Noeleen Heyzer UN Under-Secretary- General & Executive Secretary of UNESCAP Executive Secretaries’ Dialogue with the 2 nd Committee 25 October 2007 Managing financial flows for inclusive & sustainable development in Asia & the Pacific
Mar 27, 2015
Noeleen HeyzerUN Under-Secretary-General & Executive Secretary of UNESCAP
Executive Secretaries’ Dialogue with the 2nd Committee
25 October 2007
Managing financial flows for inclusive & sustainable
development in Asia & the Pacific
2
Content
3. Way forward
1. Current situation & macroeconomic policy challenges2. Potential social costs
3
1. Short-term capital flows: historic highs…
• Surpassed pre-Asian crisis levels• “Other investments” flows rising
4
1. Short-term capital flows: more volatile
5
1. Large inflows: partly due to good economic fundamentals
Rates of real GDP growth of developing ESCAP economies compared with other regions and
world, 1997-2007
-3
0
3
6
9
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Pe
r c
en
t
Africa Developing ESCAP economiesWestern Asia Latin America and the CaribbeanWorld output
6
1. But…
… increasing risk of sudden & large capital flow reversals
• Speculative capital flows have increased
• Excessive investor appetite for risk
• Booming yen “carry trade” ($331 billion, 2007)
7
2. Social Costs: Lessons of 1997
•Financial volatility, economic crisis & frequent economic shocks devastate the poor:
Poverty, unemployment, inequality
8
2. Social impact of financial volatility - inflows
• Foreign reserve accumulation & sterilization reduce potential public health & education expenditure
Real effective exchange rates for selected developing Asian economies, 2004-2007 (Monthly avg. 2000=100)
80
100
120
140
Jan
-04
Ap
r-0
4
Jul-
04
Oct
-04
Jan
-05
Ap
r-0
5
Jul-
05
Oct
-05
Jan
-06
Ap
r-0
6
Jul-
06
Oct
-06
Jan
-07
Ap
r-0
7
Ind
ex
India Indonesia Rep. of Korea Malaysia Philippines Thailand
• Relentless currency appreciation affects employment
9
2. Social impact of financial volatility - outflows
4. Credit crunch will hit “sub-prime” borrowers
1. Sudden capital reversals, heavy toll on the poor2. Inequality rises, marginal workers suffer most3. The poor take longer to recover
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2. Social protection systems insufficient
– Restricted (formal sector)– Limited relevance to critical needs
• Weak social protection systems increase social costs
• Social protection systems in Asia-Pacific:
11
3. Way Forward
“Modern financial markets get you where you want to go fast; we are better off with
them. But accidents are bigger.”
– Merton
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3. Manage large & volatile capital flows
3 priorities:
1.Boost domestic demand as buffer against external shock
2.Deepen financial markets, to benefit from capital flows
3.Strengthen regional cooperation, to lessen the impact of financial volatility
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3. Improve social protection systems
Develop regional social protection framework for Asia-Pacific• Build broad-based social resilience & inclusive growth• Invest in women• Target most vulnerable, less skilled
Thank you
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