Responding to the Global Financial and Economic Crisis: Meeting the Challenges in Asia

Abstract

The global financial and economic crisis marks an important turning point for finance and the Asian growth model. Regional consensus is now supporting economic rebalancing away from the dominant focus on exports to developed markets and towards more a more balanced economic structure supported by domestic and regional financial development. In relation to finance, the crisis highlights the necessity of addressing a range of issues across the region. First, Asian approaches to financial liberalization, prudential regulation, and financial innovation are likely to be closely considered around the world. At the same time, while the region has not been at the center of the global crisis - in contrast to the Asian financial crisis of 1997/98 - it nonetheless provides an important opportunity to strengthen domestic and regional financial regulation. Second, beyond the post-crisis issues, and the prevention of systemic risk in particular, finance must continue to play a central role in supporting economic development and poverty reduction across the region. While the global crisis has highlighted once again the risks of finance, a central objective across Asia must be financial sector development to support economic growth and development. Third, in addition to domestic reform, the crisis provides an opportunity to enhance the international financial architecture, not only to improve its efficacy, but also to enhance the role of empowered Asian economies in global fora and institutions. At the same time, weaknesses in the international financial architecture suggest the need for Asian regional alternatives to address liquidity, liberalization, regulation, and exchange rate volatility.