ADB finds the 'Asian century' tantalizingly close
More infrastructure and banking reforms are needed to unlock region's potential
KENTARO IWAMOTO, Nikkei staff writer
YOKOHAMA, Japan In just five decades, Asia has changed beyond recognition, the Asian Development Bank was keen to inform participants at its 50th annual meeting, held in Yokohama from May 4.
A promotional video played repeatedly during the four-day event trumpeted this message, and with good reason. When the ADB was established in 1966, Asia was the poorest region in the world. Its annual per capita income of around $100 was less than one-fourth the figure for Latin America and below that of sub-Saharan Africa. Today, Asia accounts for one-third of global gross domestic product and contributes more than half of the world's economic growth, according to the bank.
But numbers can be deceptive. China, India, Indonesia, Pakistan, the Philippines and Bangladesh are now considered middle-income countries, yet these six Asian nations are home to almost half of the world's poor.
UNFINISHED BUSINESS Participants at the ADB meeting acknowledged that the region still faces many challenges, including new ones, such as the rising tide of protectionism. Adapting to these challenges will be the true test of whether the 21st century will be Asia's century -- something the ADB has dreamed of for the last 50 years.
"While the region has done remarkably well, we cannot be complacent -- 330 million people still live in absolute poverty, on less than $1.90 a day," ADB President Takehiko Nakao said in his opening speech on May 6.
Poverty reduction was a frequent topic of discussion at the event. In his closing remarks the following day, Nakao vowed that the bank will support the poorest and most fragile nations. "Reducing poverty will remain our major focus," he said.
Representatives from the region's emerging economies spoke of the challenge of making further progress. "Not many middle-income countries can make the move up to high-income countries. It will require quite an investment in human capital," said Indonesian Finance Minister Sri Mulyani Indrawati.
Shaktikanta Das, India's secretary for economic affairs, said: "In 1990, 90% of Asian people lived in lower-income regions. In 2015, 90% became middle class. The challenge is to sustain that momentum and move from middle income to high income. Initial steps are always the easiest."
Over the course of the ADB's history, only a few economies, such as those of South Korea and Taiwan (which the ADB refers to as Taipei, China), have made the leap from low to high income. China could be next.
China's Justin Yifu Lin, director of new structural economics at Peking University, pointed out that when China's per capita GDP reaches $13,000, something forecast to happen by 2025, it will mark a major statistical shift. "Currently, only 15% of the global population lives in high-income countries," he said. "When China becomes a high-income nation, then 34% of the world's people will do so."
While those numbers are encouraging, China's rural farmers will likely have little to celebrate as inequality between them and the residents of rich coastal cities continues to widen.
Aging societies, resilient cities, climate change and public transportation were also prominent themes at the meeting.
Top ADB officials identified infrastructure development as a key to growth and a solution to various problems. Vice President Stephen Groff, speaking at one of the event's seminars, said there is an inverse correlation between infrastructure and poverty. "Infrastructure is critical to reducing poverty and promoting development," he said.
The region's financial system was another hot topic at the meeting. Since the 1997 Asian financial crisis, emerging economies in Asia have become more resilient to currency shocks thanks to the Chiang Mai Initiative Multilateralization, a framework for currency swaps.
NEW RISKS, NEW TOOLS Participants nevertheless pointed out looming risks to the region, such as protectionism and U.S. interest rate hikes that could pull capital out of emerging economies.
"The immediate challenges facing us stem from prolonged global uncertainties, including the backlash against economic integration and inward-looking policies," said Yoo Il-ho, South Korea's minister of strategy and finance. "Looking back to the past, we [have] witnessed free trade and financial integration lift hundreds of millions of people out of poverty," he added.
Participants also talked about new tools that are helping change the lives of the poor. Speaking at one seminar, State Bank of India Chairman Arundhati Bhattacharya said her country's digital banking program, which makes use of personal ID numbers, has empowered poor and illiterate Indians in living rural areas.
Under the system, every Indian citizen receives a 12-digit ID number tied to biometric data -- a photo, fingerprint and iris scan. This allows people to withdraw and deposit cash or transfer funds using only a fingerprint. "You don't need a card. You don't need a PIN. You don't need to remember anything," Bhattacharya said.
WORKING TOGETHER Participants at the Yokohama meeting also highlighted the importance of regional cooperation among governments, multilateral development banks and the private sector, saying the ADB cannot act unilaterally or raise funds alone.
Nakao was repeatedly asked about potential rivalry between the ADB and the China-led Asian Infrastructure Investment Bank. "We don't need to regard the AIIB as a kind of rival, because there is a very large need to [provide] finance, so we can cooperate," he said.
Participants also highlighted the highly interconnected nature of today's world.
"Your domestic policy is no longer domestic, because any policy is going to have a spillover to the rest of the world," Indonesia's Indrawati said in one panel discussion. "If 50% of the world lived in high-income countries, we will be consuming too much electricity," she said.
By 2030, more than 80% of the world's middle class will live in the megacities of the developing countries and account for 70% of global consumption, said Anthea Mulakala, director of international development cooperation at the Malaysia-based Asia Foundation. The growth and development of southern countries, particularly those in Asia, will continue to change the global balance of power.
"To make this truly the Asian century, Asia has to embrace change," the ADB's promotional video said.
This holds true not only for the region but also for the lender itself. To propel Asia to the next stage of growth, the ADB will have to expand and improve its own functions and foster greater cooperation with other institutions.
Nikkei deputy editor Ken Moriyasu and staff writers Tsubasa Suruga and Alexander Martin contributed to this report.