1. Thank you, Chairman. Two years ago at the ASEM Meeting in Bangkok, I introduced our Office, the ASEAN+3 Macroeconomic Research Office, established in Singapore in 2011. Our Office is the surveillance unit supporting the Chiang Mai Initiative of ASEAN, China, Japan and Korea.
2. Being in Italy, we remember the words of Niccolo Machiavelli nearly 500 years ago. He advised that in fair weather, we should prepare and protect ourselves against the forces of Fortune, who turns her power to where she knows that barriers and defences have not been raised to constrain her. 3 My remarks today are on those “barriers and defences”, throughbuilding resilience of regional safety nets, which creates conditions for long-term sustainable growth.
Building Resilience through Regional Safety Nets
4. After the Asian Financial Crisis nearly two decades ago, Asian economies focused on putting their house in order and building economic buffers against external shocks. In addition to these individual efforts, the experience of contagion made clear that the resilience of individual Asian economies depends on the resilience of Asia as a whole. This thinking spurred the development of our regional safety nets, such as the Chiang Mai Initiative since 2000.
5. More recently in Europe, we have witnessed the key role played by the ESM and its predecessor the EFSF in stabilizing market confidence. Indeed, Asian investors play significant roles in purchasing their bonds. One indicator of success is the exit of three out of five economies that have tapped on these safety nets. While the CMI has never been tapped since its establishment in 2009 – which is a good thing in my view – our Office has recently been supporting our member economies on test runs to ensure operational readiness.
6. The experience in Europe illustrates that regional safety nets can work effectively with the global safety net by the IMF. A regional safety net may defend effectively against shocks from outside the region, if economies within the region are still in good shape. If the shock comes from inappropriate policy missteps within the region, however, help from the global safety net may be needed to boost the credibility of and confidence in the affected region, and to complement regional safety nets in financial resources and technical expertise. ASEAN+3 Finance Ministers and Central Bank Governors, in their meetings last year and this year, have therefore continually instructed their Deputies to seek an effective cooperative relationship with the Fund and other MFIs in the areas of surveillance, liquidity support arrangement and capacity development, while maintaining the independence of policy making.
Creating Sustainable Growth
7. Building resilience through safety nets ultimately supports sustainable growth, the theme of today’s meeting.
8. Asia was not insulated from the global financial crisis in 2008 to 2009. Asian economies were affected through the twin channels of both trade and capital flows. Asian exports to the US and Europe fell. Deleveraging by European banks affected cross-border lending to Asia. Asian policymakers did their best to cushion the impact of these external shocks on their economies with accommodative policy settings and stimulus measures.
9. Several years on, the Asian economies have recovered and are still growing. Now that growth in the US and Europe has started stabilizing – though not fully recovering yet as we heard in the previous session – a number of Asian policymakers are gradually recalibrating their economic policy settings, recovering policy space and putting greater emphasis on structural reforms to ensure external and financial stability. For example, Malaysia and the Philippines have moved to a tighter monetary stance to counter price pressures as well as to ensure financial stability. Asian economies are also pushing ahead with difficult but important structural reforms. Indonesia and Malaysia, for example, are rationalizing fuel subsidies as part of fiscal reform. The fiscal reserves saved will be channeled to public investment, which is deeply needed in East Asia. As Deputy Prime Minister Aso mentioned, Japan has pursued growth strategies as well as fiscal strategy with the consumption tax increase from 5% to 8% this spring. Vice-Minister Shi had also explained in his speech that China has taken significant structural reforms announced last November at the Third Plenary Session.
10. Such reforms will yield dividends in long-term economic sustainability and growth. In the meantime, as most Asian participants stressed today, Asian economies will remain vigilant against any spillover effects as advanced economies either take unconventional measures or normalize their monetary conditions.
11. To conclude, we hope for a sustained and stronger recovery in Europe that can only benefit the global economy, including our economies in Asia.