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ESCAP report: Of opportunities, challenges

G. Srinivasan

This year's ESCAP report focuses on Asia's bid to emerge stronger even as it grapples to leverage its high savings and reserves.

With 53 members and nine associates, the Economic and Social Commission for Asia and the Pacific (ESCAP) of the United Nations undoubtedly touches a large section of the planet's humanity, particularly in Asia, which is home to millions of people. With this region catching up with the rich world, this century justifiably belongs to Asia.

This year's ESCAP report, released on Thursday, speaks of energising the global economy and in the foreword to the report, the UN Secretary-General, Mr Kofi Annan, contends that many economies in the ESCAP region continue to perform impressively.

WELL-ADJUSTED

The global economy grew 3.2 per cent in 2005, down from 4 per cent in 2004, while the growth rate of the ESCAP developing countries decelerated moderately by about one percentage point in 2005 largely due to the high oil and commodity prices and the global slowdown in trade.

The report states that economies by and large adjusted well to the higher oil and commodity prices, some attenuating the effects of those prices by continuing to subsidise petroleum products and others by pre-emptively tightening monetary policy.

While these measures served to dampen inflationary expectations, prospects for the ESCAP region for 2005 portend that the output growth should maintain its current momentum and price pressures are likely to abate somewhat notwithstanding high energy and commodity prices.

The major policy issues and challenges for the Asia-Pacific region over the next one year include the course of oil prices, the threat of global external payment imbalances unwinding precipitously, the impact of higher interest rates, and the potential for the avian influenza to develop into a human pandemic.

Longer-term issues pertain to the ongoing challenge of poverty reduction, using the benefits of home remittances to simultaneously improve social indicators and macroeconomic fundamentals, and re-energising the trade liberalisation agenda following the Sixth WTO Conference, held in Hong Kong, China last December.

ISSUE OF SUBSIDIES

ESCAP pertinently underscores the urgent need to streamline the system of fuel subsidies when these do not reach the intended groups. In view of the fiscal burden on governments, subsidies on fuel types that are not widely used by the poor could be phased out — a point the Finance Minister, Mr P. Chidamabaram, and the Plan Commission Deputy Chairman, Dr Montek Singh Ahluwalia, have been emphasising, but stymied by coalition compulsions and political opportunism.

The rationalisation of energy pricing, greater public awareness of alternative energy options, improved regulations to ensure a minimum level of energy efficiency and fiscal fillips to reduce energy consumption that proved to be effective in various settings as highlighted by the ESCAP should be tried in India too if India is to emerge out of the energy woods and its concomitant woes!

A crucial issue with which economies in the region would have to wrestle with this year is the potentially adverse impact on growth of tighter fiscal and monetary polices. Inflationary pressures induced by higher oil prices have led to a tightening of the monetary screw with interest rates generally edging up across countries in the region, albeit with some notable exceptions.

ESCAP recalled that for a number of years, many countries have been pursing a policy of fiscal consolidation and reinforcing the long-term effects through cuts in government expenditure rather than through improved tax revenues, are higher interest rates.

ESCAP cautioned that a particular danger exists in those economies where low interest rates have fuelled strong growth in debt-financed private consumption and have fostered asset bubbles in real estate and in stock markets!

BIRD FLU FEARS

Referring to avian influenza, reported from parts of central India too, ESCAP said that from December 2003 till the start of February 2006, 161 people in the Asia-Pacific region have been infected of whom 86 had died. The number of people who might die in a possible global pandemic if the highly pathogenic avian influenza becomes transmissible between humans range from an estimated 5 million to 150 million people worldwide.

Given these risks, there is a need for collective preparedness in the region entailing the stockpiling of medical supplies and the taking of joint action on possible control measures such as travel restrictions, to prevent the spread of the disease if a pandemic breaks out. The report also extols remittances sent to their families by migrants and temporary workers on contract abroad which greatly helped raise the standard of living of some of the poorest sections in countries in South Asia, South-East Asia and the Pacific. It urged governments there with high levels of underemployment and limited opportunities for employment in the formal sector to take a cue from the example of the Philippines and systematically promote temporary export of workers.

JOBLESS GROWTH

This is all the more important in the light of appalling unemployment in the region even as the region, in an irony of sorts, has an estimated 127 million or 52 per cent of the world's 246 million working children!

There is widespread concern that many countries in the region are achieving high output growth at the expense of employment creation.

The charge of jobless growth is being made, particularly in rapidly growing economies where the rate of unemployment has recently ratcheted up. Thus, this year's ESCAP report focuses on Asia's bid to emerge stronger even as it grapples to leverage its high savings and reserves.

The failure on this front can consign the region to incur "considerable opportunity costs by eschewing alternative, though somewhat riskier, investments such as infrastructure."

One can even say that countries in South Asia, especially India, are not doing enough to beef up social infrastructure, storing up trouble for social harmony and balanced development over the long haul, unless the weighty suggestions emanating from abroad and repeated times beyond number at home are heeded and acted upon by the authorities.

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