Chief Economist Offers Insight on New Asian Development Report and Afghanistan’s Economic Prospects
May 18, 2011
The latest Asian Development Bank Report predicts an “Asian Century,” and that billions in the region could be affluent by 2050. In Asia caught up with The Asia Foundation’s chief economist Bruce Tolentino for his reaction to the report. Tolentino just completed a new volume on economic reform and development called, “Innovations in Strengthening Local Economic Governance in Asia,” along with colleagues from The Asia Foundation’s economic team. It will be released May 25 in Washington, D.C., with a series of preview events on May 18 and May 19 in the San Francisco Bay Area.
Asian Development Bank’s report predicts that the global economy’s center of gravity is shifting toward the Asia-Pacific region. What is your reaction to this?
Indeed, in the current historical era, Asia is leading the global economy out of the recession brought about by the U.S. housing and financial crisis. And, as a result, the global economy’s center of gravity is shifting East, away from the Western economies, toward the large and faster-growing economies of Asia – primarily China and India.
Asia once led the world economy – when China, Japan, and India were at the forefront of world civilization and trade, while the West was way behind. This just shows that the global economy and the positions of the world’s powers shift in cycles. The real question is what is the amplitude of these cycles? The deepening of global integration, facilitated by IT, suggests that the amplitude of the cycles has become much more rapid and shallow – and sooner than later, the economies of the West will adjust and the world economy should move into a more positive, and interdependent, balance.
The same report cautions that in its march toward the “Asian Century,” the region must tackle daunting policy, institutional, and governance challenges along the way. Where do you see Asian nations heading in these areas?
Many Asian nations have shown that they do learn from experience. The fact that most Asian economies experienced less pain – relative to most Western economies – from the recent global financial crisis reflects the lessons learned from the Asian financial crisis in the late 1990s.
In your new book, co-authored with Asia Foundation experts, “Innovations in Strengthening Local Economic Governance in Asia,” you say that the global financial crisis that shocked both East and West has left economic managers and political leaders “distressed and fearful” for the first time since the Great Depression.
The sense of hubris among Western economic managers and leaders of finance industries is gone – or at least considerably muted. In the mid-2000s, at the height of the boom, then Federal Reserve Chair Alan Greenspan was called the “maestro” of finance, and the best financial managers on Wall Street were the “masters of the universe.” In what is now 20-20 hindsight, Ireland and Iceland took extraordinary liberties in housing finance through the boom years. In the fallout of the global financial crisis, many leaders have been reminded of the very close interdependencies of the global economic system, and of their extreme volatility – either up or down.
Starting July 2011, you will bring your significant economic expertise to Afghanistan as the new country representative of The Asia Foundation’s office in Kabul. How much does Afghanistan’s economic future depend on better governance?
Good economic governance is the crucial element that will enable Afghanistan to weather the crises and challenges it now faces, and emerge into a future that promises sustained improvements in peace and welfare. While Afghanistan now receives a great deal of donor assistance, these resources have to be managed well for maximum, long-term health of the Afghan economy and people. The Asia Foundation has worked in Afghanistan since 1954, and expects to be of assistance to the country into the long-term, continuing to work with Afghan partners to formulate and implement Afghan solutions to Afghanistan’s challenges.
Do you agree that governance and institutional capacity are the Achilles heel for most Asian economies, as the ADB report suggests?
This is true not only in Asia, but across the globe. Weaknesses – particularly short-sightedness – in governance and institutional capacity largely explain the recent global financial crisis. Reforms and innovation can trigger progress, but it is strong governance and institutional capacity that can sustain growth.
In your book, you argue that local economies across Asia are failing to live up to their potential as engines of growth. How so?
In examining the growth experience of nations, it is not enough to be content with national averages, as these mask differences in economic health and human welfare across sub-national jurisdictions. Even in wealthy countries there exist poor localities. Not all localities grow at the same pace as others, and some sub-national areas are able to capture greater shares in the benefits of economic growth. Some localities have advantages that arise from superior natural endowments – such as access to a port or a river, better weather, and so forth. Effective economic governance can make up for some of these natural disadvantages and enable more people to share the benefits of overall positive growth.
V. Bruce J. Tolentino is The Asia Foundation’s director for Economic Reform and Development Programs. He can be reached at email@example.com.
[Below, Tolentino talks about The Asia Foundation's Economic Reform and Development program.]
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