Need for more effective response to global issues

KUALA LUMPUR: Emerging economies have important roles to play in ensuring international institutions such as the World Bank and the International Monetary Fund become more effective in being responsive to the range of critical issues the world faces, says World Bank group managing director Dr Sri Mulyani Indrawati.

"It is important that emerging economies take their places at the table and have their voices heard," she said during a public lecture entitled Social Equity, Democratising Development and Global Governance here yesterday.

"As the global economic tectonic plates shift, so are those of global governance; with increased globalisation, emerging economies are gaining more voices in the international platform, including that in the World Bank," Mulyani explained.

"Increased voice in global governance for emerging economies comes with increased responsibility. This is part of democratising development - taking on more leadership through participation in global economic forum is requiring governments in middle-income countries to speak on global issues," she added.

"It is hard not to notice that the world has changed," she said in reference to the post- global economic crisis environment.

She pointed out that it was increasingly apparent that it was not the developed world - the world's established economic power - that could pull us out of this global crisis; rather, it was the emerging economies, including Malaysia, that were proving to be the engines of global growth.

"Increasingly, the United States and Europe are looking to emerging markets in Asia and Latin America to lift global demand. Led by many emerging markets, developing countries now account for half of global growth and are leading the recovery of the global trade," Mulyani said.

This trend was taking place even before the onslaught of the global economic crisis in 2008. For instance, Asia's share of the global economy in purchasing power parity terms has risen steadily from only 7% in 1980 to 21% in 2008. Asia's stock markets now account for 32% of global market capitalisation, higher than the US' 30% and Europe's 25%.

Last year, China overtook Germany to become the world's biggest exporter.

On the economic progress of middle-income countries, Mulyani said while the rate was impressive, there was a critical domestic dimension that emerging economies had to address to ensure social cohesion and stability. Of major concern was the need to eradicate poverty and minimise inequality.

By definition, there were presently around 100 countries, including Malaysia, categorised as middle-income. These countries collectively account for 69% of the world's population and 41% of global economic output.

"Despite their diversity, most of these middle-income countries are facing three common challenges," Mulyani said.

"First, how to get more sustained growth; second, how to make this growth more inclusive; and third, how to achieve green and clean growth," she said.

Policymakers in every middle-income country were concerned about figuring out how to avoid the middle-income trap. For instance, Malaysia has its Economic Transformation Programme to drive the nation towards high income by 2020.

But while achieving growth is important, addressing the inequality issue was also important, as "unshared growth" could threaten the very social cohesion and stability needed to sustain growth.

For most middle-income countries, poverty incidences may have declined, but wealth inequality continued to widen. To put that into perspective, Mulyani said "three-quarters of the world's poor live in middle-income countries".

In addressing wealth disparity, Mulyani said, policymakers needed to incorporate policies that could generate economic activities and provide improved access to the people to promote inclusive growth. "Sustained and inclusive growth also requires high level of investment, which is critical in moving an economy up the value chain," she explained.

"Investments by both smallish and big corporations are critical in generating jobs and enhancing opportunities for all," she added.

To become a high-income nation, innovation cannot be ignored. The ability to introduce new or improved goods and services or adopt more efficient production processes and better mode of operations were a necessity, she said.

But above all, she pointed out that economic stakeholders had to ensure that both investments and innovation must be translated into job opportunities to improve labour mobility within a country. In addition, Mulyani also pointed out that it was critical for countries aspiring to become high income to build their human capital base.

"Immediate action is necessary to strengthen the link between industries and education to ensure a match between skills and market demand," she said, adding that education and training opportunities in Malaysia had not kept pace with the progress of the nation, hence leading to the lack of skilled human capital the country needed now to achieve developed nation status.

"More money is not always the only answer. The content and design of education curriculum are a more critical factor," Mulyani said.

- The Star Online