Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr., acknowledged as one of the best central bankers anywhere, warned against protectionist tendencies that countries under the Asean might adopt and, by this measure, threaten the buoyant growth trajectory of the 10-nation regional economic bloc down the line.
In a recent speaking engagement, Tetangco said whether Asia, as a whole, will follow a mediocre growth path depend on how it handles four important opportunities that arose in recent months.
He said that, while Asia learned much from its own financial crisis and has attained such resilience as to defy the trend of slow, subpar growth called the new mediocre, emerging challenges could test that same resilience for Asia.
“Asia’s ability to withstand these shocks will crucially depend on the structural reforms and proactive policies that it will undertake in key areas. A misstep in this direction and Asia may also become the “new mediocre”, Tetangco said, citing a list of challenges the region’s policy-makers must address to sustain the growth momentum.
“First on my list is growing protectionism. So far, we have only heard rhetoric from the current US president. There are still no clear policies, only desired directions,” Tetangco said.
US President Donald J. Trump is fanatical in keeping jobs and business operation at home, with several proposals limiting trade relations with other countries, minimizing exposure and effectively denying jobs for migrant workers.
In contrast, the level of openness across the region varies, with intra-Asean trade on average showing a steady increase.
“Second, financial spillovers. A disorderly reaction to possible US interest-rate hikes and broader uncertainty about asynchronicity of monetary policies in advanced economies could lead to capital flow reversals and spikes in asset-price volatility in Asian emerging markets,” Tetangco warned.
According to him, financial spillovers could contribute to large currency depreciation and inflationary pressures.
Regional financial conditions are also being increasingly influenced by global factors, such as the concern on the movement of US interest rates coupled with investors risk aversion to emerging market economies.
Tetangco also said the so-called middle-income trap is one development the region, as a whole, should be wary to maximize the traction of its growth potential.
“Many Asian economies are considered to be at a stage of development at which, historically, sustained rapid growth becomes difficult or the middle-income trap,” he said.
“Thus, for Asian countries to avoid the middle-income trap, sound macroeconomic policies that can effectively counter boom-bust cycles can be looked at, that create opportunities given favorable demographic trends, policies that promote education and infrastructure, build strong governance and institutions and foster greater trade integration,” he added.
The region, according to Tetangco, must also be prudent in determining proper policies to connect the demographic movement in the region, in order to help mitigate the adverse effects of diverging trends.
“Asia is entering a period of being at both ends of the demographic spectrum. While many East Asian countries are concerned with aging populations, other Asian countries are less affected. An aging population increasingly requires policy action for East Asian countries. However, countries that have relatively younger populations, such as India, the Philippines, Indonesia and Malaysia, will experience declining dependency ratios,” Tetangco said.
The Philippines is one of the fastest-growing economies in the region, posting growth averaging 6.8 percent in 2016.
This year the government targets growth ranging from 6.5 percent to 7.5 percent, the growth goal among the highest in the region.