Asian economies are set to grow faster than those of developed countries but governments should invest more in infrastructure and their people to enable countries in Asia to respond properly to their changing role, Finance Secretary Cesar Purisima said on Thursday.
“Clearly, we live in an age of transition. There is transition of economic powers from West to East,” Purisima told a seminar at the Asian Development Bank’s meeting of governors being held from May 2 to 5 in Pasay City.
“In any transition, there will be a lot of changes relating to the ways of doing things. And, therefore, we in Asia should continue to focus on the fundamentals so that we can adapt to our changing role,” he said.
Purisima, however, warned that Asia’s rise comes with risks as large capital flows flood the region as a result of the financial turmoil abroad.
“The substance of banking must be kept close to the real economy…We need information to control these derivatives,” he said.
Based on ADB estimates, Asian developing economies need about $8 trillion investment in infrastructure in the next 10 years.
This investment, Purisima said, is available within Asia as China alone has over $3 trillion in reserves.
“The challenge is how to recycle those reserves within Asia to facilitate the investments of these reserves in infrastructure.”
Jeffrey Sachs, director of the Earth Institute at Columbia University, said, however, that Asia must watch out for asset bubbles.
Purisima said governments should also invest in their people for them to become active participants in the economy.
“[For] those who are already equipped and are already productive participants, we need to continue to invest in them. Because countries that have gone up economically are now in middle income will have challenges on how to leap to the next level, the so-called middle-income chunk,” he added.
In the case of the Philippines, Purisima said, a big portion of the population is still poor, so there is a need to continue investing in education.
Chinese vice Finance minister Li Yong, meanwhile, said a strengthened local macroeconomic condition and deepened regional cooperation would be recipes for a sustained and inclusive growth in the region.
“Asia needs to make sure that growth is based on high domestic demand consumption,” Li added.