East Asia and Pacific Update, November 2009

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Thank you for the question. In volume terms, exports are down 6.7 percent from a year earlier in September, with exports recovering in recent months. Imports, by contrast, have surged since falling sharply earlier in the year, with normal (non-processing) imports that account for half of the total up 17 percent from a year earlier in September. All in all, external trade subtracted 3.6 percentage points from growth in the first three quarters of 2009.

Phoung – thanks for your question, which goes to the very heart of the development challenge that most poor countries face. Before addressing your question, however, let me start by saying that Cambodia is blessed with many advantages. Most importantly, it is located in a terrific neighbourhood. Not only is East Asia the fastest growing region in the world, but many countries in the region are potential role models for Cambodia. These countries (Vietnam is an obvious example) faced many of the same challenges Cambodia does today, and have gradually overcome them. There is no reason Cambodia cannot do the same.

I am not someone who believes that diversification leads to growth. Indeed, I believe it’s the other way round – rapid growth leads to diversification (especially when per capita incomes are low). So, in essence, one should ask – what does Cambodia need to do to accelerate growth?

Recently, the Commission on Growth and Development composed of 22 leading development practitioners (and led by a Nobel Laureate, Michael Spence) tried to answer almost exactly the same question. You can see the details of their recommendations at http://www.growthcommission.org/index.php.

I only want to point to two of their key findings – because they are particularly relevant to Cambodia. The first is the importance of continuing to engage with the world economy. All successful developing countries in the world – including the success stories in East Asia (Korea, China, Vietnam) – have opened their economies to international trade and investmen. In doing so, they have not only benefited from rapid export growth, but have tapped into new ideas and technologies, attracted foreign investment, and gained from international networks and education. Learning from others is one of the quickest ways countries can close the income and productivity gap with the rest of the world. In this, Cambodia has done well – and it is important that it continues to do so in the future.

Second, the Commission points to the importance of leadership and good governance. Simply put, governments must be credible, inclusive, pragmatic, and have long planning horizons. It is governments (not markets) that provide long-term economic stability and an attractive investment environment for the private sector, and it is an honest civil service that delivers public services (such as health, education, and infrastructure) critical for long term growth and development. Getting smart, honest, and hard working public servants is not easy – they need recognition, good pay, and a merit-based reward system. Without them, improving economic performance is an uphill struggle. As an outside observer, I have the sense that Cambodia can do better when it comes to governance.

If it gets these two foundations right, then Cambodia can attract more investment and grow rapidly, initially through exporting more to other countries in the region – and with rapid growth will come diversification.

Best regards

Vikram Nehru

Dear Pham – first of all, I agree with you that Vietnam is once again at risk of experiencing some “overheating”. The external current account deficit is widening, foreign reserves have declined somewhat, and the Vietnamese dong is trading at the bottom end of the band. All of these are signs that the problem probably lies in the monetary and fiscal stimulus to deal with the global financial crisis. The interest rate subsidy and liquidity injections introduced about a year ago were essential in avoiding a credit crunch and in allowing businesses to refinance their high interest rate loans. Similarly, the fiscal stimulus was essential to provide a boost to employment and domestic demand. But now that the economy is on an even keel (growth is expected to be around 5.5 percent this year) and there are growing risks of overheating, it is time the authorities announce a definite end to the interest rate subsidy scheme (perhaps after the first quarter of 2010), consider a more conservative monetary stance (including removal of the lending interest rate cap), while at the same time trimming back their projected budget deficit for 2010. This is not to say there should be a sudden withdrawal of the stimulus, but rather a gradual tightening in macroeconomic policies, rather like taking one’s foot off the accelerator when driving a car.

Monitoring the social impact of the crisis has, indeed, been an important task for us in the World Bank. Efforts have been constrained, however, by the lack of timely information on poverty, employment and incomes across most of the low- and middle-income countries in East Asia. (For example, the latest poverty data is from 2007, and only a few countries have compiled labor force statistics for 2009.) To improve our understanding of the social impacts of the crisis in real time, the World Bank has carried out a series of rapid qualitative assessments for several countries, and plans to repeat these assessments in 2010. At the same time, the Bank together with other donors and partners continues to support the authorities in the region in producing more timely and comprehensive information.

Thank you for the questions. We emphasize in the report that for most countries in the region it is too early to be withdrawing fiscal stimulus as yet. For most countries in the region, meanwhile, the time for tightening monetary policy may come earlier than for countries in other regions or for developed countries. Central banks are more likely to start monetary tightening by removing some of the exceptional monetary support before increasing policy interest rates. Thus, the removal of fiscal and monetary stimulus will depend on the extent to which a firmer recovery is in place. Such a firmer recovery should help sustain or accelerate the pace of poverty reduction.

On your second question, typically higher inflows of foreign direct investment have boosted growth in output and employment, thus supporting higher incomes per capita.

Dear Jane – this is a terrific question because it has several layers to it. Consider the first. Right now, it’s not just the weak dollar that Asian economies have to contend with, but the additional complication that the Chinese have informally pegged the renminbi to the dollar. So as the dollar has weakened, so has the renminbi.

Asian policymakers have therefore been forced to defensively prevent their currencies from strengthening too quickly against the dollar because it weakens their competitive position in third markets vis-à-vis Chinese exporters. This brings with it the complication that capital inflows into Asia are likely to increase as a result, since investors expect to benefit not only from higher interest rates than in the advanced countries (which are near zero) but also on a one-way bet on the currencies of Asian countries.

In normal times, such inflows would be seen as sign of confidence in these economies. But these are not normal times! Higher inflows of capital are complicating the lives of monetary authorities in many Asian countries given the increasing risk of asset price bubbles and the growing spectre of rising inflation -- especially since virtually every country in Asia introduced aggressive monetary easing and fiscal stimulus packages to combat the effects of the global financial crisis. Higher capital inflows are a complication they can do without just now. Brazil introduced a novel policy to discourage sharply higher capital inflows – they have introduced a tax on them. I am sure this move has not gone unnoticed by Asian policymakers – although I doubt that any of them will make such a drastic move any time soon.

Now consider the second layer of your question. Suppose the Chinese authorities allow the renminbi to appreciate in nominal terms against the US dollar – which will allow the other Asian countries to do the same. (This is not such an outrageous supposition – today’s Financial Times (November 12) carries a headline “Chinese hint at stronger renminbi”.) Greater flexibility in exchange rates will help Asian countries rein in inflation and prevent the creation of asset price bubbles.

But once Asian currencies appreciate against the dollar, will this prove to be a problem for Asian exporters? I don’t believe so, for three reasons.

• First, the weakening of the dollar will mean that it will be more expensive (in dollar terms) to sell in the US market. But this will affect all exporters to the US, not just Asian exporters. Asian exporters are generally not direct competitors with US producers in the US market – so while a weak dollar will crimp US imports generally, imports from Asia will not be hurt more than imports from other parts of the world.
• Second, the current global financial crisis has taught Asian exporters the tough lesson not to “put all their eggs in one basket” – in other words, they now recognize that their focus on the US market brought with it considerable risk. As a result, Asian exporters are likely in any case to be diversifying their exposure away from the US market – and a weakening dollar will only encourage them to accelerate the process. What they lose on the swings (the US market) they may very well gain on the roundabout (other markets).
• Third, even as the dollar weakens against East Asian currencies, labor productivity growth continues to rise at such a pace in East Asia that East Asian countries continue to improve their competitiveness in the US market. The stimulus packages have improved the quality and availability of infrastructure in many East Asian countries, which can only help competitiveness. Our East Asia Update has a graph that illustrates this point with one example – it shows that Hyundai has increased its exports to the US market despite the crisis. It’s very possible that there are other such examples.

Finally, let me make one last point. It’s not the weakness or the strength of the dollar that should concern East Asians – and the world -- but the volatility of the currency. The dollar’s role as the world’s reserve currency is under threat because of its volatility (remember – it strengthened in the early months of the crisis) – and is the principal reason behind the call by the Chinese for the world to use the SDR as a possible alternative and behind the recent purchase of gold by the Indians.

Dear Vanel – That’s a lot of questions! Let me try to give you my views on them, but I won’t answer your last question on Japan simply because I only follow the developing countries of the region – not the advanced countries.

Do I anticipate the establishment of a FTAAP? I know Japan – which will be the next chair of APEC starting in January 2010 -- is keen to make this an objective of their tenure (let’s see what the summit in Singapore brings). Having said so, I see a couple of challenges along the way. First, the ASEAN+3 group has been far more active in pursuing regional initiatives in trade and finance than APEC – for good reason. Proximity of the countries of the ASEAN+3 group and the consequent rapid growth of intra-industry trade has made these countries very interdependent on one another – an interdependence that will only deepen with time. Cementing this interdependence with free trade agreements and multilateral monetary arrangements makes eminent sense. The same cannot be said for the members of APEC which have more disparate interests and imperatives. Second, although there are countries in APEC who would rather see the US included in any free trade agreement, its not clear whether the US currently has any appetite for new free trade agreements (the 2007 US-Korea free trade treaty has yet to be ratified).

Is there a risk to WTO’s relevance to the region? I don’t believe there is – for the simple reason that the countries of the East Asia region are members of WTO and take their international obligations very seriously. Having said so, the virtual stalemate of the Doha Round has added fresh impetus to East Asian efforts to reach free trade agreements among themselves. These agreements are WTO compatible – and in the absence of a successful global round, make increasing sense to countries in close proximity to one another where the imperatives of scale economies and low transportation costs encourage intra-industry (and intra-firm) trade.

Exceptionally large fiscal and monetary stimulus in China in 2009 has helped partly offset the decline in foreign demand to limit the slowdown in real GDP growth to about 8.4 percent this year from 9 percent in 2008. This large stimulus has also been crucial in limiting the global slowdown and has been a crucial contribution to global efforts to combat the forces of global recession. For 2010, we project that a recovery in global demand will help exports stop being a drag on growth. Although the expansion in the government fiscal stimulus will slow substantially, overall growth in real GDP will strengthen somewhat to about 8.7 percent. Over the medium term, efforts to help rebalance the economy should support growth. Insufficient
progress in rebalancing, by contrast, should it happen, will limit growth. Our medium-term projections suggest “potential” or “trend” GDP growth of about 8 percent in the coming 5 years on current trends and policies, some 2 percentage points lower than in the previous 5 years. Conversely, more progress with rebalancing would help raise potential GDP growth through more reallocation of labor, more human capital accumulation, and more service sector growth. However, this would only happen with bolder structural reform, including in difficult areas such as opening up several service sectors to private sector participation and reforming the intergovernmental fiscal system to make more permanent migration possible.

In summary, we see government efforts in 2009 as crucial in limiting the slowdown in growth during the global recession. We see nothing in common between China’s robust prospects for the medium term and Japan’s experience in the 1980s.

Dear Marina – you read the same Financial Times we do! Its very difficult to forecast when policies will change, rather like its difficult to forecast when bubbles will burst! But one can point to the pressures and say with some confidence that at some point or other an adjustment will take place. In the case of China, it is true that hot money is flowing in to China (which appears as errors and omissions in the balance of payments) in significant quantities, further swelling China’s already huge foreign exchange reserves. If the authorities do not change the nominal exchange rate, then the real exchange rate will almost certainly appreciate. (The real exchange rate is the nominal exchange rate adjusted for the differential in inflation.) Indeed, prior to the crisis, the real exchange rate of the renminbi had appreciated by as much as 17 percent, even though the nominal exchange rate had stayed virtually unchanged. Having said that, I daresay that pressure is building on the Chinese to adjust their nominal exchange rate as the inflow of foreign exchange is making it difficult for them to ease back on monetary policy.

On the second part of your question, I am not quite sure what you mean by “financial policy”. If you mean monetary policy, there is evidence that the Chinese authorities are beginning to curb lending to some sectors (especially real estate) in selected provinces and cities, largely by introducing administrative restrictions on banks. At this point, however, there do not appear any imminent signs of interest rate increases, although at some point when the recovery is considered secure and the risks of overheating rise, they will become inevitable. If you mean banking policies and financial sector policies more broadly (capital markets and non-bank financial institutions), my sense is that while some minor reforms are still being implemented, major reforms are unlikely to be implemented any time soon – certainly not until the current crisis recedes. I have no doubt that the Chinese will resume their financial sector reforms at some point – especially as the world, under the aegis of the G-20 – will be implementing important regulatory and other banking reforms to prevent the emergence of a crisis similar to this one.

This, indeed, is an important question. Before answering, let me say that integration of the countries in East Asia with the global economy and with each other has made it possible for them to boost rapidly living standards and incomes over the past decades. East Asia has been the fastest growing region in the world, with the greatest strides toward reducing poverty, in large part thanks to this integration and the ability to export. To me, for all countries in the regions, such an improvement in living standards would not have been possible without the export performance.

Now, can East Asia grow as fast in the future if the developed countries grow more slowly? Yes, but this will not be automatic. Several areas hold huge potential:

1. Besides the developed countries, emerging and developing countries outside East Asia hold a substantial promise as export markets. Of course, they will not immediately replace demand that may be lost from slower growth in developed economies, but the potential is outstanding.

2. East Asia’s potential as a market for regional exports is also exceptional. Much more could be traded and consumed within the region – and the surge in China’s final demand that is met with regional exports this year is just a glimpse into what is possible.

3. Further, for many countries in East Asia, tighter regional integration will help generate more growth: there is much more scope for further specialization and participation in such networks. For example, a very small part of exports from Indonesia and Vietnam feed such production networks.

4. Progress toward rebalancing the pattern of growth in China and even in some of the more developed countries in the region should help extract much more growth from domestic demand.

5. The service sector has yet to be fully exploited, provided the authorities tackle disincentives for the service sector to develop. Removing barriers to the development of the service sector needs to be pursued with sufficient urgency in countries such as China, Malaysia, Korea and Thailand. Efforts need to include the reduction and elimination of tax incentives in favor of export-oriented manufacturing, opening up the service sector to more competition, including from foreign investors, and helping improve the access to finance for small- and medium-size enterprises. Easing restrictions to internal migration in China and advancing reforms to limit preferential treatment of different classes of citizens in other countries should offer substantial scope for increasing urban employment, raising household incomes, and allowing for better use of agglomeration economies. In Korea, the authorities are rightly concerned that labor productivity in the service sector – dominated by SMEs – has expanded by just about 1 percent a year this decade, six times slower than manufacturing productivity, largely due to the financial difficulties among SMEs in accessing finance, dealing with business regulation and labor market rigidities.

I think I may have answered the Vietnam-specific concern in one of the earlier questions. Interestingly, I don’t believe that asset price bubbles are yet a serious risk in other South East Asian countries (for example Malaysia, Thailand or the Philippines), but rising inflation may be a concern in Indonesia. Of course, the longer the monetary and fiscal stimulus packages are deployed, the higher this risk that these bubbles emerge.

Thank you for the question, Hiroshi. Among developing East Asia – East Asia that does not include the newly industrialized states or the developed countries – rebalancing is largely a question for China. Eliminating disincentives for the development of the service sector, meanwhile, is a question for more countries, including for Thailand and Malaysia.

The authorities in China remain committed to rebalancing growth as the key objective in its 11th five-year plan by giving greater attention to domestic sources of growth, increasing the role of services and consumption, improving energy efficiency, encouraging environmental sustainability, and reducing urban-rural inequalities. In this context, further reform of energy prices is one of the government’s priorities, and carrying it forward will bring more starkly into focus the important question of reforming other relative prices, including interest rates and the exchange rate. The current crisis arguably slowed progress in rebalancing, as the authorities focused on limiting the slowdown in growth by implementing the 4 trillion RMB infrastructure-dominated fiscal stimulus package and effectively re-pegging the currency to the U.S. dollar. Nonetheless, senior Chinese leaders have stressed that the crisis makes rebalancing more urgent and important.
Several measures to support private consumption have been undertaken thus far this year, including tax breaks for automobile purchases and subsidies for electronics sales, increases in pensions, the rolling out of a rural pension program, and the start of an important health reform program. These measures are helping sustain growth in private consumption in 2009 at a pace little changed from last year, modestly boosting the share of consumption in GDP. Nonetheless, significantly more efforts will be needed towards rebalancing, particularly in the area of removing the distortions that have kept growth in services, wages and private consumption lower than growth in overall GDP.

Dear Bou Tharin: You point to a dilemma that confronts many donors and development finance providers to low income countries -- the trade-off between speed and capacity. In their eagerness to bring development rapidly to their people, authorities in many poor countries become impatient by the lack of capacity in their institutions and ministries. To accelerate implementation, they urge donors and creditors to provide them “technical assistance”. In response, foreign experts are brought in either to help build domestic capacity or, in some case, actually do the job themselves. It is important, however, that the technical assistance content of projects and programs is kept reasonably low – and that the bulk of the technical assistance is geared to building local capacity rather than substituting for it.

I firmly believe that impatience is the enemy of development – and that it is better to do the right thing slowly and surely than to do the wrong thing quickly. Each time I go to my client countries in East Asia, I am bombarded by requests for “technical assistance” – even in some large middle income countries. Resisting such requests can sometimes be interpreted as being “unresponsive”, but acceding to them too easily is also inappropriate.

The best technical assistance from foreign experts occurs when (a) there is a real need for expertise unavailable in the country; (b) local counterparts are ready and willing to use that expertise and learn from it; and (c) the foreign expert is not just good at his job but also good at tailoring his knowledge to local situations and circumstances and imparting his knowledge to others. In my view, it is ideas that contribute more to development than money, and astute countries are adept at maximizing the learning that comes with foreign funded projects and programs. On many occasions, foreign experts can make critical contributions to the development of a country, but it is up to the receiving countries concerned and the donors/creditors who are involved in providing the finance to make sure the conditions are ripe for such assistance.

Dear Romit – you have asked a question that seems to be on many people’s minds, so you may want to look at some of the other questions and answers in this speak-out.

Hot money that flows in and out of countries can do as much damage as good, and it is important that countries maximize the good and minimize the risk of damage. Certainly, foreign direct investment that comes in for the long haul, when investors invest in plant and equipment and bring their knowledge and technology, is something to be welcomed. Foreign direct investment rarely contributes to asset price bubbles and cannot flow out of the country if conditions change.

Similarly, remittances from foreign workers to their families are resilient to changing economic conditions (in fact, in most parts of the world, they have been remarkably resilient throughout this crisis).

The problem arises with hot money and what is termed “portfolio investments”. Hot money is usually money that moves from country seeking quick returns either in the form of higher interest rates or through the possibility of appreciation. Portfolio flows are resources used to purchase equity and bonds in stock markets – assets that can be quickly liquidated and the proceeds converted to foreign exchange if there is the slightest risk of exchange rate depreciation or if returns fall. When such resources flow in, they raise asset prices, which encourage more inflows – the classic process of bubble creation. And if risks rise and investors start selling their assets, everyone rushes for the exit, leaving crashing asset prices and collapsing exchange rates in their wake.

Portfolio flows have some positive contribution to make to the development of capital markets – so their role is not entirely negative. Foreign participation in stock and bond markets add liquidity and “deepen” the market – making it easier for domestic firms to raise resources efficiently and cheaply and allowing domestic savers and investors to participate as well.

The challenge is to maximize the benefits from foreign portfolio investments and minimize the risks they may bring to macroeconomic stability. Some countries have regulations that allow them to control the level and type of foreign portfolio investments (India and China are good examples); others allow their exchange rates to appreciate with the inflow of foreign resources, gradually making it more expensive to invest; and yet others, such as Chile and Brazil, have tried taxing portfolio inflows. For the longest time, policy restrictions such as controls and taxes on foreign inflows were frowned upon by organizations such as the International Monetary Fund, which considers inadvisable any restrictions on foreign flows. But more recently, since the Asian financial crisis and as a result of the current financial crisis, there seems to be some rethinking on this issue. I certainly believe that in countries where capital markets are small and financial sectors are weak and relatively unregulated, countries should be extremely wary of opening their markets to unregulated foreign portfolio inflows.

You may want to look at the various answers above to see if your question has already been answered. You ask an interesting additional question – whether structural factors can cause asset price bubbles. The answer is they certainly can – and the US experience testifies to that. There were several factors underpinning the growth of asset price bubbles in the US over a relatively long period of time, and some of them were structural (that is, they were not monetary phenomena).

One was the development of financial derivatives and sophisticated financial instruments that were used to market mortgages in the secondary market – and these were bought by financial institutions seeking higher returns that they believed were risk-adjusted ( but in actual fact, the risks associated with these instruments were not fully understood). Although banks were carefully regulated and were unable to buy these assets on their own account without running afoul of their regulators, they were able to set up wholly-owned, off-balance sheet, special purpose vehicles to buy and sell such assets.

Another was an absence of regulations governing the trading of mortgage backed securities and the credit default swap market (where such trades were insured and then reinsured). Many of these markets were unregulated over-the-counter markets in which trades were not registered – with the result no one knew what the net open positions of market participants were (which is another way of saying how susceptible to risk their portfolios actually were). It was only when trades started to go bad (that is, mortgage debtors could not repay when the price of real estate began to fall) that it became apparent that some market players – Bear Stearns, Lehman Brothers, AIG – had portfolios that were particularly susceptible to such risk

A third non-monetary factor (I’m not sure I would call this structural!) was the touching belief among regulators and policy makers in the US at the time that the market was capable of correcting itself.

So yes – the frenzy in the mortgage securities market was possible in part because of monetary phenomena (such as low interest rates over a prolonged period following the dot com bust), but was also aided by regulatory and structural features of the financial landscape that came together in a perfect storm.

East Asia can definitely learn from the current difficult experience the advanced countries are going through. In all East Asian countries, the use of financial derivatives was only just beginning, and collapse of Lehman and the subsequent financial crisis has come as a timely warning that such instruments should be used only when they are properly understood and regulated.

Thank you, Sharon, a very important question. One needs to recognize that the fiscal stimulus most countries in the region has injected needs to be considered as a package with the monetary stimulus. In China, for example, the fiscal stimulus would not have been possible without the exceptionally large increase in bank lending that saw domestic credit increase by about 30 percent of GDP during 2009.

With that in mind, I think there is a strong argument to be made that most countries should sustain fiscal stimulus for now, but not necessarily inject new stimulus. They should clearly be thinking about exist strategies, however. On the monetary side, the time is right to start educing some of the exceptional monetary measures, including liquidity support. Many countries have started doing this – including Indonesia, for example, which recently increased reserve requirements on domestic deposits. Hikes in policy interest rates will likely follow, and for many countries in the region they will come earlier than for developed countries, given the strong growth and the projected pickup in consumer prices.

Among the countries in developing East Asia, fiscal stimulus packages this far have mostly focused on spending measures that can be delivered quickly. Large-scale infrastructure spending is not a category of spending governments can boost quickly, however, unless they have projects in the pipeline.

In addition to China, Thailand’s second stimulus package to be implemented over three years starting this fiscal year (October 1, 2010) is also focused on infrastructure. The situation is similar in Malaysia and Vietnam.

Over the medium-term, Mongolia is expected to experience a huge revenue inflows from the development of its OT copper and TT coal deposits. However, the domestic spending of these revenues carries the risk of "Dutch disease" whereby Mongolia’s non-resource sectors lose competitiveness and contract. The new fiscal responsibility framework currently under consideration should help the government prevent limit such harmful impacts and help avoid harmful boom-bust cycles by stabilizing government spending.

The severe floods in early 2009 and the slump in global demand have hit Fiji's economy hard. The country is recovering from these shocks, but it faces additional challenges in the near term. Firstly, there are substantial downside risks should the global recovery sputter and prices for imported oil continue to increase.

Secondly, the devaluation of the currency will likely increase the cost of servicing external debt and add further strains to the budget. Thirdly, Fiji relations with key external partners remain strained and restoration of full bilateral relations remains dependent on Fiji’s return to democracy.

China emerged as an ever more important driver of growth for the rest of developing East Asia this year. With the authorities in China set to accelerate policies to rebalance the economy, final demand in China should remain robust, drawing in more imports from the region.

In addition to commodities and advanced capital goods, sophisticated consumer goods are likely to be among those that would be in larger demand. But in addition to this trend, there is the trend of further specialization of countries in regional and global production networks where China is the final “port of assembly.”

While it is important to note that there is larger scope for the region to consume more of what it produces, including through these production networks, demand for most of these products is still driven primarily by developments in the advanced economies. Other developing and emerging economies are now becoming larger importers of the goods produced through these networks.

Dear Heng – you are right to point out that the world’s current production processes use a lot of non-renewable resources (minerals, metals, fossil fuels) which, in some cases, are gradually getting more expensive to find. At the same time, there are new technologies constantly being developed that rely increasingly on renewable resources (wind, hydro, geo-thermal, and solar power, scrap iron for steel, human and animal waste for manure). The pace at which the shift from non-renewables to renewables takes place will depend to a large extent on the relative price between the two and on unpredictable scientific breakthroughs that could suddenly make renewables cheaper to use than currently. In some cases, the plentiful availability of certain natural resources – such as many metals and minerals -- makes the search for renewable-based technologies less urgent; but in other instances – as in the increasing cost of crude oil extraction and refinement into gasoline -- has made the search for alternatives very urgent (and financially attractive).

Most worrying of all is the finite capacity of our atmosphere to hold carbon emissions, and the rising risks associated with global warming. There is little doubt that even if we are able to cap global carbon emissions and then reduce them over time, the world will still have to face melting ice caps, rising water levels and changing weather patterns which wil hurt some countries more than others. We have reached the limits of a global resource – the atmosphere – which, a few decades ago, we had no idea we were using up at such a rapid pace.

Dear Ananta – We in the World Bank’s East Asia region do not examine India as part of our remit. The Bank’s South Asia department does that – and they have brought out a report recently on how South Asia has fared. You may want to visit their blog at http://blogs.worldbank.org/endpovertyinsouthasia/

I happen to be an Indian citizen, visit India often, and have views on the performance of the Indian economy – but it would be inadvisable to air these views when there are far more knowledgeable people in the World Bank who study South Asia every day and are more qualified to respond to your questions.

Dear Niz Zafri – the World Bank doesn’t concentrate on poor or rich countries, it concentrates on the poor. When measured at the $1.25 a day international poverty line, there are more poor in the middle income countries of East Asia than there are in the region’s low income countries!! In many large middle income countries (China and India included), some provinces are bigger than most countries, and these provinces have very high poverty rates. The Bank’s objective is a world without poverty – and to achieve that, we must work equally hard in low income and middle income countries alike.