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It is observed that the economy of East Asia is one of the most successful
regional economies of the world. It is home of some of the world's largest and
most prosperous economies : China, Japan, Hong Kong, Taiwan and South Korea.
There were many contributing factors for success of economy like political-legal
environments for industry and commerce, abundant natural resources of various
kinds, availability of relatively low-cost, skilled and adaptable labor. Trading
systems are relatively open; and zero or low duties on imports of consumer and
capital goods etc. have considerably helped stimulate cost-efficiency and
change.
Much of the east asian success started from export oriented strategies,
benefiting from growth in the international economy since 1950s. Free and
flexible labor and other markets are other important factors making for high
levels of business-economic performance. East Asian populations have
demonstrated rapid learning capabilities skills in utilizing new technologies and
scientific discoveries and putting them to good use in production. Finally, there
are relatively large and fast-growing markets for consumer goods and services of
all kinds.
Among the major policy choices commonly adopted in East Asia, and noticeably
less so elsewhere in the developing world are openness to foreign trade,
significant levels of government savings and an emphasis on education for both
boys and girls.
According to the EAM, there were at least 3 main forces to the economic success
of East Asia.
1. East Asian economies benefited from decisions and policies that limited
governments role in economic decision making and allowed markets,
despite their imperfections and shortcomings, to exercise a decisive role in
determining resource allocation. The state had provided a suitable
environment for the entrepreneurs to perform their functions.
2. The second explanation, often called revisionist explanation, challenged
the neoclassical view by arguing that the governments in many of these
economies extensively and selectively promoted individual sectors
(sometimes even by deliberately distorting prices).
3. The third explanation, which is called Market-Friendly View, rapid growth
in East Asia was associated with effective but carefully delimited
government roles. The governments need to do less in the areas where
the markets work, and to do more in the areas where the markets could
not be relied upon.
Four keys factors for the success of east asian economy was:
1. Maintaining macroeconomic stability
So far Indias approach to the RCEP negotiations has been positive. But more
ambitious domestic reforms, investment in infrastructure and upgrading of skills
Oil prices have rebounded more than expected in the second quarter of
2015, reflecting higher demand.
The average annual oil price expected for 2015US$59 a barrelis in line
with the oil price assumption in the April 2015 WEO, with a somewhat
smaller increase forecast for 2016 and beyond, as global oil supply is
running well above 2014 levels and global oil inventories are still rising.
As the oil prices rebound, fuel end-user prices have started rising. But core
inflation has remained broadly stable well below inflation objectives. In
many emerging market economies, notably those with weak domestic
demand, headline inflation has declined.
It is also observed that longer-term sovereign bond yields have risen.
However, financial conditions for corporate and household borrowers have
remained broadly favourable. Higher yields partly reflect improving
economic activity and the bottoming out of headline inflation.
Dollar has depreciated by about 2 percent in real effective terms relative
to the baseline values assumed for the April 2015 WEO, while the euro has
appreciated by about 1 percent. But compared to average levels in 2014,
the euro and the yen are still at depreciated levels. However, due to zero
lower bound on policy interest rates, it is expected to be a net positive for
the global economy.
Bond yields and risk premiums in emerging market economies have risen
broadly, but capital flows to those economies are estimated to have
decreased in 2015 compared to the second half of 2014, and many have
seen further currency depreciation.
Report also indicate that advanced economies and developing economies have
taken many steps, but these developments have not changed the broad outlook
picture for the global economy. Forecast of both economies are as follows:
Advance economies
Growth is expected to increase more gradual pickup than was forecast in April
2015 WEO. Major underlying drivers for acceleration in consumption and
investment in US is expected to remain intact. In Euro area economic recovery is
on track and growth projections have been revised upwards for many euro area
economies. In Japan due to weaker momentum in real wages and consumption,
the pick up in growth is projected to be modest.
Emerging markets and developing economies
U.S. dollar appreciation poses risks of balance sheet and funding risks for
dollar debtors, especially in some emerging market economies.
Monetary policy adjustments could create major macroeconomic instability
i.e. Weaker- or stronger-than-expected macroeconomic data could
underpin a delay or acceleration in the normalization of policy interest
rates in the United States, with a multitude of broader implications.
A further risk is the fragile economic situation in the euro area. While
monetary policy measures have led to a significant improvement in the
sovereign debt crisis, the economic recovery remains precariously weak.
The weak state of the recovery is characterized by continued low levels of
private investment, extremely high unemployment in many countries
which becomes more entrenched as the ranks of the long-term
unemployed increaseand by dangerously low inflation, which carries the
risk of turning into deflation.
Emerging economies face a combination of domestic and external
vulnerabilities. Many large emerging economies continue to face a
challenging macroeconomic environment, as weaknesses in their domestic
economies interact with external financial vulnerabilities.
Most threatening things were Geopolitical tensions. It remains a major
downside risk for the economic outlook. In addition to the severe human
toll, the crises in Iraq, Libya, the Syrian Arab Republic and Ukraine have
already had pronounced economic impacts at the national and subregional
levels, although the global economic effect has so far been relatively
limited. A major reason for the limited global impact is that any actual or
feared conflict-related decline in oil supplies was offset by oil production
increases.
Ans3
As we know that debt remains an essential tool for financing growth. The reports
points out three areas of emerging risk of debt:
a) Rise of government debt, which in some countries has reached such high
levels that new ways will be needed to reduce it;
b) Continued rise in household debtand housing pricesto new peaks in
Northern Europe and some Asian countries;
c) Quadrupling of Chinas debt, fueled by real estate and shadow banking, in
just seven years.
Still it appears that economies need ever-larger amounts of debt to grow but
they may also need to learn to live more safely with high debt. That will require
new approaches to manage and monitor it, to reduce the risk of crises, and to
resolve private-sector defaults efficiently.
Now Policy makers will need to consider more ways to reduce government debt,
and it may be time to revaluate how incentives in the tax system encourage the
amassing of debt. When there are signs of credit bubbles, regulators can seek to
cool markets with countercyclical measures, such as tighter loan-to-value rules
and higher capital requirements for banks. Debt undoubtedly remains an
essential tool for financing economic growth. But how it is created, used,
monitored, and discharged still needs improvement.
Following policies could help in managing debt more efficiently:
i)
ii)
iii)
iv)
v)
vi)
borrowers will take on too much debt. Macro prudential measures are
intended to reduce those opportunities.
Implement reduce tax incentives for debt. Given the role of housing
debt and real estate bubbles in financial crises, it may be time to
reconsider deductibility of mortgage interest and other tax preferences
for housing debt. This could improve capital allocation in firms and also
would reduce the incentives to invest in capital goods rather than labor.
Such reforms may need to be accompanied by other adjustments to
corporate tax codes, including perhaps reductions in marginal rates.
It is important to improve data collection and monitoring of debt. Better
information is essential for avoiding future credit crises. Governments
and businesses should invest in improving the granularity and
reliability of data about debt. Microeconomic data about household
finances, including the liabilities, assets, and incomes of individual
households, should be available. To monitor business debt, a central
credit register that collects all data about commercial loans of a certain
size from different sources could be helpful.
It is required to promote financial deepening in developing economies.
Rising levels of debt relative to GDP should be expected in developing
economies, which need to fund growing businesses, infrastructure, and
housing. But developing economies today should take action now to
avoid future financial crises. This includes strengthening regulations on
lending, adopting macroprudential regulations, expanding rules for
financial disclosure, and creating a legal system that protects the rights
of minority shareholders and efficiently disposes of bad debt through
bankruptcy.
In India, debt is managed by the central and state governments, and the RBI.
The main objective of debt management is to minimize the cost of borrowings
over the medium to long run, consistent with a prudent degree of risk. To achieve
this, promotion and development of efficient primary and secondary markets for
government securities is an important complementary objective. Hence, public
debt management can be explained as the process of executing a strategy for
managing the government's debt to raise the required amount of borrowings,
pursue cost/risk objectives, and also meet any other goal that the government
might have set.
It is also important to have a separate debt management office to frame debt
management policy in terms of cost of borrowings, market determined yield
curve, and optimal mix of maturity profile of outstanding loans. In Denmark, debt
management is undertaken by a privately owned central bank.
Leading nations should permit debt relief policy for poor countries that cannot
manage debt burden. But it important that country must meet certain criteria,
commit to poverty reduction through policy changes and demonstrate a good
track record over time. The fund and bank provide interim debt relief in the initial
stage, and when the country meets its, commitments, full debt-relief is provided.
Debt relief will boost social spending in country and it will have tangible impact
on poverty.
Reference:
1.http://www.eadn.org/EADN%20WP_12.pdf
2.World economic outlook Update, July 9,2015
3.www.imf.org/eternal/np/facts/hipc.htm
4. http://www.ideasforindia.in/article.aspx?article_id=1454#sthash.J3k41XjI.dpuf
5.http://www.un.org/en/development/desa/policy/wesp/wesp_archive/2015wespes-en.pdf
6. MCKINSEY GLOBAL INSTITUTE, Debt and (not much) deleveraging, Febuary
2015-08-24