Regional Cooperation and Asia s New Role in the Global Economy

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2 Regional Cooperation and Asia s New Role in the Global Economy High-Level Conference on Asian Economic Integration: Agenda for East Asia Summit New Delhi, India Sultan Hafeez Rahman Asian Development Bank 12 November 2007

3 Presentation Outline Developing Asia Overview Asian Regionalism Emerging Trends South Asia s Economic Development Slow Economic Integration in South Asia Great Prospects for RCI in South Asia Future of Asian Regionalism ADB s Regional Cooperation Initiatives

4 Developing Asia will post robust growth % Developing Asia Central Asia East Asia South Asia Southeast Asia The Pacific

5 Asia s s Contribution to World Output (by market exchange rate) Japan, 15.3% PRC, 2.8% India, 1.3% Other Asian Countries, 6.3% Japan, 9.0% PRC, 5.5% India, 1.9% Other Asian Countries, 6.0% Others, 74.3% Others, 77.6% Source: Asian Development Bank

6 Asia s s Contribution to World Output (by PPP) Japan, 8.1% PRC, 9.3% Japan, 6.2% PRC, 15.0% Others, 68.6% India, 5.0% Other Asian Countries, 9.0% Others, 63.3% India, 6.4% Other Asian Countries, 9.1% Source: Asian Development Bank

7 Growth Rate of GDP in India and PRC (% per year) Developing Asia PRC India Source: Asian Development Outlook 2007 Update, ADB and World Economic Outlook October 2007, IMF

8 Growth Rate of GDP in South Asia (% per year) World Bangladesh India Pakistan Sri Lanka Source: Asian Development Outlook 2007 Update, ADB and World Economic Outlook October 2007, IMF

9 Share of GDP of South Asia in World Total (% by PPP) 25% 21.9% 20% % 15.0% 10% 9.0% 9.1% 9.4% 9.3% 7.8% 6.4% 5% 5.0% 0% 0.5% 0.4% 0.5% 0.6% 0.6% Other Asian Countries PRC Bangladesh India Pakistan Source: Asian Development Bank 0.7%

10 Growth Rate of Merchandise Exports (% per year) Asia Average PRC Bangladesh India Source: Asian Development Outlook 2007, ADB Pakistan Sri Lanka

11 Growth Rate of Merchandise Imports (% per year) Asia Average PRC Bangladesh India Source: Asian Development Outlook 2007, ADB Pakistan Sri Lanka

12 East Asia has integrated faster than other Asia s s sub-regions (Intra-regional regional Trade Share in %) ASEAN+3 SAARC Central Asia The Pacific Source: ADB ARIC Trade and Integration database ( raw data from IMF DOTS

13 30 25 Share of Merchandise Exports in World Total (%) Asia Total Japan PRC India Source: International Trade Statistics 2006, WTO

14 30 Share of Merchandise Import in World Total (%) Asia Total Japan PRC India Source: International Trade Statistics 2006, WTO

15 Current account outlook is mixed % of GDP Developing Asia Central Asia East Asia South Asia Southeast Asia The Pacific

16 Current Account Balance in South Asia (% of GDP) Asia Average Bangladesh India Pakistan Sri Lanka Source: Asian Development Outlook 2007 Update, ADB

17 Saving Rate to GDP in Developing Asia (%) World Developing Asia Source: World Economic Outlook October 2007, IMF

18 Saving Rate to GDP in PRC and South Asia (%) PRC Bangladesh India Pakistan Sri Lanka Source: ADB Statistical Data Base System, figure for India is

19 Investment Rate to GDP in Developing Asia (%) World Developing Asia Source: World Economic Outlook October 2007, IMF

20 Asian Regionalism A new component in Asia s outward-oriented development strategy Enhances the economic dynamism of postcrisis Asia and its resistance Links the less developed countries to the more developed countries in the region Will eventually serve as a bridge to global markets and a building block of a more liberalized global economy

21 Emerging Trends Economic openness, IT revolution, improved physical connectivity, spread of vertically integrated production networks and the rapid growth of PRC and India Increase in intra-regional trade in East Asia Proliferating Free Trade Agreements (FTAs) Financial integration and greater monetary and financial cooperation

22 South Asia s Economic Development In recent years, South Asia s GDP growth rate has reached 7% to 8%. In 2006, South Asia s economy grew by 8.7%, which outperformed the 8.3% average growth of the Asia and Pacific BUT South Asia still houses the majority of Asia s poor, with 462 million people living under $1 a day in 2004.

23 Slow Economic Integration in South Asia South Asia is the least integrated compared with other regions in Asia South Asia ranks the last among all world regions due to low density of road and telecommunication connectivity, and high untapped potential in energy and power

24 Great Prospects for RCI in South Asia There is a unique environment to foster RCI in South Asia given recent developments SAARC (Delhi Summit) reaffirmed commitment to improve intra-regional connectivity, particularly physical, economic and people-to-people connectivity in order to achieve its goal of regional prosperity and a better life for the people of South Asia Trade between PRC and South Asia will further increase

25 Future of Asian Regionalism Asia is still far from being a regional production base and a single market Regionalism is expected to deepen further using a multi-speed and multi-track approach Over the longer term, garlanding of Central Asia, South Asia, and East Asia and the Pacific-into a more integrated Asia

26 ADB s Regional Cooperation and Integration (RCI) Initiatives Regional cooperation mandated in ADB s charter Establishment of Office of Regional Cooperation and Integration in 2005 Adoption of RCI Strategy in 2006 Establishment of RCI Financing Partnership Facility in 2007 to support RCI activities

27 ADB s Regional Cooperation Initiatives ADBsupported RCI CAREC SAARC BIMSTEC ADB support for ongoing RCI SASEC SECSCA GMS ASEAN

28 ADB s Regional Cooperation and ASEAN+3 Integration Initiatives Economic Review and Policy Dialogue (ERPD) to exchange information, conduct regional surveillance, and use of peer pressure for enhancing national and regional policies Liquidity support facility (Chiang Mai Initiative - CMI) to contain currency speculation, contagion, and recurrence of financial crises Asian bond markets development (Asian Bond Markets Initiative ABMI)

29 ADB s Regional Cooperation and Integration Initiatives ASEAN+3 Asian Bond Market Development Build an efficient local-currency-denominated bond market Better resource allocation to reduce bank dominance and help allocate regional financial resources more efficiently ABMI and Asian Bond Fund (I and II) Asian Bond Market Initiative (ABMI) Develop local currency-denominated bond markets Facilitate recycling of regional savings for regional investment Working Groups: (i) Securitized debt instruments; (ii) Credit guarantee and investment mechanisms; (iii) Foreign exchange transactions and settlement issues; (iv) Rating systems

30 ADB s Regional Cooperation and Integration Initiatives Greater Mekong Subregion (GMS) The strategic focus has been enhancing connectivity, competitiveness and community (the "3C's") Projects are along the development of economic corridors, power interconnection systems, and telecommunication networks, trade facilitation, promotion of private investment and tourism, and jointly addressing shared social and environmental concerns affecting the GMS community As of 2006, ADB had financed a total of 28 loans and grant projects in GMS, worth $6.8 billion; 20 are ADF projects worth $1.8 billion and the rest are OCR loans mostly to the PRC

31 ADB s Regional Cooperation and Integration Initiatives GMS Project: Nam Theun 2 Hydroelectric Project 1,070-megawatt power plant on the Nam Theun river in central Lao People's Democratic Republic. About 93% of the electricity generated by the plant would be exported to Thailand long-term flow of revenue for the Government of Lao PDR Public-Private Partnership (Government 25%)

32 ADB s Regional Cooperation and Integration Initiatives GMS Cross-Border Transport Agreement Multilateral instrument that covers all the relevant aspects of cross-border transport facilitation in one document Include: single-stop/single-window customs inspection; cross-border movement of persons transit traffic regimes; requirements for road vehicles; exchange of commercial traffic rights; and infrastructure

33 ADB s Regional Cooperation and Integration Initiatives Central Asia Regional Economic Cooperation (CAREC) Focusing on the initial steps of building regional cooperation by promoting confidence building and strategic planning among member countries Sector strategies for transport and trade facilitation have been completed this year and for trade policy and energy will be completed in Participating countries have also identified transport investment opportunities worth approximately $18 billion over the next 10 years.

34 ADB s Regional Cooperation and Integration Initiatives Subregional Economic Cooperation in South and Central Asia (SECSCA) Promote economic cooperation by improving transit corridors connecting landlocked countries in Central and South Asia to seaports Main areas: customs and trade; crossborder infrastructure; drugs and human trafficking; money laundering

35 ADB s Regional Cooperation and Integration Initiatives South Asia Subregional Economic Cooperation (SASEC) Six priority areas of cooperation: (i) transport, (ii) tourism, (iii) trade, investment and private sector cooperation, (iv) energy and power, (v) environment, and (vi) ICT ADB is finalizing the SASEC Information Highway Project, the first multi-country investment project to be implemented by the four SASEC countries. Since 2001, ADB has provided 14 regional technical assistance amounting to approximately $7.6 million to support the priority sectors under the SASEC program.

36 ADB s Regional Cooperation and Integration Initiatives South Asia Association for Regional Cooperation (SAARC) SAARC-ADB MOU signed in 2004 to set the framework for cooperation Has focused on technical assistance in transport, energy, and financing mechanism Facilitated dialogues of finance ministers

37 ADB s Regional Cooperation and Integration Initiatives Bay of Bengal Initiative for Multi-Sectoral Economic Cooperation (BIMSTEC) Establishes link between Southeast Asia and South Asia through connectivity Technical assistance on Transport Infrastructure and Logistics Study being implemented

38 For More Information Sultan Hafeez Rahman Web site: