Sachs: Asia should spend its way out of crisis
By GEMMA BAGAYAUA, abs-cbnNEWS.com/Newsbreak | 01/08/2009 1:24 AM
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In a lecture organized by the Asian Development Bank (ADB), renowned economist Jeffrey Sachs said Wednesday that increased public spending, backed by Japanese financing, could be Asia’s ticket out of the current financial crisis.
The “happy thing” about this is, according to Sachs, “is that Asia needs all of that desperately.”
To begin with, Asia has been chronically under-investing in critical sectors such as energy sector, pollution control, roads, public housing, ports, education, health and sustainable development, according to Sachs.
There is enough demand for goods and services in these sectors, he said, to offset declining consumer demand from US and Europe.
“This is still region of the world with the fastest growing population, with the most dramatic need for pollution control, for sustainable development, for accommodating migration of hundreds in suburban areas,” Sachs said.
These considered, public spending can have a very high social return apart from economic purpose right now “if it can be implemented in a responsible way,” he said.
Sachs noted that Asia has no balance of payment constraints, no inflation constraints, and no credit constraints that could stop the region from spending its way out of the crisis.
Credit needed
What has been preventing governments from the spending more on these sectors, Sachs noted, is lack of long-term financing, which Japan, with its ample reserves and strong currency can easily provide.
The move can also help Japan control its rapidly appreciating currency, which is already hurting Japanese companies. Japan’s expansionary policies are not enough, according to Sachs.
“Since Japan is very reluctant to expand its own government investments, maybe it could expand other countries’ government investments,” he said. Japan should be making the yen available to South Korea and other Asian countries through credit in order to bolster regional finances.
“I am talking about printing press. Japan is not printing enough money. It has ample room for open credit expansion. It would help the Japanese econ and the rest of Asia if Japan does this,” he said.
Room for growth
With trillions of dollars in reserves, current account surpluses and booming economies in general throughout the region, Sachs said the extent at which Asia is currently affected by the crisis is “a puzzle.”
Asia has felt the crisis in three ways, Sachs observed:
- Some decline in the housing values in some parts of Asia but “not enough to lead to a region wide recession”;
- Very sharp decline in stock market prices which is “big enough” to lead to “meaningful decline of growth but not enough to throw the region into serious crisis”.
- Withdrawal of credit lines from abroad which has affected some countries, particularly South Korea.
The direct multiplier effect of decline of demand from US and Europe also affected Asia , Sachs noted.
But of all economies in the world, he said, Asia has the best chances of pulling itself out of the crisis. All that is needed is change in policy.
“There is a lot of room to maintain growth in Asia that is not solidly fulfilled under current policy environment,” he said.
Countries that are seeing a withdrawal of credits should accommodate those withdrawals through adequate expansion of domestic monetary policies. Instead, he said, it seems that countries are hoarding their reserves. “Reserves should be used to offset the withdrawal of international credit lines.”
Sachs conceded that there is no “one size fits all” remedy to the situation. The emphasis here, he said, is on countries with surpluses and adequate if not robust fiscal position. “This should judge how much room there is to maneuver.”
Also, any fiscal policy should be put into a medium-term scenario. Since loans will eventually have to be paid, there has to be provision for user fees or tolls for roads, to finance infrastructure spending so as not to bust all national budgets.
Keeping corruption down is also important. In the end, he pointed out, governments have to somehow repay the loans. To prevent leakage through corruption, procurement in infrastructure should be made as transparent as possible.
Influential economist
Sachs has been invited by the Asian Development Bank to Manila under the Distinguished Speakers Program to speak on the topic “Achieving Global Cooperation on Economic Recovery and Long-Term Sustainable Development Goals.”
Named one of Time Magazine's "100 Most Influential People in the World" several times, Sachs heads the Millennium Project, which was commissioned by the United Nations Secretary-General in 2002 to develop a concrete action plan for the world to achieve the Millennium Development Goals and to reverse the grinding poverty, hunger and disease affecting billions of people.
As Director of the Earth Institute, he leads large-scale efforts to promote the mitigation of human-induced climate change.
He also teaches at Columbia University, is a Special Advisor to U.N. Secretary-General Ban Ki-moon, and has authored numerous books and articles, including The End of Poverty and Common Wealth, both New York Times bestsellers.
