Reduced corruption key to Asia’s rise: ADB report

HANOI, (AFP) - Reducing corruption and improving government accountability are the greatest challenges to making Asia the world’s wealthiest region by 2050, says a draft report for the Asian Development Bank.

The study, released on Wednesday and discussed at the ADB’s annual meeting in Vietnam, says Asia is undergoing a historic transformation.

“If it continues to grow on its recent trajectory, it could, by 2050, account for more than half of global gross domestic product (GDP), trade and investment, and enjoy widespread affluence,” the report says.

Asia’s proportion of global GDP, rising from 27 percent last year, would match its share of global population and a per capita income of $38,600 would leave the region as well off as Europe is today, it says.

Countries from the Pacific Ocean to Central Asia face many challenges if they are to achieve this, but underlying them all is a need for stronger institutions of governance, says the report aimed at regional policymakers and business leaders.

“The recent deterioration in the quality and credibility of national political and economic institutions (illustrated by rising corruption) is a serious concern”, says the bank.

Data from the World Bank Institute showed a “clear retreat in voice, accountability and political stability” in the region between 2008 and 2009.

While some places in Asia, notably Singapore and Hong Kong, are rated as among the world’s least corrupt, many others are among the worst.

“Asia must modernise governance and retool its institutions with an emphasis on transparency, accountability and enforceability,” the ADB report says.

“Although daunting, the eradication of corruption is critical for all countries to maintain social and political stability and retain legitimacy.”Other countries should look to Japan, Singapore and South Korea as models, it says.

Demands for greater accountability, along with a greater voice, will come from Asia’s expanding middle class but the form of their civic participation will generally be different from that of Western democracies, the report says, because traditional hierarchies will not be set aside in a such a short time.

The uprisings against authoritarian regimes in the Middle East have shown that “the quality of communication and the mutual respect between those who govern and those who are governed will become paramount” as new social media and other tools become available, the bank finds.

Effective governance is necessary to manage the region’s other challenges, the report adds -- among them the “truly staggering” rate of urbanisation and a need to reduce social inequalities and to take the lead in energy efficiency.

As its share of global GDP rises Asia should also have a roughly equivalent proportion of world financial assets, based on a new model of finance built on lessons learned from past global crises, the report says.

Continued rapid growth will also require leadership in science and technology, it adds.

Meeting those challenges and achieving the “Asian Century” would bring affluence to about three billion more Asians by 2050 as growth spreads, says the report.

But failure could occur if fast-growing countries including China and India fall into the so-called Middle Income Trap of stagnating growth without reaching the level of advanced economies.

ADB chief warns on inflation, capital flows

HANOI, (AFP) - Asian governments must keep a tight rein on inflation and may need to consider controls on capital flooding into the region, the Asian Development Bank (ADB) chief said.

“Inflation will need to be carefully managed using a mix of policy measures -- especially given the harder impact of inflation on the poor, which in Asia still number in the hundreds of millions,” ADB president Haruhiko Kuroda told a news conference at the start of the bank’s annual meeting in Vietnam.

The Manila-based bank, which aims to reduce regional poverty, said last week that governments had already moved to soften the impact of food inflation through measures including tax cuts for food, setting price controls and introducing subsidies.

But it said in a report that more needed to be done in the region, which has rebounded rapidly from the 2008 global economic crisis.

The bank warned that soaring global food prices threaten to push tens of millions of Asians into extreme poverty and cut the region’s economic growth this year.

Domestic food inflation in developing Asian nations hit 10 percent at the start of this year, with double-digit rises in the price of wheat, corn, sugar, edible oils, dairy products and meat.

At the same time, global oil prices have also soared.

“Rising food and oil prices have been stoked by the unexpected upheaval in the Middle East and North Africa, while the devastating earthquake and tsunami in Japan have created further global unease,” Kuroda said.

While battling inflation, Asia’s governments are also dealing with inflows of capital which Kuroda said might need to be controlled “in some cases, in some countries, in some occasions.”But he said such controls should not be a regular policy instrument.

“Capital controls are really complicated policy tools, not so easy to implement, and in the long run capital controls could create distortions in the capital market,” Kuroda said.

The International Monetary Fund (IMF) last week said flows of money into Asia’s surging economies remain a “key concern” for policymakers already battling inflation.

Those flows are “extraordinarily large” in some countries, including China, Indonesia and the Philippines, the IMF said.

Several countries -- including South Korea, Indonesia and India -- have tightened monetary policy to try to head off huge inflows of capital from investors seeking better returns on their money than in the sluggish West.

The incoming funds have boosted the values of many Asian currencies.

“Currency fluctuation has been a serious problem,” Kuroda said.

Finance ministers of the 10-member Association of Southeast Asian Nations (ASEAN) last month expressed concern about the surge in capital flows, much of which has been in the form of portfolio funds that can be withdrawn just as fast as they are injected.



The ASEAN ministers are to meet again Wednesday on the sidelines of the ADB talks, with their counterparts from South Korea, China and Japan.

“I’m confident that they will continue to discuss and in the future will cooperate more concretely in exchange rate issues,” which affect trade and investment relationships, Kuroda said.

“Regional cooperation on financial and monetary matters would become even more important in coming years.”Kuroda added the global economic crisis made clear the need for a well-built world financial system that can withstand shocks.

“Asia can play a vital role in this process by strengthening its own financial systems,” he said.

The ADB forecasts 7.8 percent growth in Asia’s developing countries this year, down from last year’s nine percent but “still respectable,” Kuroda said.