, income improvement for poor farmers. Since the
poverty and environmental implications from these areas in which the two are grown do not overlap,
two activities appear to be significant. A recent both could be simultaneously promoted in
discussion paper by Anil Markandya and Sununtar marginal areas although much research is still
Setboonsarng, titled Organic Crops or Energy required for energy crops. Promoting organic
Crops? Options for Rural Development in farming of rice would lead to more significant
Cambodia and the Lao Peoples Democratic poverty reduction than promoting energy crops. In
Republic, examines the prospects of the two addition, promoting energy crops under
strategies. smallholder programs could have higher poverty
impact than under concessionaire programs.
Pros and Cons of Organic Agriculture Since the present agricultural environment in
both countries studied is generally regarded as
The growth of organic agriculture has been driven clean with a low level of chemical inputs,
by increased concerns regarding food safety and producing safe food for a high-value market may
the negative environmental consequences of high be better than intensifying agriculture through
external input agriculture. The organic agriculture conventional methods and attempting to compete
sector has been growing rapidly in recent years with more developed countries. Assistance from
(see Figure). external organizations will be critical for the
Besides price premiums, organic agriculture successful expansion of either organic agriculture
offers advantages including improved soil fertility, or biofuels.
enhanced biodiversity, improved health from the
absence of chemical pesticides, and reduced
greenhouse gas emissions, and can even reduce Global Organic Food Market
atmospheric carbon by absorbing carbon and
keeping it in the soil.
Although critics of organic agriculture worry
that it could lead to lower yields, recent research
showed that in marginal areas, organic practice led
to increased yields.
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A s i a n D e v e l o p m e n t B a n k I n s t i t u t e
While East Asia is better prepared to adjust to could cascade to emerging East Asian
economic downturns in the United States and other economies.
industrialized countries, the region faces three key
risks, ADBI Dean Masahiro Kawai explained in 2. Risk of a continued rise in oil and food
his keynote speech at the NEAT Conference on prices. With precarious supply conditions and
East Asian Financial Cooperation on 12 April inventory rundowns, further oil price increases
2008. To prepare for such risks, East Asian remain a possibility. The recent hike in the price
economies need to strengthen regional financial of rice, the main staple of the region, also raised
cooperation. anxiety across East Asia, highlighting the urgent
need to address medium- to long-term food
1. Risk of a sharper and more protracted security. With oil, food, and other commodity
global slowdown. This could be driven by a prices at record highs, any further increases in
deeper and more prolonged recession or costs could trigger persistent price inflation that
slowdown in the United States than expected. can generate a wage-price spiral.
The negative international spillovers from such
a downturn could dampen growth prospects in 3. Risk of a surge in short-term capital inflows.
many industrialized countriesincluding This could cause upward pressure on the value
Europe and Japan. From there, the impacts of regional currencies. Several countries
including Thailand and Viet Nam
had been experiencing excessive
capital inflows until the US
subprime crisis broke out. As the
US financial system restores its
stability and the credit crunch
eases, capital inflows to East Asia
may resume and in a massive way.
These inflows will generate
significant appreciation pressure
on East Asian currencies. If not
managed properly, this can cause
macroeconomic and financial-
sector instability.
Read Mr. Kawais speech at
A continued rise in commodity and energy prices could threaten macroeconomic www.adbi.org/speeches/2008/04/12/2525.
stability throughout Asia and the Pacific. us.subprime.fallout.east.asia.economy/.
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