New Delhi: Haruhiko Kuroda has been president and chairperson of the Asian Development Bank (ADB) since 2004. Earlier, he served as special advisor to the cabinet of Japanese Prime Minister Junichiro Koizumi. Under his leadership, the ADB has repositioned itself with a greater focus on inclusive and sustainable growth. Kuroda was in New Delhi this week to attend an event commemorating 25 years of ADB lending to India. He took time off to speak to Mint on a range of issues, including global economic trends and consequent threats to emerging economies, and the rapid emergence of China as a global power. Edited excerpts:
What are your thoughts on the current state of the global economy?
The global economy is slowing down, that is quite clear. The European economy is slowing down significantly, so is the American economy; the Japanese economy, of course, because of the great earthquake and tsunami in March this year. The current financial or debt crisis in Europe has been already affecting Asian economies. ADB recently made downward adjustment of the economic forecast for developing Asia—entire Asia, excluding Japan, Australia and New Zealand, will grow at 7.5% in 2011. But 7.5% growth next year is subject to greater uncertainty.
Haruhiko Kuroda, president and chairperson of the Asian Development Bank. Photo: Bloomberg
If European financial crisis continues.., then further downward adjustment may be required for developing Asia’s economic growth. Secondly, already the financial market of Asia is significantly affected by the European financial crisis; almost all Asian currencies except the Japanese yen have significantly depreciated.
Also stock markets in Asia have fallen substantially, more than the European stock markets. I hope by the European Union summit meeting on 23 October, Euro member-countries could come out with the final solution and they could avoid the contagion from spreading.
Suppose the Europeans are not able to arrive at a consensus, which is what the market is factoring in, how bad will the crisis be globally?
I don’t agree to that kind of market sentiment. Still I think, on 23 October, Euro leaders would come up with a final solution. Because soon after that, there will be the G-20 summit and I think the European leaders would like to avoid the situation where the Euro crisis would be the major issue that will be discussed by G-20 leaders. By that time the European situation could be seen as approaching a solution. Even if there is no such final kind of solution, I don’t think that would make the European financial crisis turning into a global financial crisis—like the crisis we had after the Lehman shock. But at this stage this is my personal prediction and hope.
Is this global crisis structural in nature? This could mean solutions have to be structural and hence politically more difficult.
We are almost in the fifth year of crisis. The initial crisis occurred in August 2008 by the way of sub-prime crisis in the US. Then we had the global recession in 2009. But since 2010, we have seen some recovery in emerging economies, particularly Asia, Africa and Latin America. But in 2010 February, there was the Greek debt crisis. And even one- and- half-years later, you still have the Greek debt crisis affecting other Euro members.
Counting from the original sub-prime loan crisis, we are just entering into the fifth year of crisis. If you look at the crisis, this should be a big structural problem, because this kind of a thing we have not experienced since the post-war era. Of course, we had (East) Asian financial crisis, Latin American debt crisis and Russian debt crisis. But this time major financial powers and developed economies are involved in the financial crisis for one reason or another. We can compare this crisis with the Great Depression in the 1930s. This should have some structural element.
It is said there is a big shift in economic gravity from the US and Europe to Asia and emerging economies. Some for years argued that the financial sector development in the US and Europe may have gone too far on some specific direction creating this risk of financial crisis. There are some economists who argue that the existence of global imbalances, particularly the US from the developed economies and China from the developing economies is unsustainable. Now on the euro zone crisis, many economists argue that single currency with multiple fiscal policies led to such kind of crisis. But this is no cyclical situation, this is a huge structural change in the global economy.
How does the current crisis impact ADB’s lending plan for the future?
After the Lehman shock, we substantially increased our lending and investment in developing countries in Asia. It was necessary and we were asked by our shareholders to substantially increase our assistance to developing countries. Also we were helped by shareholders who accepted 200% capital increase, which was 15 years after the last capital increase. During the crisis response period, we provided a lot of emergency assistance —what we call programme loans, budget support, counter-cyclical support etc. But now, as far as Asian countries are concerned, the crisis is over and we are coming back to normalcy. Now we are focusing on long-term kind of development assistance.
The centre of economic gravity is clearly shifting towards Asia. But it is said that Asian economies are not ready due to lack of proper institutional frameworks and may not be able to take up the leadership challenge. What do you think?
I think it is partly true because the complete decoupling with the developed economies is impossible, although the gravity of global economy is shifting towards emerging Asia. But you cannot say emerging Asia can grow without global economic growth. Secondly, Asia is very diverse; regional integration and cooperation is at an early stage, compared to Europe, North America and even Latin America. So Asia does not have one voice.
Many emerging economies are not ready to play (a) greater role at this stage. It means greater responsibility for managing the global economy, climate change, free trade system. Many of the emerging economies still think that they should first focus on betterment of their people rather than assuming greater global responsibility—for example, helping European countries to overcome financial crisis. In some sense it is natural. I am quite sure in the coming years and decades, as gravity of global economy shifts towards Asia, emerging Asia must and will play a greater role.
But do you see the transition remaining chaotic?
I don’t think so. Already six Asian countries are members of the G-20: Japan, South Korea, China, Indonesia, India and Australia. I understand they exchange views and information. At this stage they have not formed one voice, because the economies are so different. I don’t think this kind of transition is chaotic. I think it is an increasing trend towards greater responsibility and greater importance in managing the global economy. Since Asian economies are growing so fast, (Chinese, Indian and Indonesian economies), so they need more resources—water, minerals, energy, agriculture products etc. The conflicting demand for limited resources could become (a) source of potential conflict among Asian countries. But we have to avoid this situation.
The gorilla in the room in Asia is China. How do you see Asia dealing with this new China which is aggressive?
In the last 2,000-3,000 years, almost always China was a great power and quite dominant in East Asia, South-East Asia. And yet certainly in the last couple of centuries, China was weak and was not dominant. But now with growing strength of its economy, China has become very strong and a major power. Because of (a) long history of coexistence with a strong China, other East Asian countries would know ways to coexist without fighting.
Finally, how do you feel being the referee between China and India in ADB? Two years ago you had a big spat on the board with respect to an ADB loan for Arunachal Pradesh.
Currently, the biggest shareholders are Japan and the US. The third biggest shareholder is China and the fourth biggest is India. Share of Japan and the US is same and China and India’s share is also quite close to each other. This is the current reality. You talked about the issue that erupted two years ago. As you know, ADB is a non-political institution and it is defined by the ADB charter that it should not and could not interfere in political issues. And territorial issue is one of the most political issues among members. Any project in some area where territorial issues are argued by some countries, unless we have agreement among involved countries, we cannot provide assistance to such projects.