Asia's triple challenges

The United Nations Economic and Social Commission for the Asia Pacific (ESCAP) has, through its latest Economic and Social Survey Asia Pacific 2009, identified 'triple threats' to the region's development - the global financial crisis, commodity price volatility and climate change. These triple threats affect not only the Asia Pacific but also the entire world. Individually and collectively, these threats are adversely affecting our day-to day lives, not just the macro economy.

But the ESCAP Report argues that these very grave challenges can be turned into opportunities if Asian countries are determined to see beyond the gloom. In fact, the two trends identified by ESCAP can be a lifesaver for the Asia Pacific. One is that the region's past prudent macroeconomic management has enabled it to put in place expansionary fiscal packages that will see developing countries emerge as primary sources of any world economic growth that might take place in 2009. ESCAP notes that this would present opportunities for mutually beneficial collaboration between developing countries themselves as well as between developed and developing countries.

According to ESCAP, the region showed remarkable resilience to the financial crisis, having become better prepared for such crises through implementation of prudent macroeconomic policies, improved fiscal balances, banking reforms and foreign exchange reserve accumulation over the past decade. Sri Lanka has performed really well, recording a commendable six per cent growth rate. The country has largely been immune so far to the unfolding economic recession, though several financial scandals have surfaced in the private sector. This growth is all the more remarkable given the massive defence and welfare expenditure. Like all South Asian countries, Sri Lanka too has seen the adverse effects of high food and oil prices as well as climate change and it is hoped that the financial structural adjustment facilities now being contemplated would help mitigate any adverse effects. There are other concerns such as inflation, but overall the economy is not facing a serious danger.

Sri Lanka and indeed all Asian nations must strive to increase intra-regional trade and economic cooperation in the face of the global economic meltdown. Asia is now integrated more closely with other regions than within itself. This situation has to change if Asia to collectively face the crisis. South Asia must reinvigorate its economic and trade links, so that the SAARC bloc could be a strong contender in the world economic stakes.

The second point mooted by ESCAP is even more significant. ESCAP has called for a more direct role by Governments in economic and fiscal activity. In the words of ESCAP "the risks inherent in market failures are too high and the costs of neglecting traditional regulatory capabilities of government are too brutal".

"The crises present an opportunity to shift perspectives on development and the role of Government. Governments will re-enter the macroeconomic landscape to rebalance economic, social and environmental systems."

The private sector is still the engine of growth but it needs supervision and sometimes, intervention. Even Western countries which practised unbridled capitalism for decades have been forced to take over failed financial entities and run them without necessarily calling the process nationalization, which it is. There are many lessons to be learned from the failure of Western capital markets. Asia, where Governments have traditionally been more active in the business environment, should take these lessons to heart to avoid a similar catastrophe.

Asian countries including Sri Lanka should also rely on their own strengths to overcome the present difficulties. While Foreign Direct Investment must be encouraged, a country that neglects agriculture - Asia's traditional strong point - cannot hope to climb the development ladder. Modernisation of agriculture and proper marketing/export strategies are vital for this industry. It has been shown that a significant improvement in the performance of the agriculture sector helped to check a slight deceleration in growth in Sri Lanka.

Inequitable development is another challenge faced by many Asian countries. Here in Sri Lanka, the Western Province has a growth rate that mirrors China's, while some provinces are mired in poverty and under-development. Thus developing the newly liberated North, the East and other less developed provinces will be a major task that lies ahead.

Developing countries cannot also afford to marginalize their poorer segments, lest they make a negative contribution to the economy. Welfare measures for the poor and the development of human resources are essential in this context. Poverty and social and economic inequalities have to be addressed in the long term. Asia must collectively respond to the triple threats or challenges cited by ESCAP. Development must be a truly sustainable and inclusive process that takes all these factors into account.