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 ‘These policies sooner or later will be withdrawn’.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 »

Guest Author: Renu Kohli

India’s Budget for 2010 is a demonstration of the discipline that global integration imposes upon countries. The modest contraction in the fiscal stance displays a responsible coordination of macroeconomic policies. Its overall message—serious effort at consolidating public finances—manages fiscal expectations positively. Both were necessary to contain rating hawks and reassure markets and investors—the new watchdogs of open India.

This remarkable development is significantly due to the pressures of growing economic openness. 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since November 2008 to prevent local financial markets from following the rest of the world into a tailspin—is being withdrawn in April.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: 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: Christopher Findlay, Adelaide University

Readers who are members of the JAL Mileage Bank (JMB) are probably wondering now what will happen with their bank of points. The reconstruction of JAL certainly raises this question but also highlights some even bigger challenges in air transport today.

The international system of the regulation of air transport has tried to suppress a set of highly competitive processes. Market access rights are negotiated bilaterally, and routes limited mostly to carriers identified with the countries involved. 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: Foong Kee Kuan, MIER

In Malaysia the doom and gloom of the global financial crisis was pervasive at the start of this year, but gradually gave way to increasing optimism following the leadership change in April. Currently, various economic indicators forecast continued improvement for Malaysia, albeit subject to occasional pullbacks, and this economic progress is due to the efforts of the Malaysian government’s introduction of policies aimed to stabilise the economy.

Economic activity rebounded in the second quarter of 2009, after bottoming out in the first quarter, with stabilising domestic and external conditions leading to further improvement in the third quarter. Sentiments among businesses and consumers also recovered, leading to more private investment and consumption along the way, with the rate of decline in inflation also slowing in October.

The Malaysia government’s response to the global downturn has been to introduce a raft of national stabilisation measures, to varying degrees of effectiveness. Read the rest of this entry »

Author: K. Kesavapany, ISEAS, Singapore

Singapore was the first East Asian casualty of last year’s Global Financial Crisis. Its growth rate plunged from 7.8 per cent in 2007 to 1.1 per cent in 2008. The trade ministry said Singapore’s economy would see a contraction between 2.5 and 2 per cent in 2009 before recovering in 2010.

The manufacturing sector was the worst hit due to fall in global demand for its non-oil exports. Read the rest of this entry »

Author: Max Corden, University of Melbourne

Plenty of people have argued against fiscal stimuli. ‘Don’t call the ambulance!’, they say. Usually these have been political conservatives, but in the United States, strong opposition has also come from some influential economists. In some cases similar arguments were made against fiscal stimulus during the Great Depression.

There are the seven main arguments against fiscal stimuli, which I shall examine below. Read the rest of this entry »

Authors: Hadi Soesastro (CSIS, Jakarta) and Peter Drysdale (ANU, Canberra)

The idea that regional architecture in Asia and the Pacific is not up to the tasks it now needs to serve has been around for some time. It has been inspired in part by worries about the untidiness in the competing structures — across the Pacific, of APEC, and within East Asia, of ASEAN +3 and the East Asia Summit (EAS). There has also been a hankering after ‘robust’ regional institutions modelled on the arrangements in Europe or North America, however unsuited they are to Asia Pacific circumstances.

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What is different about the thinking that led to Prime Minister Rudd’s Asia Pacific Community proposal is that these worries are incidental to its main strategic motivation. Read the rest of this entry »

Guest Author: Milan Zavadjil, IMF Indonesia

By now it is well known that Indonesia is weathering the global financial crisis (GFC) better than most countries. This is usually explained by lower dependence on exports, as well as the stimulus provided through fiscal and monetary policies.

Nonetheless, there is another reason behind Indonesia’s strong performance. Cautious policies by Indonesia’s government, banks, corporations and households over the past decade have resulted in low debt levels and limited refinancing needs. This served the country especially well in late 2008 and early 2009, when liquidity tightened around the world. Read the rest of this entry »

Guest Author: David Gruen, Australian Treasury

Reading The Great Crash of 2008 by Ross Garnaut with David Llewellyn-Smith encourages reflection on all the outrageous things that went on in the world’s major financial markets in the lead up to the Great Crash. You cannot read the early chapters of the book without a rising sense of anger at the self-serving and ultimately destructive behaviour on show. More importantly, the book underlines the changes needed to reduce the chances of the events of 2008 being repeated.

But my role here today is to discuss instead the book’s perspectives on macroeconomic management. I will comment briefly on three aspects of that topic: Australian exceptionalism; the consenting adult’s view of the current account; and asset price bubbles. Read the rest of this entry »

Author: Chalongphob Sussangkarn, TDRI

East Asian economies should push ahead with Financial Cooperation measures initiated in response to the 1997/98 crisis, as well as other cooperation measures in direct response to the current sub-prime crisis. These measures will facilitate the ability of countries in the region to shore up their economies in the short-term, their growth path to be less dependent on exports as the main growth engine in the medium term, and strengthen the region’s economic and financial resiliency and protect itself from future crises in the medium to long term.

It is now clear that the indirect impacts of the sub-prime crisis on the region through the trade channel will be very severe. Read the rest of this entry »

Author: Peter Drysdale

We are now more than a year into the global financial crisis, or the Great Crash of 2008 as Ross Garnaut describes it in the timely and important book he has written with David Llewellyn-Smith, launched by the Australian Prime Minister in Canberra last week and dissected in a forum at the ANU a little while before. The book provides everyman’s guide to how the global financial crisis happened and what lessons we might take away from what was a very scary experience. This week’s lead describes the nature of the beast, as Garnaut sees it. Three things stand out about the Crash of 2008. Read the rest of this entry »

Author: Andrew Sheng, China Banking Regulatory Commission and Qatar Financial Centre Regulatory Authority

The Global Financial Crisis (GFC) has shattered conventional wisdom about global governance.

Governor of the Bank of England Meryvn King’s dictum that global banking is global in life, but national in death, characterizes complex financial institutions that are larger than sovereign nations, are ineffectively regulated at national levels, and lack global laws. Their demise means that national governments have to pay for the global banks’ mistakes, but ultimately the whole world pays in the form of higher inflation, taxation and lost jobs. Read the rest of this entry »