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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2673

Asian Region Better Prepared to Battle Global Financial Crisis - Noeleen Heyzer, head of UN ESCAP

By K.T.Rajasingham

Interview with Noeleen Heyzer, head of UN ESCAP

Bangkok, 16 January, (Asiantribune.com): The spreading global financial crisis is threatening to have a devastating impact on developing nations worldwide.Noeleen Heyzer, Executive Secretary of the Bangkok-based UN Economic and Social Commission for Asia and the Pacific (ESCAP)Noeleen Heyzer, Executive Secretary of the Bangkok-based UN Economic and Social Commission for Asia and the Pacific (ESCAP)

Although most Asian countries have so far weathered the storm, it is most likely that the financial meltdown would reach out some of these nations, including Sri Lanka, later this year.

In an interview with Asian Tribune, Noeleen Heyzer, Executive Secretary of the Bangkok-based UN Economic and Social Commission for Asia and the Pacific (ESCAP), said that for the second time in a decade, the Asia-Pacific region has been hit by financial crisis.

However, this time the source of crisis is from outside the region. The region is better prepared for financial crises than it was a decade ago, having instituted wide ranging reforms, said Heyzer, a national of Singapore and a former executive director of the New York-based UN Development Fund for Women (UNIFEM).

Notwithstanding this progress, she told Asian Tribune, increasing levels of financial, trade and investment integration with the global economy leave no country immune to these events.

Equity markets and currencies around the region have suffered large declines, reflecting a global credit crunch as well as a worldwide flight to safety among investors, she added.

Excerpts from the interview:

Asian Tribune: How can a country like Sri Lanka cope with the present financial crisis?

Noeleen Heyzer: Countries like Sri Lanka need to continue working towards a strengthening of financial regulatory and supervisory mechanisms while also taking steps to provide adequate liquidity to the markets, particularly to small and medium scale enterprises that are export oriented and have faced severe constraints in accessing trade financing. Sri Lanka could benefit from a trade financing mechanism that is geared towards providing export credit and export credit guarantees. A mechanism that is regional rather than national has the advantage of pooling resources and sharing risks and could thus greatly benefit a small country such as Sri Lanka.

Countries should also carefully monitor the health of their financial sectors through exposure to short-term foreign inflows such as those of portfolio capital, of interbank lending, and of external public debt.

Developing countries, including Sri Lanka, need to ensure consistent macroeconomic policies to avoid falling prey to financial crises. In particular, exchange rate and interest rate policies need to reflect broader economic and social objectives.

Asian Tribune: What are the preventive measures a country like Sri Lanka should take in order to avoid being a victim of the global economic recession?

Noeleen Heyzer: As in the rest of the region, the global slowdown arising from the crisis has exerted downward pressures on growth in Sri Lanka with attendant social consequences that are still unfolding.

Many countries in the region including Sri Lanka depend heavily on developed countries for their exports and a lower demand from major markets could hamper growth in these economies. For example, Sri Lanka's major markets for her garments are the European Union and the United States and a prolonged recession in these countries could reduce demand for garments from Sri Lanka. A similar impact would be felt by other countries which depend on major markets under threat of a recession.

In the face of declining external demand in developed markets, one policy option could be to diversify trading partners. Another option is to stimulate domestic demand. For countries with adequate policy space, fiscal stimulus could be an option. For those with fiscal constraints, policy tools such as a reduction in policy rates, reduction/elimination of reserve requirements could be useful options to stimulate economies.

Requests for increased official development assistance (ODA) in the form of direct budgetary assistance could also be considered if fiscal deficit is constraining the amplitude of fiscal stimulus packages.

Asian Tribune: What assistance can the UN provide to some of these Asian countries like Sri Lanka to tide over domestic financial crisis?

Noeleen Heyzer Given the analytical and normative role of ESCAP as a regional commission of the UN, the ESCAP Secretariat will serve as a forum for exploring policy options and forging consensus on regional policy coordination. In terms of advice to our member governments in Asia and the Pacific, the ESCAP Secretariat has provided a range of key analytical inputs to policymakers both in the years leading up to the crisis and as the crisis hit with full force in 2008. The ESCAP Secretariat will continue to be at the forefront of addressing how this year's global financial developments could impact the Asia-Pacific region.

Asian Tribune: One of Sri Lanka's biggest foreign exchange earners is migrant earnings, mostly from the Middle East. Since there has been a sharp decline in oil prices, will this impact negatively result in mass retrenching of migrant workers in the gulf?

Noeleen Heyzer Large workforce from countries in South Asia including Sri Lanka has been employed in other countries and workers’ remittances not only are substantial but also have been rising in recent years. A major part of remittances inflows into Sri Lanka originates from oil-rich Gulf countries. Past experience shows resilience of outflows of remittances from these countries even during volatile oil price periods.

However, if oil prices become very low and remain there for a longer period accompanied by severe global economic slowdown, workers’ remittances may fall in the long run. In the Gulf countries, an economic slowdown following the declines in oil prices might in turn lead to a slowing down of construction projects and the tourism related industry, resulting in a decreased demand for migrant workers, cutback on migrant workers wages or their benefits to alleviate costs.

On the other hand, demand for care-givers and medical service professionals are expected to remain stable, particularly in countries with rapidly ageing populations. The work done by unskilled migrant workers may also be less sensitive to crisis downturns since migrants often fill jobs that are considered undesirable in the local market, but they are jobs that are necessary regardless of the financial situation.

Governments should plan to deal with an eventuality of slow down in remittances through domestic employment creation programmes and strengthening of social safety-nets. Countries dependent on worker remittances may need proactive measures to find alternative solutions, including alternative host countries for employment provision. Sri Lanka could also benefit from an exchange of experiences with other countries of the region who have negotiated bilateral programmes with migrant receiving countries.

Asian Tribune: It is expected that many countries in the world especially countries in the First World and in the oil producing Gulf countries are hard pinched for funds to import items such as tea, rubber, coconut and other traditional agricultural as well as industrial products. Are there any measures to safeguard such export crunch the Asian Countries are expected to face in the year 2009?

Noeleen Heyzer : The region is inextricably dependent on trade and investment with the rest of the world and will therefore rely on the rapid resumption of world economic growth for its continued prosperity. The immediate task at hand is to narrow the channels along which developed country recession will be transmitted back to the region.

Both developed and developing countries should not resort to protectionist policies focused on narrowly defined nationalistic interests that would harm trading partners. During a recessionary climate a revitalization of efforts is needed to push through with conclusion of the negotiations under the Doha Development Agenda, both as a confidence booster and as a bulwark against possible slippages back into protectionism.

There is scope for promoting intraregional trade and investments in the region as a corollary of international trade. However, special attention should be given to trade and investment agreements many of which fragment the regional market by imposing rules of origin that are costly to comply with and other trade procedures that increase cost of trading. A conscious effort should be made to opt for regional trade agreements that could contribute to trade facilitation and a deepening of South-South economic cooperation.

Asian Tribune: What is your prediction of economic growth rates among Asian countries? Will there be a sharp decline? What are the countries most vulnerable?

Noeleen Heyzer : The forecast for developing economies in the region is a slowdown in growth to 4.5 per cent in 2009 from an estimated 6.6 per cent in 2008. For the region as a whole, performance for the first half of 2008 showed resilience, as exports grew strongly on the back of weakening currencies and relatively robust external demand. However, the full effect of a slowdown in developed country markets on exports will surface in 2009.

Highly export-dependent economies such as those of East and North-east Asia as well as South-East Asia would inevitably be more vulnerable. The extent of deceleration will depend on the extent to which domestic demand, stimulated by expansionary government policy, can offset the setback in the export sector.

Asian Tribune: Can you tell us whether ESCAP is organizing any summit meeting of the leaders of its member countries to discuss the impact of the global financial crisis and explore ways to overcome the impending crisis in the region?

Noeleen Heyzer : On 27 April, during the Ministerial Segment of the annual session of the Commission a high-level panel on the financial crisis will discuss the financial crisis, its implications for this region, and the areas in which policy actions will be needed to forge greater regional and global policy coordination. These issues will be discussed at length in the forthcoming Economic and Social Survey of Asia and the Pacific, 2009.

- Asian Tribune -

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