ADB panel discusses ways to avoid 'middle income trap'

Rising labor and other production costs are threatening Asia’s competitiveness and preventing many countries from transitioning beyond the hard-won middle income status they have attained in recent decades, said a recent seminar audience.

“The gradual loss of cost advantage in Asian economies may lead to a ‘middle income trap,’ whereby middle income countries cannot compete with low-cost producers at the lower end of the market or with advanced nations at the high end of the market,” ADB Vice President for Knowledge Management and Sustainable Development, Ursula Schaefer-Preuss told the participants of the seminar.

The seminar, “Middle-Income Asia: Policy Challenges Ahead,” looked at the challenges faced by middle income countries such as the People’s Republic of China, India, Indonesia, and Vietnam as they seek to attain higher levels of development.

These include maintaining stable economic environments, developing human capital, improving governance, and tackling growing inequality.

Vice President Schaefer-Preuss noted that the robust economic growth that elevated much of Asia to middle income status over recent decades has lifted hundreds of millions of people out of poverty.

But she warned that around 1.8 billion still live on less than $2 a day – and will continue to do so unless reforms enable middle income countries to escape or avoid the “middle income trap.”

ADB Chief Economist Changyong Rhee raised some questions that need to be addressed by policymakers, building on the experience of the Republic of Korea in the mid-1990s in its transition from medium- to high-income levels.

“As Korea’s experience shows, middle income economies need to resolve issues on the use and extent of industrial policy, the proper roles of the banking sector and capital markets in allocating risk, how to diversify manufacturing-centered employment, and avoiding geographic inequalities at the start of the transition process to avoid problems later on,” said Mr. Rhee.

Citing the success of Japan in achieving a high economic status, Kenichi Ohno, Professor, National Graduate Institute for Policy Studies, stressed the importance of a proactive industrial policy, private sector dynamism, continuous human capital accumulation, and a national campaign to “energize a sleepy private sector into action.” “Only those countries that establish a national internal mechanism to promote and even force human capital accumulation can escape from the trap and attain high income as this helps create values that the world wants,” he said.

In addition to Vice President Schaefer-Preuss, Mr. Rhee, and Mr. Ohno, other speakers at the seminar were Ravi Kanbur, Professor of Economics, Applied Economics and Management, Cornell University; Robert Mundell, Winner of Nobel Prize in Economics in 1999 and Professor, Economics Department, Columbia University; and Dwight Perkins, Professor, Economics Department, Harvard University.

Efficient infrastructure connectivity to sustain Asia-Pacific's growth: ADB

Infrastructure in Asia and the Pacific must not only be strengthened and expanded but also enable the cost-effective movement of goods, services, and people across boundaries if the region is to sustain robust economic growth in the decades to come.

“Connectivity through infrastructure is critical for sustained economic and inclusive growth. Cross-border infrastructure helps raise household incomes through improved access to markets and increased access for the poor to grasp economic opportunities and take advantage of basic social services,” ADB Managing Director General Rajat M. Nag said at a seminar here during ADB’s 44th Annual Meeting.

The seminar, “Regional Infrastructure Development for Asia’s Connectivity: Current Progress, Challenges, and Ways Ahead,” looked at the challenges to enhanced regional connectivity, including the financing and coordination mechanisms required for priority projects, such as the Asian Highway and Trans-Asian Railway, and the need for improved policies and procedures to spur trade and economic development.

The Asian Highway and Trans-Asian Railway represent about 250,000 kilometers of road and rail networks connecting capital cities, major industrial zones, and other important commercial areas. ADB has helped finance about 18,000 kilometers of the Asian Highway, accounting for 13 percent of its total length.

ADB is currently conducting a joint study with the United Nations Economic and Social Commission for Asia (UNESCAP), which launched the Asian Highway and Trans-Asian Railway networks, to identify high-priority projects that will link Asia’s production networks and supply chains with regional markets.

The Asia and Pacific region requires some $8 trillion in infrastructure investment between now and 2020, and ADB and the Asian Development Bank Institute (ADBI) recently produced a trilogy of studies recommending four key steps to address infrastructure deficits and distributional imbalances.

Hiroshi Watanabe, President and Chief Executive Officer, Japan Bank for International Cooperation, said “Region-wide infrastructure can take care of the needs of smaller countries and those of the bottom-billion people.

The key priorities of Asian infrastructure development are transportation and power-grid systems, which should be enhanced based on regional supply and demand.”

Other speakers at the seminar were Iwan Azis, Head of ADB’s Office of Regional Economic Integration; Subodh K. Goel, Chairman and Managing Director, India Infrastructure Finance Company Limited; Nagesh Kumar, Chief Economist with the UNESCAP; and Andrew Yee, Global Head of Infrastructure Principal Finance at Standard Chartered Bank.

Micro-insurance can help poor brace up for future: experts

Micro-insurance is a key tool to help the world’s poor cope with unexpected setbacks, a panel of Asian Development Bank (ADB) experts said.

The panel, titled “Protecting the Bottom Billion the Private Sector Way”, said micro-insurance provides a prime opportunity for private sector insurers to help a large, underserved customer base and still make a profit.

Many of the worlds poorest remain mired in poverty because a sudden illness or death in the family, crop failure, or natural disaster causes an unexpected loss of income or large expense. Others can be pushed back into poverty by these same events.

Micro-insurance -- low-cost insurance for low-income people – can help the poor cope in such times of difficulty, allowing them to plan for a better future.

President Bill Clinton, founder of the William J. Clinton Foundation and 42nd President of the US delivered an introduction to the seminar via video.

Micro-insurance is not yet available to the vast majority of the nearly 2 billion who live on less than $2 a day in Asia and the Pacific. In part that is because regulation and supervision, where it exists, does not support insurance products aimed at the poor.

Private insurers have been slow to provide Micro-insurance given the regulatory uncertainties and the difficulties of delivering policies and paying small claims on such a vast scale.

Those companies already offering Micro-insurance, by contrast, report strong demand and predict growth in the sector. That suggests there is interest in using such products when regulatory circumstances allow.

Low-income clients also look for policies that are offered at a price they can afford and in a way they can understand and use, the panel said.

“There is a huge untapped market for Micro-insurance for lower-income households. The commercial sector will drive the dramatic expansion of the industry, but we will have to address it in a systemic way across the value chain,” said Michael McCord, President of the Micro-insurance Centre.

ADB has, in recent years, spent $4.4 million to promote Micro-insurance in Sri Lanka, Bangladesh, the Philippines, and elsewhere.

In 2010, it allocated $750,000 to help develop the nascent Micro-insurance markets in the People’s Republic of China and Mongolia where there are over 200 million potential clients.

The panel, a part of the ADB 44th annual meeting held in Hanoi, Vietnam, was moderated by Dean Karlan of Yale University, a noted evaluation expert on tools for access to finance, and, as well as Mr. McCord, comprised Doug Barnert, Executive Director of the Group of North American Insurance Enterprises; Evangeline Crisostomo Escobillo, Advisor to the Board of Phil Plan Inc. and former Insurance Commissioner of the Philippines, Tilman Ehrbeck, Chief Executive Officer of the Consultative Group to Assist the Poor; and Andrew Kuper, Founder and President of LeapFrog Investments.

Source: VNA