Philip Bowring: Helping Asia find its voice
TUESDAY, MAY 2, 2006
The bank, based in Manila and headed by a former Japanese vice minister for International Finance, has traditionally been a low-profile lending institution, better known for its bureaucratic ways than for initiatives that might displease any of its disparate membership (which also includes extraregional developed nations). But as it holds it annual meeting this week in Hyderabad, India, it is showing an unaccustomed willingness to speak out on issues affecting the region as a whole and to make policy pronouncements on trade and financial issues that by implication are critical of the policies of important members.
In its latest Asian Development Outlook, the bank accuses governments of not taking the Doha round of trade negotiations seriously enough and makes a powerful critique of the bilateral trade arrangements now so popular among Asian political leaders, who may have scant understanding of the mechanics of international trade. The outlook forcefully underlines the gains that Asia as a whole would make from trade liberalization as a result of a Doha accord, even one that did not significantly reform farm trade. Asia, it says, needs to take "an active leadership role in the Doha talks."
By implication this an admonishment of South Korea and of members of the Association of Southeast Asian Nations who have already gained so much from global trade and could gain even more. It is also a swipe at India, which plays a key role in the Doha negotiations but which seems, to its Asian critics, more concerned with scoring political or legalistic points than in furthering its own or the region's wider economic interests.
The report notes that the main gains from trade liberalization are not in trade volumes but in the efficiency of domestic producers. On that basis, India, whose average applied tariffs are three times those of China, would benefit far more than already liberalized economies from freer trade.
The bank also fires a broadside at the bilateral agreements that are supposed, in the eyes of many, to substitute for multilateral trade, particularly if Doha fails. The "tide of bilateralism on which Asian countries are being carried" poses significant risks to the multilateral system as well as diverting efforts away from Doha.
The bank's report is not entirely hostile to sub-regional and bilateral deals, but notes that unless accompanied by strong governance mechanisms and common rules of origin, they will become a bureaucratic maze, damaging the cross-border manufacturing systems at which East Asia excels.
On financial topics, the bank is not quite so outspoken but it clearly believes that the region has been dragging its feet in making changes that reflect its economic status and would enable it to contribute more to global rebalancing. The bank is not impressed with the degree of currency flexibility shown so far by some key members, such as China. It regards further appreciation as inevitable and desirable, both to stimulate domestic demand and to reduce the risk of a major exchange-rate and trade shock.
For some time, the bank has been active in pushing for increasing financial flows so that surpluses are invested in the region rather than in the United States. Central bank swap agreements now cover currencies other than the dollar. The bank has had some success in encouraging local bond market development and some cross-border capital flows, including issuing debt by itself in local currencies. But for all their regional solidarity rhetoric, most Asian governments use withholding taxes to deter foreign central banks from investing in their debt.
It remains to be seen whether the Asian Development Bank can exert more influence on trade and currency policies of its Asian members. Its articulate president, Haruhiko Kuroda, who took over in early 2005, was formerly Japan's deputy minister of international finance and is well versed in the issues. But whether the institution can rise above Chinese-Japanese rivalry, Indian politicking and U.S. ideological demands and become a coherent vehicle for pan-Asian interests remains to be seen.