Asia has become a key part of the world economy, not only in terms of its economic size, but also in terms of its influence in global economic and financial developments. In the recent decade, it has emerged as the fastest growing region, contributing almost 40% of global output, one-fifth of world trade and nearly two-thirds of the world’s international reserves. This economic progress and growing economic prosperity have reduced income disparities and increased economic opportunities to more than half of the world’s population that reside in Asia, with per capita income rising about 6% per annum in this recent decade.
There has been an increase in the potential for Asia to be an important engine of growth in the global economy through the strengthening of its trade and investment relationships. In this process, Asia will contribute towards the rebalancing of global growth and towards the adjustment of global imbalances. It will also have an important role in facilitating the efficient allocation of funds by rechannelling its large current account surplus into productive investment, thereby spreading growth opportunities in the region and in the world.
Growth momentum
The growth momentum in Asia has been derived, for the most part, from several factors, including the strengthening macroeconomic and financial sector fundamentals, the diversified economic structures, a large skilled workforce and economic flexibility. These factors have cumulatively served to spur the development of a more competitive region.
To achieve full growth potential in the region, a priority is to accelerate regional integration and deepen co-operation. Greater financial integration would serve as a powerful impetus for the expansion of international trade and investment, and promote a more efficient allocation of capital. The increasing risks arising from large and volatile capital flows and the sudden shifts in risk premia in the global financial markets and in the major economies reinforces the case for strengthening regional co-operation. The nature of these inherent risks warrants deeper co-operation to promote a better understanding of the market dynamics and a better ability to anticipate and manage risks, thereby securing regional and global financial stability.
Efforts to enhance the effectiveness of regional economic and financial surveillance, and to establish regional support mechanisms, have been intensified. And efforts have been made to develop the bond market, and strengthen domestic capacities in the financial sector and macroeconomic management, Islamic financial services and anti-money laundering. Efforts are now being focused on strengthening surveillance, market development, improving arrangements for crisis management and capacity building.
The vision is for Asia to emerge as a regional bloc that will support a balanced global growth and enhance financial stability in the international financial system. A key strategy is to accelerate integration and co-operation. With the pronounced diversity in the region, due consideration must be given to a more inclusive engagement of the regional economies. An equally important part of the process is that the complementarities between the international financial institutions and the region are optimised to avoid duplication of efforts and maximise the synergies in the partnership. This would require a realignment of the myriad initiatives taken at both the regional and multilateral levels to achieve greater clarity of the respective roles.
Complementary roles
It is important to recognise the respective potential strengths of the region and the multilateral agencies and how the benefits of their complementary roles can be maximised. Defining the areas of co-operation needs to be carefully weighed against a number of factors, including the concentration of where the experience, expertise and knowledge base traditionally resides. It is important to recognise that there are areas that will need to reside with the regional economies and areas where regional and international co-operation can enhance the capacity of the national authorities to achieve the desired results.
Asian participation in the global economic and financial system is set to increase exponentially. As the countries of the region connect with each other and the rest of the world, there is every reason to hope for a better future of sustained stability and enhanced growth prospects for the benefit of the regional and international economies.
Tan Sri Dato’ Sri Dr Zeti Akhtar Aziz is governor of the Central Bank of Malaysia.
