Asian economies shun global ‘political divisions’ as they chase growth

Expect all eyes on Asia in 2023: India will host the Group of 20 major economies this year after taking over from Indonesia, and Japan will head the Group of Seven. India is buying Russian oil as it mitigates the fallout from the war in Ukraine and remains focused on its own economic development — and other countries in Asia are expected to do the same, according to the chief economist of the Asian Development Bank. Many lower- and middle-income countries want to avoid getting dragged into geopolitical tensions, fearing it will damage their economic prospects and the fight against poverty, Albert Park told Devex in an interview looking ahead to the new year. “People want to get on with development and stay away from political divisions,” he said. A former professor at Hong Kong University of Science and Technology, Park now heads all things research at the bank. The Manila-based ADB has 49 members in Asia and committed $22.8 billion in financial support in 2021 alone. It also has a total of more than $130 billion in outstanding lending, making it a key regional development player. The bank, which is undergoing significant reforms, recently lowered its growth forecast for developing Asian economies. Park told Devex his three main risk factors for 2023 are the global growth slowdown, China’s COVID-19 lockdown policy, and the war in Ukraine. The following conversation, which took place at the ADB’s Washington office, has been edited for brevity and clarity. What are the specific risks to the lower- and middle-income countries in the region? For some poorer countries, they have struggled to recover from COVID, and then they got hit with the commodity price challenges. If you get hit by multiple shocks, it gets harder and harder to deal with those. The government will try to first protect vulnerable groups and that has been the instinct of most governments in the region. The other instinct is to get growth back on track. Obviously, the fiscal space has started to shrink as growth rates are slowing and interest rates are rising. And that’s making debt more expensive to repay. We’ve seen debt levels creep upward and many are at very high levels. We’ve seen some countries really struggle, like Sri Lanka and Pakistan. Are you worried about spillover from countries such as Sri Lanka to others in the region? We don’t see it spreading. In Asia, most countries are pretty well managed. And not in all countries, but in many countries, much of the debt is in local currency. It’s not hot money that will move out in a crisis. And that it is in local currency makes it easier to repay as well, doesn’t it? Yes. If you go back to the [1997] Asian financial crisis, it was this short-term, dollar-denominated debt that really started to lead this movement of hot money out. There is really just much less of that now. ADB has supported the development of local bonds for years now. We’ve also created a bit more flexibility in providing budgetary support to deal with some of the countercyclical issues countries are facing. Overall, we want to be a friend in times of need. What are the specific development challenges you see in the years ahead? Are there any Sustainable Development Goals you see as being most at risk? It will vary by country. There are a lot of fundamentals in the region like FDI [Foreign Direct Investment], which have been resilient. And this still reflects good growth prospects in the region going forward. And macroeconomic management has been relatively sound. It’s just about managing this difficult period, with lots of growth headwinds. Some countries will struggle more than others. If you take out China, our growth projection for the region is 5%, which is pretty decent, all things considered. Does that growth then get translated into poverty reduction? It’s unclear. We don’t have very good data on how poverty fared during the pandemic and where it is now. During the pandemic, there was definitely an instinct to expand social protection for vulnerable groups. Whether that can be sustained now is another question. [Emerging and developing countries] want to have an orderly global environment, multilateral frameworks, so they can get on with the task of development. --— Albert Park, chief economist, Asian Development Bank Are you concerned about food security in the region? We are definitely concerned about food security. We announced at our annual meeting [in September] $14 billion to address food security in the region. Really, the focus is on supporting more sustainable agricultural production. It starts linking to the climate change focus of the bank to make agricultural systems and food systems more resilient. How are governments in the region handling climate change? Will this be more of a priority? Our president has announced that ADB will make climate change a priority focus, with $100 billion of climate lending by 2030. And there is a big effort to bring climate into everything the bank does. And countries in the regions too have opened up to the urgency of the climate agenda. Many have made net-zero commitments. Do you see a trade-off between the climate agenda and fighting poverty? Will the transition away from coal spur growth and development? We like to question the either-or narrative, especially now that renewables are a cheaper source of energy than fossil fuels. There are still some constraints. You can’t shift all of your energy to renewables because of intermittency issues and having stable grids. The mix differs by country. But certainly, a lot can be accomplished without suffering a large development trade-off. And there is still plenty of work to do. So what is the role of the ADB and other international financial institutions? At ADB we are working to leverage a lot more private sector investments than in the past. ADB and other multilateral banks can serve a key intermediary role as trusted partners. Governments and private sector partners trust us. We can de-risk some of the concerns that private investors have. Multilateral development banks can make projects more attractive and remove impediments. The big summits are in Asia this year. Indonesia, as you mentioned, was the G-20 host in 2022, and India has taken over for 2023. And Japan has the G-7. What do you hope comes out of this focus on Asia? I am particularly hopeful and more invested in the G-20 than the G-7, as the G-20 is more constructed to have a stronger voice for emerging markets and developing countries. And the indications are the Indians are going to build on the very good progress made under the Indonesian presidency, which was done under a very trying diplomatic environment. India is very much focused on cooperation — to get past the geopolitical tension and refocus on cooperating. To get past those challenges to get to solutions. I think this is a very sincere perspective of many emerging and developing countries. They want to have an orderly global environment, multilateral frameworks, so they can get on with the task of development. Are you optimistic about multilateralism going ahead? It’s hard to say. The U.S. seems set on a course, at least in the high-tech sector, on competition with China, and trying to delink. I don’t see that changing so much in the near term. The perspective in Asia is still a little different, as most countries in the region agree on promoting development and regional frameworks. We think that’s good for growth and reducing inequality. And it lends a certain sense of optimism and pragmatism.