Panelists at an ADB seminar held on Friday where they address many issues of Asian countries including challenges of moving up from low to high income position. — Photo Courtesy of ADB
How can Asian countries continue an impressive economic growth to move from a low-income to middle-income position, a seminar held by the Asian Development Bank heard on Friday.
According to the Asian Development Outlook 2017 produced by the Asian Development Bank, as of 1991, more than 90 per cent of Asians lived in low-income economies, but now the vast majority of the region’s population lived in middle-income countries, presenting a remarkable turnaround.
The region’s strong growth seen in recent years has been motivating optimism about its ability to reach high income. However, the transition from middle-income to high income will not be driven by the same factors that lifted economies out of low income, the report highlighted.
ADB’s Governor for Indonesia-cum-Indonesian Minister of Finance Sri Mulyani Indrawati said that Asia had adopted good policies for the past 50 years, "but it does not mean that it will be a shock-free or crisis-free region".
She said that most of the Asian countries were pursuing the model of export-oriented and investment-led growth. They were getting rich by their trade openness and competitive advantages as they were using labour-intensive manufacturing while paying low wages.
However, to successfully move up to a higher ladder of development, the countries would need to improve their productivity by investing more in human capital and education.
“It is not only about increasing your budget spending in education, but also about how you design the education system to allow an improvement in skills,” Indrawati said.
ADB chief economist Yasuyuki Sawada, who is also the Director General of ADB’s Economic Research and Regional Cooperation Department, told a Viet Nam News reporter that the key determinant for Asian countries to avoid being trapped in the middle-income category would be to foster productivity to sustain economic growth.
According to Sawada there are three productivity-enhancing factors, including innovation and technological progress, human capital quality, and advanced infrastructure.
As an economy matures, productivity growth has to come increasingly from innovation. Therefore, it is necessary for middle-income economies to shift their attention to areas that foster innovation and create positive productivity spill-over.
He suggested that middle-income countries should learn lessons from some Latin America countries such as Brazil which is considered to have fallen into the middle-income trap, as well as learn from success stories like South Korea of which the road to high-income spanned only 23 years.
Good governance
Besides productivity, Indrawati added, “governance and quality of an institution is very important to ensure that countries avoid the middle-income trap.”
Change in governance and institution has not matched up with the expectations of the public sector, thus the trust in the public sector in government is at the lowest level.
The role of governments is very important. “It can become a source of a problem but also be a real facilitator for the countries to move up,” Indrawati said.
To gain public trust, “from my own experience, you have to show you really mean it. You have to clean staff with being seen as corrupt, create an open business process and increase accountability by asking outside stakeholders to watch, criticise and supervise you.”
ADB’s Alternate Governor for India Shaktikanta Das agreed with Indrawati saying that Asian countries’ governance and institution have to be strengthened and structural reform measures need to be undertaken.
Das, who is Secretary at the Department of Economic Affairs in the Indian Ministry of Finance, gave an example that India has reduced human interface in all tax authorities by using online procedures and simplifying rules.
He said that Asian governments should focus on three other areas in the years to come to remain where they are, to grow further, and to lift living conditions of people.
First, they need to continue anti-poverty programmes. Second, they should focus on infrastructure enhancement. Thirdly, they need to reorient public expenditure with a focus on areas providing good growth and creating more employments because governments in the region cannot borrow excessively and increase their debt to GDP ratio.
He also urged each Asian country not to retreat into a shell of protectionism because opening trade over the last two decades really helped global growth and Asian development.
ADB’s Governor for Norway Tone Skogen noted that the private sector is an instrument driving development so, “We need to make sure of a conducive business environment with long-term and predictable framework for the private sector to invest and create jobs.”
The seminar themed "Lessons from 50 years of Asian Development and Implications for the Future" was held on the sideline of the ADB's 50th Annual Meeting which run from May 4 to 7. — VNS