MACTAN ISLAND, Cebu- Bangko Sentral ng PIlipinas (BSP) Governor Amando Tetangco Jr. said that while Asia has proven its resiliency during the 2007-08 global economic crisis, the risks remain, thus, the focus to prevent experiencing the new mediocre.
In his speech during the Official Monetary and Financial Institutions Forum (OMFIF) event here Monday, the central bank chief said emerging challenges in the global economy will continuously test the resilience in Asia.
Asia's ability to withstand these shocks will crucially depend on the structural reforms and pro-active policies that it will undertake to key areas. A misstep in this direction and Asia may also become the 'new mediocre', he said.
Tetangco said the region's resilience was rooted on the lessons learned from the 1997 Asian financial crisis and the measures adopted after that to ensure strength on the financial, structural and institutional levels.
He said Asian leaders adopted a more proactive and rigorous approach to banking supervision along with the implementation of macro-prudential measures.
Flexible exchange rates allowed Asian central banks to accumulate foreign reserves that now served as buffers against capital outflows, he said.
The BSP chief said measures were implemented not only on the national level but regional level through the ASEAN Surveillance Process, ASEAN+3 Economic Review and Policy Dialogue, the Chiang Mai Initiative, and the Asian Bond Market Initiative.
He, however, said impact of the measures on new risks was yet to be seen.
He said the rising protectionist policy, particularly in the US, was not that clear since most of it was just rhetoric.
There are still no clear policies, only desired directions, he said.
In the case of the Brexit, Tetangco said that although UK has moved to trigger the Article 50 of the Lisbon Treaty the negotiations for the formal exit can take some time.
Risk from the rising interest rate in the US and ambiguity of monetary policies in advanced economies are seen to result to capital outflows and higher asset prices in Asia. Tetangco said these factors could result to currency depreciation and inflationary pressures.
Investors' sentiment could be affected by these factors along with domestic vulnerabilities and slow implementation of reforms, he said.
The middle income trap also served as a risk for the region as emerging economies found it hard to sustain its strong growth, he said.
Citing Asian Development Bank (ADB) projections, the central bank chief said the region's potential growth appeared to have slowed by about two percentage points in the recent years.
Sustaining growth through the middle-income band requires significant reforms to the institutions of economic policy making and political processes. Thus, for Asian countries to avoid the middle-income trap, sound macroeconomic policies that can effectively counter boom-bust cycles can be looked at, that create opportunities given favorable demographic trends, polices that promote education and infrastructure, build strong governance and institutions and foster greater trade integration, he said.
Prudent policies should also be put in place to address demographic differences in the region, with some countries like the Philippines, India, Indonesia and Malaysia benefiting from a younger population contrary to the situation in Japan, among others.
Tetangco said Asia was seen to remain as among the world economy's strong foundation but challenges remained, thus, the need to implement measures to further prop the region.
Source: Philippines News Agency