Author: Greg Lopez, ANU

The persistent decline in Malaysia’s economic performance since the East Asian Financial Crisis (EAFC) of 1997/98 and the government’s mishandling of the global shocks that preceded the Global Financial Crisis (GFC) were a key reason for the ‘political tsunami’ that hit Barisan Nasional (BN) at the 12th General Election (12GE) on 8th March, 2008. Two years on the economy remains in the mud due to a sluggish global economy, ineffective stimulus plans to address the GFC and most importantly, a lack of political will to put through bold reforms to get the economy back on track.

Like many economies in East Asia, Malaysia evaded the direct impact of the sub-prime crisis but was caught in the after effects – its main export markets collapsed, suffering the worst decline since the EAFC. Read the rest of this entry »

Author: Suman Bery, NCAER

In his Budget speech on February 26, India’s finance minister articulated the three important challenges confronting him in preparing this year’s Budget.

These were to restore growth (to 9 per cent, ideally higher); to use this growth to make development more inclusive, particularly by strengthening rural infrastructure; and to address bottlenecks in public delivery mechanisms and institutions. Read the rest of this entry »

Author: Ronald I. McKinnon, Stanford University

Speculation is rife about when, not just if, China should exit from its policy of stabilising the yuan/dollar rate. Investment banks and hedge funds are making their usual one-way bets. Chinese officials are being closely quizzed for possible hints as to when the great event is going to happen. Governor Zhou Xiaochuan of the People’s Bank of China (PBC) is playing the role of Hamlet. Recently he told a press conference that the currency peg was a ‘special measure’ to help China weather the financial crisis. ‘These policies sooner or later will be withdrawn’. In seeming contrast, Premier Wen Jiabao declaimed on March 5, ‘We will continue to improve the mechanism for setting the renminbi and keep it basically stable at an appropriate and balanced level’.

But must China ever appreciate? Read the rest of this entry »

Author: Peter Drysdale

Over the horizon, a storm in US-China relations is gathering around the question of whether China is deliberately undervaluing its currency, the renminbi, against the US dollar, giving it an unfair competitive edge in US markets and causing high levels of American unemployment and current account surpluses. Most economists would accept that there was some measure of undervaluation of the Chinese currency (how much is a more difficult question on which to get agreement). But few would argue that appreciation of the Chinese currency would solve the American woes of which it is supposed to be the cause.

In the feature essay today on this question, Yiping Huang argues that appreciation of the renminbi is certainly on the Chinese economic policy agenda, but he warns, for a number of reasons, that sharp and sudden Chinese appreciation is likely to do more harm to America and the global economy than it would do good, and that it certainly would not alone solve the problems in America that it is supposed to be causing. Read the rest of this entry »

Author: Yiping Huang, Peking University and ANU

Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead.

In the year 2010, Krugman suddenly found a new and passionate interest in China’s exchange rate policy. Read the rest of this entry »

Author: Timo Henckel

The Australian bank guarantee (officially the ‘wholesale lending guarantee’)—effective since November 2008 to prevent local financial markets from following the rest of the world into a tailspin—is being withdrawn in April. In his announcement of the withdrawal earlier this year, Treasurer Wayne Swan argued that the need for further government guarantees had been overcome as Australian banks had successfully weathered the storm sweeping through the global credit markets.

The guarantee underwrote the large funds (well in excess of $100 billion) which Australian banks have routinely received from overseas capital and money markets and which enabled them to have loan/deposit ratios greater than 100 percent. Read the rest of this entry »

Author: Hal Hill, ANU

When Prime Minister Rudd talks with President Yudhoyono this week, they will be able to reflect on what a fickle, mean and unpredictable business politics is.

Four months ago, the mood in Indonesia was extremely positive: Susilo Bambang Yudhoyono (universally known as SBY) had been installed for a historic second term. He had chosen Dr Boediono, the country’s most respected technocrat, as his vice president. His Democrat Party had emerged as a major force in the DPR, the country’s parliament. Read the rest of this entry »

Author: Razeen Sally, ECIPE

2009 was a crisis year for international trade, which suffered its steepest decline since the 1930s. Protectionism returned, reversing an almost three-decade trend of trade liberalisation.

But, contrary to expectations, it has not returned with a vengeance, rather creeping to the surface in subtle ways. Time, therefore, to take stock of trade policy after the crisis, and consider its outlook at the beginning of this century’s second decade. Read the rest of this entry »

Author: Mohamed Ariff, University of Malaya

There is no need to belabour the point that flexible prices play a key role in correcting imbalances, be they between supply and demand for products, or between saving and investment or, for that matter, global imbalances of international capital or trade flows.

This is simply the magic of the price mechanism in text books. Read the rest of this entry »

Author: Mohamed Ariff, MIER and University of Malaya

Economic openness, through international trade and foreign investment, has brought much prosperity and progress to Malaysia, transforming it from a traditional primary producer into a modern industrialising economy. The price Malaysia has had to pay has been exposure to international ups and downs, transmitted through trade and financial channels, the impact of which can be minimised by appropriate macroeconomic policy responses.

The country has arrived at a new crossroads in the wake of the global economic crisis, prompting the authorities to seek a new growth model. Read the rest of this entry »

Author: Peter Drysdale

A few months back, distinguished Chinese economist Yu Yongding, of the Institute of World Economics and Politics at CASS in Beijing, delivered the annual Richard Snape Lecture to the Australian Productivity Commission.

This week’s essay is a digest of the lecture in which he provided a challenging critique of important elements of Chinese economic policy strategy in response to the global financial crisis. Yu’s argument is not only about how China should be handling the impact of the global financial crisis. It raises more fundamental questions about the structure of the Chinese growth model and whether it is doomed to fall over in a heap unless there are deep structural reforms in the economy. Yu’s lecture was engaging and, especially for an Australian audience whose economy is hitched so closely to China’s growth performance, a little disconcerting. It was illustrated by powerful images of eight lane highways going to nowhere absent of traffic, indulgent local government offices and other developments unrelated to unmet human need.
Read the rest of this entry »

Author: Yu Yongdiing, CASS, Beijing

Undoubtedly the most important impact of the global financial crisis (GFC) on the Chinese economy came from the fall in global demand, reflecting China’s extremely high export dependency.

China’s export to GDP ratio in 2007 was 35 per cent. Compared with a growth rate of 25 per cent in September, exports shrank by 2.2 per cent in November. This fall in exports may have cut GDP growth by 3 per cent. If its indirect impact is included, it may have shaved more than 5 per cent off China’s 2008 growth rate.

China’s high export dependency is a result of its export promotion policy. But from a macroeconomic perspective, China’s high export dependency is partly attributable to overcapacity caused by over-investment. In 2007, the combined contribution of fixed asset investment (FAI) and net exports to GDP growth was more than 60 per cent. FAI and exports are the engine-room of Chinese growth. Read the rest of this entry »

Author: Suman Bery, NCAER

As The Economist magazine recently observed, one of the most important and surprising outcomes of the current economic crisis is that the economies of the large emerging market countries have been much more resilient than those of the advanced countries, and are returning to growth faster and more vigorously.

These countries, particularly China, India and Brazil, accordingly are expected to continue to provide the bulk of world growth in the near future. This continues the trend of the past half decade, even if the rhetoric of ‘decoupling’ was somewhat overdone. In turn, this trend parallels and reinforces another important structural trend in the global economy – the steady shift in the locus of economic activity toward Asia since the 1960s. Read the rest of this entry »

Raghbendra Jha, ANU

Indian policymakers pride themselves on the fact that the Indian economy was able to pull out of the Global Financial Crisis (GFC) relatively unscathed, with real GDP growth rate falling to 6.7 per cent in 2008-09 as compared to the 9 per cent in 2007-08 and expected to rise above 7 per cent in 2009-10. At the onset of the GFC, many commentators had expected a collapse of growth, with some even predicting a return to the sluggish growth of the mid to late 1990s.

Thankfully, the Indian economy proved the predictors of doom wrong. Read the rest of this entry »

Author: Mohamed Ariff, MIER and University of Malaya

Amid relief that the worst is over, serious concerns remain over even the sustainability, let alone the robustness, of the world’s economic recovery. There is no suggestion that the recent economic statistics lack credibility, but there are worries in the minds of many that these data tend to gloss over the cracks underneath.

The year just past has turned out to be not as bad as feared. Read the rest of this entry »