政府新闻
亚洲开发银行前行长表示，全球经济危机主要是由外部因素造成的 2022-09-14
Soon after the Federal Reserve of the US started a new round of raising interest rates, markets began to price the ongoing recession in Europe and the US. The emerging markets also signalled currency devaluations, debt defaults and the risk of depletion of their foreign reserves. People from the East to the West begin to wonder if a worldwide economic crisis is coming.
As for dealing with the economic crisis, few people are more familiar than Takehiko Nakao, former President of the Asian Development Bank. As a veteran of crisis management, Nakao has experienced and won various tough battles in his career.
The exchange rates of the Japanese yen went up and down in 2011 and 2013 like a roller-coaster and reached a height of 75.3 yen per US dollar. The Japanese government had to intervene in the foreign exchange market. Nakao experienced that fight as the Vice-Minister for International Affairs of the Japanese Ministry of Finance.
In his seven years of experience as the president of ADB starting from 2013, Nakao witnessed economic success in many counties, as well as various crises and recessions, and the lack of infrastructure construction and many other challenges. In his memoir “The Rise of Asia: Perspectives and Beyond”, which was published in July this year and is available from the home page of the ADB, he said that Asia achieved great success in economic development, but there are still many works that need Asian Development Bank to continue to provide support.
In a recent exclusive interview with the Yicai at a seminar organized by the International Finance Forum (IFF), Nakao said that economic crises happen from time to time, and the causes are different each time although there are similarities as well. So, people should not simply compare them with the previous one. For example, there are more external causes of the ongoing global economic recession than internal ones. He believes that the Asian economy will recover strongly in the future, and by the mid-21st century Asia will be about the half of global GDP.
"Over the past 50 years, industrialization, technological progress, the demographic dividend and globalization have created an Asia miracle. Efficient economic policies, the support of international institutions, the determination on reforms, hard-working and well-educated people, and the vision of Asian leaders are what has driven the rapid development of different Asian countries."
The followings are the interview with Takehiko Nakao.
Yicai:
How do you see the current challenges of Asia and the whole world? In compared with previous crises, what are the similarities and differences?
Takehiko Nakao:
The last Global Financial Crisis culminated by the collapse of Lehman Brothers in 2008, started from real estate sector in the US and gradually festered in the financial sectors. The essence was that the US real estate sector was over-leveraged, homebuyers were over-borrowing, and the banking sector was less aware of risk control, which led to a liquidity crisis and a full-blown financial crisis. There are similarities in terms of excessive financial activities and over investment in the Asian Financial Crisis of 1997-1998 and the Global Financial Crisis.
Since 2020, the global economy has faced more challenges from external sources, mainly due to the epidemic and the situation in Ukraine. At the beginning of the epidemic, countries adopted embargo policies, leading to disruptions in global supply chains. At the same time, developed countries, represented by the US, adopted expansionary fiscal and monetary policies, which eventually caused global supply to fall short of demand, which in turn drove inflation ever higher. The escalating situation in Ukraine has further exacerbated the risk of supply chain disruptions, especially energy and food, and exacerbated the inflation problem. To curb inflation, many central banks are now adopting tight monetary policies, exposing their economies to the risk of stagnation and a hard landing.
The 2008 crisis started from within the financial system and was endogenous, while the current economic problems are exogenous. This means that the two crises do not have much in common and that how governments will respond to them in the future will not bear much resemblance to 2008.
Yicai:
The yen has lost 30% of its value so far this year. What are the reasons for the depreciation of the yen from the international and domestic economic perspectives? What impact will this have on the Japanese economy?
Takehiko Nakao:
Many factors may affect the appreciation or depreciation of a country's currency, such as monetary policy, the balance of payments (especially by the current accounts and long-term capital account), and purchasing power parity in the long run, etc. This round of yen depreciation is closely related to the divergence of US and Japanese monetary policies and the widening of Japan's trade deficit. During the Fed's interest rate hike, the Bank of Japan continued to adhere to its ultra-loose monetary policy by maintaining short-term interest rates at the level of minus 0.1%. As of July, Japan has been running a trade deficit of goods and services for 12 consecutive months due to higher energy prices and lower exports of services such as tourism.
There are pros and cons of depreciation, but currently, the cons of the Japanese economy are stronger than the pros. Firstly, Japan is a major energy importer. Depreciation of its currency will probably create a vicious circle. Higher energy prices will widen Japan's trade deficit, which leads to a weakening yen, which may raise the yen-base energy price. Secondly, as for trade in services, the limited number of international tourists coming to Japan due to the epidemic has prevented Japanese tourism and other services from enjoying the dividends of a depreciating currency. Thirdly, in terms of trade in goods, although the devaluation of the yen should boost exports in sectors such as automobiles, the impact is not as large as before because manufactures have moved their production abroad. It has also increased the cost of raw materials they import.
From the people’s perspective, the weaker yen will also have many cons effects. For example, the Japanese people's yen-denominated assets will shrink. At the same time, Japanese households suffer the increase in the prices of imported goods. When they go abroad, they are shocked by high prices of restaurants and hotels.
Yicai:
Why is the Bank of Japan still able to maintain a loose monetary policy? When the yen keep on depreciation, will the Ministry of Finance intervene in exchange rate depreciation by using its foreign exchange reserves?
Takehiko Nahao:
Inflation and employment are usually the two main objectives of central banks' monetary policy. In recent months, Japanese inflation was 2.4% to 2.6%, which is much lower than the 8% to 10% level in the EU and the US. Furthermore, the wage level of Japan remained stable. According to the Ministry of Health, Labour and Welfare, real wages per ca-pita in Japan have decreased by 1.3% year-on-year as of July and have been negative for four consecutive months, suggesting that inflation in Japan has also not developed stickiness.
In early 2013, the Bank of Japan, the Central Bank, set an inflation target of 2%. Since then, inflation has not picked up, suggesting that the Japanese economy has continued to be more disturbed by deflation than inflation and that a slight uptick in inflation may be pleasing to the Bank of Japan but not enough to change its policy.
As a country with a floating exchange rate regime, Japan does not intervene in the foreign exchange market unless rapid and speculative moves are identified. However, this does not mean that Japan is happy to let the yen depreciate. If the yen’s depreciation accelerates, the Ministry of Finance may "warn" the market by the intervention.
The impacts of Fed’s new round of interest rate hike
Yicai:
This year, the Federal Reserve has entered a cycle of raising interest rates, which has brought a greater impact on Asian emerging markets. For example, Sri Lanka's foreign exchange reserves have dwindled to the point where it can no longer pay for basic commodities and repay debt. What impact do you think the Fed's rate hike will have on emerging markets? Will it turn to be a perfect storm for emerging markets?
Takehiko Nakao:
The Fed's interest rate hike has driven the US dollar and US bond yields higher. There are three main transmission channels to emerging markets. First, a stronger US dollar will push other currencies lower, pushing up inflation in emerging market countries. Second, a stronger US dollar will push up the cost of external debt servicing for sovereign governments that borrow in US dollars. Thirdly, a stronger dollar, overlaid with possible capital flight, will shrink foreign reserves in many countries.
In order to stop the depreciation of the local currency and capital outflows, many governments have used large amounts of foreign reserves. However, many governments are still unable to stabilize the exchange rates. In this sense, there is a risk of inflation spreading in Asian emerging markets, a wave of balance of payments difficulties and the depletion of foreign reserves.
But most of the Asian emerging economies are much more resilient to external shocks compared to the time of Asian Financial Crisis in the late 1990s thanks to sound macroeconomic policies, stronger financial sectors, and building-up of foreign exchange reserves. Sri Lanka and Pakistan have many problems of their own. For example, the Sri Lankan government has placed too much emphasis on major infrastructure development by borrowing from abroad and the development of foreign exchange-generating industries has been slow because of long domestic conflicts and socialistic policies. As tourism and remittances from abroad suffered significantly, the country's foreign reserves naturally fell sharply. In addition, the change of government has increased political instability.
Yicai:
What precautions should emerging Asian economies take during the Fed rate hike?
Takehiko Nakao:
They should monitor capital flows carefully and take necessary responses in terms of monetary and macroprudential policies. These countries also need to improve their own economic structures, such as limiting government fiscal deficits and promoting structural reforms.
In case of Sri Lanka, Pakistan or other countries facing the balance of payments problems, they can seek help from international financial institutions such as the International Monetary Fund (IMF) and the Asian Development Bank and open negotiations with creditors, including China, Japan and India. For example, Sri Lanka has reached a preliminary agreement with the IMF on a loan assistance package of about US$2.9 billion. However, it is also important to note that any disbursement of funds could take weeks or even months, and the IMF's Executive Board would need to obtain assurances of macroeconomic policy adjustments and debt relief from Sri Lanka's creditors.
Yicai：
Financial cooperation among Asian countries is currently limited in comparison to the intense trade ties. Can the example of the EU serve as a model for how to look at the future of economic integration in Asia?
Takehiko Nakao：
Currently, many Asian countries have downward pressure on their economies. They need to strengthen economic and trade cooperation in order to boost economic growth. The flying geese model in which Japan flied in front is no longer suitable for Asian countries. A "network model" in which each country has its own strengths works. It means many countries enjoy the dividends of production chains and boost their economies through trade.
The unique European integration is driven by the common culture, religion and historical roots of the European counties. These factors do not exist in Asian countries. In addition, the level of economic development is much more diverse in Asia than in Europe. At least in Asia, it is similar to saying that man and woman can be good friends, but may not necessarily form a family.
Even in Europe, the economic integration process has many challenges. For example, Euro countries have adopted a single currency and unified monetary policy, but fiscal policy is fragmented. After the ECB started to raise interest rates, the sovereign debt issues of countries such as Italy increased steeply.
I believe that financial cooperation among Asian countries can be strengthened in the future, but the process of financial integration may not and need not advance to the extent of the Eurozone.
Source: Yicai
