near-term policy challenges for low-income asia somchai jitsuchon research director thailand...
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Near-Term Policy Challenges
for Low-Income Asia
Somchai Jitsuchon
Research DirectorThailand Development Research Institute
Four Challenges
1. Dealing with Public Debts
2. Managing Capital Flows
3. Increasing Regional/Domestic Trades and
Investment
4. Continue Tackling Poverty and Inequality
Source: The Economist Online, March 4th, 2010
Many governments’ sovereign rate were downgraded because of the crisis
Dealing with Public Debts
Dealing with Public Debts
High public debt leads to lower long-term Growth◦ Rising cost of fund◦ Suppress public-led investments (e.g. in infrastructures)
Needs well planned ‘conditional Exit Strategy’◦ Spell out clearly series of conditions that trigger each steps of exit
strategy.◦ Should help lowering market pressure on long-term interest rates.
If need further stimulus, fiscal deficit must be as much redistributive as possible◦ To avoid ‘Ricardian Equivalence’ trap, thus maximizing the stimulating
effects◦ Require better targeting (economic sector, recipients) ◦ Can achieve by investing in vulnerable database and outreach capability
Example of Poor Targeting: Thailand’s stimulus checks
Eligibility to Stimulus Checks by Household Income Class
Source: Jitsuchon (2009)
% those receiving checks ended up with extra spending
Source: Jitsuchon (2009)
Resulting in poor stimulating effects
Dealing with Public DebtsBeware of long-term commitment of stimulus package
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
0
5
10
15
20
25
Social Spending Non-Social Spending
Projection of Thailand’s Public Spending (%GDP)
Managing Capital Flows: Why
The crisis, and its corrections, adds extra fluctuation to capital flows to/from Asia.
They are pro-cyclical.
They might be here to stay.
Managing capital flows requires a broad package, both macroeconomic and specific measures (such as various forms of capital controls).
Must weigh cost (volatility) with benefits.
Managing Capital Flows: How
Information disclosure, to facilitate better risk pricing
Develop new, and promote the use, of risk management tools
More stringent prudential measures on FIs, increase competition
More legal safeguard under various trade agreements
Deepening financial markets
Source: Calculated
Global trade pattern showed a weak sign of
correction to global imbalance, further
correction can be expected Differences between Export and Import
Growth(sorted by current account position in 2007, from most surplus to most deficit)
China
Japa
n
Singa
pore
Mal
aysia
Hongk
ong
Thaila
nd
Indo
nesia
Philip
pine
s
South
Kor
ea
Vietn
amIn
dia
Austra
lia
Unite
d Sta
tes
-60
-40
-20
0
20
40
60
-800
-600
-400
-200
0
200
400
600
Q3/2008 Q4/2008 Q1/2009 Q2/2009 Current Account 2007
Gro
wth
Dif
fere
nce
(%
)
Cu
rren
t A
cco
un
t (B
illi
on
U.S
. D
oll
ars)
Increasing Regional Trade and Investment
Challenge: How to reap full benefits from various trade deals?◦AFTA◦ASEAN Economic Community (AEC) ◦ASEAN+3
Should focus more on trade facilitation measures (e.g. custom process, trade-related logistics)
Increase ‘utilization rate’ of FTAs etc.
Continue Tackling Poverty and Inequality
The crisis added 60 millions to global poverty trend (ADB, June2009)
Challenge: How to prevent poverty from climbing up?◦From crisis-related factors◦From other structural problems
Resumed food price boom? Bioenergy crops expansion Climate change?
LICs need to invest more in formal safety net
Poverty situation might showed a returning to pre-crisis level.
9.5 8.5 8.9
13.612.2
16.017.8
16.214.2
7.8
0
5
10
15
20
Jan Feb Mar Apr May Jun Jul
2006 2007 2008 2009
Head-Count Ratio
Thailand’s Poverty Incidences, 2006-July 2009
Average Thai Household Consumption and Poverty Lines (Baht)
However, improvement was due mainly to falling poverty lines, not increased HH income. Future remain uncertain.
1,5411,548
1,573
1,611
1,5851,592 1,594
5,600
7,600
9,600
11,600
13,600
15,600
17,600
Jan Feb Mar Apr May Jun Jul
Average Consumption Poverty Line (RHS)
Help mitigating adverse impacts from the current global
crises (or any crises), allowing the country to continue
open up (and gain efficiency)
Should improve safety net in (a) coverage (b) equality
(c) sufficiency
Achieve this by:
Investing in information system about vulnerable HH and
individuals
Strengthening outreach capacity (reaching to the poor)
using public, NGOs, and local government resources.
Investing in Social Safety Net