Asia on the brink of a 'golden age'

It will power recovery, but success will depend on how officials tackle risks, says Dr Tony Tan

By Ho Ai Li, Taiwan Correspondent

TAIPEI: The next 10 years might well be a 'golden age' for Asia, and the region could even become a new source of prosperity and stability for the world, Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC), predicted yesterday.

That is because Asian countries - together with other emerging markets such as Brazil and Russia - will power global growth in the coming years, and the world's investors will want to invest more in them.

But success will depend on the skill of Asian policymakers in dealing with the economic risks ahead, he warned.

Dr Tan was crystal ball-gazing at an economic forum organised by Taiwan's prominent CommonWealth magazine in Taipei. In a keynote speech to 550 businessmen, he outlined how the world was likely to change after the global financial crisis.

The good news, he said, was that a global depression had been avoided. Global growth could hit 3 per cent to 4 per cent this year, up from a contraction of nearly 2 per cent last year.

But growth is likely to be uneven, with the strongest showing coming from the emerging economies, especially Asia. He emphasised that the United States and key parts of Europe would take much longer than people think to recover.

'The current recovery could be strong, at least in the short-term, but even the most optimistic economist expects the bounce to be much weaker than what has occurred in the past,' he said.

'In the US, growth could be moderately strong in the first half of 2010 before slowing down to a below-average pace.'

This is why Dr Tan expects a 'tipping point' in the next 10 years which would see emerging markets - anchored by the 'Bric' economies of Brazil, Russia, India and China - becoming important, if not dominant, world actors.

Investors, for example, will put more of their money into these economies.

'Far from being a risky and perhaps alternative part of their portfolio, emerging markets will become a core and unavoidable asset class,' he predicted.

GIC is one of the largest sovereign wealth funds (SWFs) in the world. SWFs have emerged in recent years as some of the most powerful institutional investors in financial markets.

But there are also geopolitical risks as economies such as China eventually grow larger than their developed counterparts, said Dr Tan, a former Singapore deputy prime minister and defence minister.

The Bric economies may want a bigger say on world affairs, he noted. Conflicts and higher commodity prices could also result from greater competition over natural resources such as energy, arable land and key commodities.

And while the US, which is likely to be dominant in military power for decades, will still 'carry out most of the heavy lifting in global trouble spots', it will be itself heavily reliant on some of these emerging economies to finance its large public debt.

With banks in Europe and the US weak, Asian financial markets and institutions have a 'once in a lifetime' chance to 'step into the breach'.

Emerging markets will become a leading source of investment and credit to supply the massive capital needed to finance Asian growth, and become large players in new and old financial markets, he predicted.

But Dr Tan also warned that policymakers in the emerging economies will have to expertly manage risks such as rising inflation and price spikes in the property and stock markets.

'These have not, in general, hit their previous peak, and can be justified by positive fundamentals, but continued low interest rates could push prices higher, and eventually lead to bubbles,' he said.

Policymakers in Asia may be tempted to intervene and regulate markets, Dr Tan noted. But he urged governments to find a balance between private sector leadership and government intervention when it comes to managing the financial sector.

Another key area for balance is in Asian growth models, he said, adding that relying less on exports and more on services and domestic consumption will benefit Asia in many ways, such as reducing income inequality and pressure on the environment.

Source: Straits Times, 19 Jan 2010.