Emerging Asia’s Fortunes Still Closely Tied to West’s

Global cooperation essential for solving global policy challenges

Need to balance overheating pressures and heightened global risks in Asia

Increased domestic demand essential for sustained strong, inclusive growth in Asia

“Emerging Asia would be strongly impacted in the event of a downside scenario in Europe or the United States, ” said Anoop Singh, Director of the IMF’s Asia and Pacific Department, adding that Asia should be prepared with a policy response in case of a global shock.

The conference was jointly organized by the IMF and the Stanford Center for International Development in Palo Alto on September 9, to foster an exchange of views on key policy issues for emerging Asia between Fund staff and the academic community.

Among the participants were the former chairman of the U.S. Council of Economic Advisors, Michael Boskin; Andrew Crockett, former chairman of the Bank for International Settlements; China specialist Barry Naughton; John Pencavel, former editor of the Journal of Economic Literature; Huang Yiping of Peking University; Li Shi of Beijing Normal University; Sudarno Sumarto of Indonesia’s Social Monitoring and Early Response Unit research institute, and several other prominent people.

Policy responses

Increasing global economic uncertainty in recent weeks has prompted a heated debate in Asian economic circles about whether Asian countries should pause in their efforts to normalize macroeconomic policy stances, which were loosened in response to the global financial crisis.

Several speakers suggested that many countries in emerging Asia still face overheating and inflation risks, and they should continue with policy normalization at this point.

Should a renewed global slump occur, Singh said that much of Asia has the ability to redeploy monetary and fiscal policy to combat it.

China’s response, as the region’s largest economy, would be particularly important. Most of the conference attendees agreed that China could, and would, respond in a timely manner following such a downturn.

But they warned that the region’s largest economy would not be able to respond as forcefully as it did in 2008. “It is unlikely that China could save the world again, if indeed it even saved the world the first time,” said one participant.

Effectiveness of fiscal policy

As well as discussing the near-term macroeconomic outlook, the conference also discussed how financial policies could facilitate medium-term sustainability, with some...