Full Report - Subregional Office for East and North-East Asia - escap

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ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2013 Figure 1.8. Fluctuations in equities in developing Asian economies since QE3, MSCI Asia excl. Japan equities index 580 560 Day before QE3 announcement 540 520 500 480 460 440 420 6-Sep-2012 20-Sep-2012 4-Oct-2012 18-Oct-2012 MSCI index 1-Nov-2012 15-Nov-2012 29-Nov-2012 13-Dec-2012 27-Dec-2012 10-Jan-2013 Source: ESCAP, based on data from CEIC Data Company Limited. Available from http://ceicdata.com/ (accessed on 21 January 2013). In the foreign exchange markets, on the back of massive capital inflows in September 2012, the Chinese yuan was pushed to its highest level since the official and market exchange rates were unified at the end of 1993. The progressive strengthening of the yuan against the dollar continued into the latter part of 2012 (see figure 1.9). Some regional currencies also experienced rapid short-term appreciation; the Thai baht gained about 0.57% against the United States dollar a day after the announcement of QE3 relative to the day before, while other regional currencies appreciated at a slower but more steady pace, such as the Korean won which was up 1.81% against the United States dollar a month after the QE3 announcement compared to its level the day before the announcement. The Korean won appears to have experienced the most consistent gains, appreciating more than 6% against the dollar relative to its pre-QE3 value by mid-January 2013, with emerging concerns that this could hurt the price-competitiveness of local exporters. It should be noted that exchange rate movements are not a wholly accurate reflection of the extent of appreciation pressure, as governments have engaged in substantial foreign reserve accumulation (see figure 1.10) over recent years in order to dampen currency rises. Countries are engaging in a competition to best manage their currency values relative to their competitors in order to protect the fortunes of their export industries, an attempt which is especially important at a time of reduced export demand. This exercise, however, is extremely costly as the resulting accumulation of foreign reserves imposes significant costs on governments. One is the direct cost of earning less interest income on the reserves compared to the interest cost of the accompanying domestic monetary sterilization, while the other is the opportunity cost of alternative uses of such funds for more productive investments. However, the increase in foreign exchange reserves witnessed in a number of countries, such as Bangladesh, is a more positive development as such economies are not as exposed to global financial flows, but instead have to maintain sufficient reserves to contend with real external sector shocks. The reserves of Bangladesh and Nepal increased to record levels recently, with those of Bangladesh climbing to more than $13 billion by early 2013 while those of Nepal crossed $5 billion in late 2012, largely on the back of remittance inflows. The concern with the large amount of inflows into the region’s asset markets is the macroeconomic 30
THE STATE OF INCLUSIVE AND SUSTAINABLE DEVELOPMENT IN UNCERTAIN TIMES CHAPTER 1 Figure 1.9. Fluctuations in selected developing Asia-Pacific currencies following announcement of QE3, monthly percentage change 8 6 4 Oct ’12 Nov ’12 Dec ’12 Jan ’13 Percentage 2 0 -2 -4 China India Republic of Korea Malaysia Thailand Source: ESCAP, based on data from CEIC Data Company Limited. Available from http://ceicdata.com/ (accessed on 15 January 2013). vulnerability this creates if such flows were to reverse. As was seen during the 1997-98 Asian financial crisis, asset market prices could fall drastically and exchange rates could depreciate substantially, leading to the risk of a banking sector crisis as well as drastic loss of wealth of domestic citizens who invested in such assets. The traditional approach of governments in the region to deal with such an eventuality is to accumulate foreign exchange reserves. This method of protection, however, has been seen to be far from ideal. In recent instances when currency support was required, at the time of the start of the crisis, the amount of reserves of countries proved insufficient and some governments such as the Government of Singapore and Government of the Republic of Korea were forced to request precautionary credit lines from the United States Federal Reserve as well as from other regional governments on a bilateral basis. Calculations regarding the adequacy of reserves compared to the amount of capital outflow may Figure 1.10. Foreign reserves in selected developing Asia-Pacific economies, 2009-February 2013 250 230 Index (January 2009 = 100) 210 190 170 150 130 110 90 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 China India Indonesia Republic of Korea Malaysia Philippines Singapore Thailand Source: ESCAP, based on data from CEIC Data Company Limited. Available from http://ceicdata.com/ (accessed on 30 March 2013). 31
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UNDER EMBARGO UNTIL 03.30 GMT, THUR
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ECONOMIC AND SOCIAL SURVEY OF ASIA
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PREFACE The Economic and Social Sur
Page 9 and 10: EXECUTIVE SUMMARY FORWARD-LOOKING M
Page 11 and 12: on education and health. Indebted c
Page 13 and 14: ACKNOWLEDGEMENTS This report was pr
Page 15 and 16: CONTENTS Page Foreword ............
Page 17 and 18: CONTENTS (continued) Page Australia
Page 19 and 20: BOXES Page A. Forward-looking macro
Page 21 and 22: FIGURES (continued) Page 1.20. Ineq
Page 23 and 24: TABLES Page 1.1. Main destination e
Page 25 and 26: References to dollars ($) are to Un
Page 27 and 28: ABBREVIATIONS ADB AEC APEC ASEAN AS
Page 29 and 30: SOURCES OF QUOTATIONS (a) Page 1: a
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MACROECONOMIC PERFORMANCE AND POLIC
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DEVELOPMENTAL MACROECONOMICS: THE C
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Turkey Hong Kong, China Tajikistan
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INVESTING IN INCLUSIVE AND SUSTAINA
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Percentage of GDP INVESTING IN INCL
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❚ ❚ ✕❚ INVESTING IN INCLUSI
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207 REFERENCES
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REFERENCES REFERENCES Abdyrasulova
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REFERENCES (2012a). The debate on e
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REFERENCES (2012). World Energy Out
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REFERENCES Ma, K-H (2008). Assessme
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REFERENCES (2011b). Child Poverty i
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REFERENCES United Nations, Economic
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STATISTICAL ANNEX STATISTICAL ANNEX
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STATISTICAL ANNEX Table 2. Poverty
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STATISTICAL ANNEX Table 4. Resource
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STATISTICAL ANNEX Technical notes T
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STATISTICAL ANNEX Source: Barro, Ro
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STATISTICAL ANNEX estimates based o
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This publication may be obtained fr
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READERSHIP SURVEY The Macroeconomic
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Half a decade since the onset of th
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Full Report - Subregional Office for East and North-East Asia - escap

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