P/ CLOUDY
SEOUL – Asia is home to many examples of small but effective governments, countries where sound policies and sound establishments help economic stability and physically powerful growth. But the COVID-19 crisis, many pursued far-reaching macroeconomic interventions and implemented invasive privacy measures. They’re perched on the edge of a slippery slope.
Of course, ordinary times require ordinary measures. The COVID-19 pandemic led to the world’s most internal recession since World War II, and the International Monetary Fund predicted a 5% economic downturn in 2020 and a slow recovery thereafter. An “L” depression is a very real possibility.
Asia is no exception. While the Asian Development Bank expects China to have positive GDP growth, it predicts that India’s economy will contract by 9%. Developing Asia’s GDP will fall by 0. 7%, the region’s first contraction since World War II.
In reaction to these disastrous conditions of expansion, governments around the world have particularly increased their budget spending, with serious consequences for public balance sheets. This year, the public debt of complex economies is expected to accumulate through an average of 19 percentage issues for 131% of GDP.
In Asia, China and India are expected to record budget deficits of more than 12% of GDP, resulting in a significant increase in the public debt-to-GDP ratio. In many Asian economies, such as China, Indonesia and South Korea, this is not a problem, as these indices are relatively low, but in some others, such as Pakistan and Sri Lanka, debt already exceeds 85% of GDP.
The degree of threat from such a debt burden remains a subject of lively debate. In an influential 2009 study, Kenneth Rogoff and Carmen Reinhart argue that debt only becomes threatening beyond about 90% of GDP, the express threshold. it depends on certain conditions. For example, if nominal GDP grows fast enough to reduce the debt ratio over time, a country would have less to worry about.
However, in today’s highly dubious environment, no one can count on prolonged expansion. Even if COVID-19 were to disappear soon, many Asian economies would struggle to return to a solid and sustainable recovery due to structural weaknesses, such as an ageing population. and low productivity expansion. Weak external demand, rooted in prolonged stagnation in the United States and Europe, as well as a shift towards industry protectionism, undermines its prospects for expansion.
A country can also tolerate higher debt if its government can continue to factor bonds at low interest rates to cover its repayments. Indeed, some academics and politicians argue that as long as central banks continue to buy these bonds, as the Bank of Japan has done. for decades, public debt will remain manageable, regardless of its share of GDP.
But a build-up in central bank bond holdings can lead to permanent financial expansion, rising inflation, or fueling asset bubbles. Emerging economies based on money-financed fiscal systems have experienced currency crises, as has been the case in many Latin American countries. since the 1970s.
This is not to say that higher budgetary expenditure is the wrong reaction to the COVID-19 crisis, but these expenditures must be intentionally planned, successfully distributed and carefully managed, not only the current economy, but should also lay the groundwork for tomorrow’s sustainable expansion.
This means that tax systems should help productive enterprises, schooling and schooling programs, and stimulate the personal economy. Prolonged coverage for less productive companies or staff would hurt long-term productivity growth.
In addition, governments deserve to boost investment in public infrastructure, such as roads, hospitals and schools, as well as “green” infrastructure that supports the transition to a low-carbon economy. However, to succeed, any large-scale assignment will. must be rigorously evaluated and judiciedly monitored.
According to the IMF, one-third of global investment in public infrastructure is wasted on average due to inefficiency, and many Asian countries still have weak and corrupt governance Strengthening their institutional capacity, adding to strengthening the experience and autonomy of their tax authorities, is maximizing short-term benefits while ensuring medium-term fiscal sustainability.
Beyond budget spending, Asian governments will also have to avoid outperforming themselves in some other critical area: privacy. To minimize COVID-19’s economic and social disruptions without endangering lives, many East Asian governments, adding Hong Kong, Singapore, South Korea, Taiwan, and Vietnam: have followed a proactive containment strategy based on thorough testing, touch detection, and quarantine.
This technique “flattened the curve” of the infection. But the new force of governments to regulate behavior and gather non-public knowledge threatens serious violations of civil liberties and human rights. See how, only China, where an authoritarian government used COVID-19 as an excuse to exploit its mass surveillance equipment to strengthen social control.
This is not a style that other Asian countries, which have worked hard to expand the role of the market and the personal sector in their transition to democracy, deserve to emulate. However, in South Korea, for example, competitive use of surveillance equipment and more. the maximum disclosure of personal knowledge has already raised privacy concerns.
During the COVID-19 crisis, Asian governments deserve to be careful to avoid a “light Chinese” formula of exaggerated overtaking. They also deserve to ensure that the powers granted to the state government during the pandemic last only the crisis. , sufficiently good checks and counterweights – adding the rule of law, the media and civil society teams – are essential.
During a giant and complex crisis such as the COVID-19 pandemic, the role of government developed naturally, but the same goes for the threat of unproductive spending and abuse of power, which is why Asian economies seek to involve COVID-19 and its economic benefits, they will also have to involve their own governments.
Lee Jong-Wha, professor of economics at Korea University, leading economist at the Asian Development Bank and senior foreign economic adviser to former South Korean President Lee Myung-bak. © Project Syndicate, 2020.
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