No sustainable growth until 2011, Kuroda warns.
The ADB yesterday unveiled an action plan to help Asia cope with the global economic crisis and a dramatic collapse in private capital flows.
The bank will pump out an extra $10 billion in loans to developing Asian economies over the coming two years, over and above the $22 billion it planned before the crisis.
Of this, $3 billion will be disbursed via a new Countercyclical Support Facility (CSF) to help governments “ramp up spending needed to overcome the global economic crisis and sustain longer term growth”.
The CSF will provide loans “faster and cheaper” than existing ADB short-term facilities, and comes alongside the IMF’s offer of short-term loans with no strings attached to crisis-hit nations.
Asean+3 finance ministers will today bolster the network of currency swaps known as the Chiang Mai Initiative, which will also help economic rescue efforts – but this is unlikely to become operational for some time.
The ADB is flush with new fire power, as a result of the tripling of its capital base to $165 billion agreed by an “overwhelming majority” of its 167 member countries this week. It plans to step up lending to around $16 billion annually in 2009-10, focussing mainly on “middle income” countries.
Haruhiko Kuroda, the bank’s president, yesterday urged Asian economies not to rely entirely on multilateral and bilateral official financing – notwithstanding the stepped-up role of his own institution – and to tap private capital markets wherever possible.
This year’s fall in capital flows means that many countries “will find it difficult, if not impossible, to finance infrastructure and social sector projects plus fiscal stimulus costs” without emergency help, Kuroda said at a briefing. But with increased support from the ADB, World Bank and bilateral sources they should be able to finance more essential investments, he suggested.
In the wake of the global crisis, many Asian countries are faced with having to pay high risk premiums to tap private capital markets, Kuroda noted. Nevertheless, he urged these countries to “explore private sector borrowing” wherever terms are not prohibitive, in order to maintain their access to global capital markets.
The CSF will meanwhile “help offset diminished external credit to developing member countries”, the ADB said in a statement. It will help “sustain growth and improve macro-economic conditions” by expanding domestic demand and production.
Indonesia is expected to be among the first beneficiaries of the new facility, which has yet to be formally approved by the ADB’s board of directors.
“This year will be the most difficult for Asia,” Kuroda told Emerging Markets separately in an interview. “The crisis should be over by next year, because the global economy will start to recover,” he said.” But the aftermath may continue for some time [and] only from 2011 will medium-term sustainable growth come back.”