The Insider Update
Countries in the region facing the vagaries of international capital flows should consider capital controls as a first, rather than a last resort, Liqun Jin, vice-president for operations 1 at the Asian Development Bank advises in remarks at a seminar on Challenges for Emerging Asian Economies in Managing Capital Flows organized in connection with this year's 41st annual meeting of the Asian Development Bank in Madrid, Spain. The problem, he believes, happens when countries employ it as a last resort.
Jin, a former vice-minister of China - and the country's highest ranking representative at the multilateral agency who is due to retire from the bank soon - is known for steering an independent line when it comes to his views on economy and development for Asia. "China has escaped the Asian financial crisis ten years ago unscathed due to its policy on foreign exchange," he told a gathering at a panel that included Miranda Goeltom, acting governor of Bank Indonesia, Chalongphob Sussangkarn, the former finance minister of Thailand who is now a distinguished fellow at the Thailand Development Research Institute, David Burton, director, Asia Pacific Department of the International Monetary Fund and Masahiro Kawai, dean of the Asian Development Bank Institute.
From the investor and business point of view, currency stability is vital, Jin believes. "Because China takes capital control as a first resort, China has never ever had any (currency) problem of excessive volatility." We encourage long-term investments. "Chinaś problem is how can we manage the currency's appreciation against the backdrop of continued current account surplus and capital inflow." He adds that China is addressing the issue including through the setting up of the China Investment Corp and other measures to allow for the outflow of investments.
He says a rapidly depreciating currency presents a lot of policy challenges; similarly, a rapidly appreciating currency also presents problems especially in terms of employment considerations. "You cannot appreciate a currency overnight; it is very important to continue the macroeconomic policy; the real sector must be given time to adjust to the more expensive Chinese currency."
Jin believes China's currency has to continue to appreciate because "it is the only way for China to move up the value chain". He adds that a weak currency is a disincentive for companies looking to move up the value chain. "China cannot forever depend on the manufacture of low-value goods; how to encourage companies to move up the value chain? You must have a hard currency. That is the only way for companies to do more in R&D (research and development) and in producing higher value, high-tech products."
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With the rising tension among the major donor countries as to the future role of the ADB in a region that is increasingly growing in affluence but is still home to the world's poorest, the bank was given a boost when its concessional funding window, the Asian Development Fund, was replenished to the tune of US$11.3 billion for the next four years. This represents an increase of 60% over the last four-year phase of the ADF. "It shows the strong commitment of donor countries to make ADB a more relevant and trusted development partner for the poorer countries in the Asia and Pacific region," says Haruhiko Kuroda, president of the ADB.
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Kuroda also presided at the launch of a new book entitled Emerging Asian Regionalism, A Partnership for Shared Prosperity, a study led by the Office of Regional Economic Integration (OREI) under Jong-Wha Lee, and the former head of OREI, Masahiro Kawai. The book espouses greater and continued regional integration as a benefit to the region as a whole.
In remarks made following the book´s official launch, Kuroda says while the vision and mission of regional integration is laudable and should be encouraged, he believes that the short to medium term prospects may not be all that bright. "I am not as sure (as the promoters of the book). Maybe I am more of a bureaucrat than an economist or a professor. I am more pessimistic. But I do share the vision and the dream."
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Madrid is an amazing choice for this year's annual meeting. Although the venue of the conference is at IFEMA, which is closer to the airport - makes it easier to leave than to explore the sights and sounds of the capital - it has a subway system that takes visitors to the main centres in 16 stops or around 30 minutes. For those not too worried about the value of the euro, well, there is the option of taking a cab - around 20 euro.
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The problem is that IFEMA is a huge convention centre. Unlike previous ADB meetings, especially in Japan, where adequate signs were posted to guide visitors getting around, hardly any were noticeable at this year's event. The challenge is really to learn and find your way around.
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For the media, it was doubly challenging at first; unlike in previous years, the media cannot enter through the main entrance of the centre. Rather, they were asked to enter via a side door with the same security checks (but hardly any signs to guide them) and find their way to the main hall. What is the logic behind this unusual arrangement? To the consternation of even the ADB media representatives, the explanation was that the security of the host city requires that media enter through another entrance. In Madrid, we were told, this was the norm.
