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Central Bank of the Republic of China


Statement by the Governor for the Republic of China at the 42th Annual Meeting of the Asian Development Bank

Statement by the Governor for the Republic of China
at the 42nd Annual Meeting of the Asian Development Bank
Fai-nan Perng, Governor, The Central Bank of the Republic of China (Taiwan)
Bali, Indonesia, May 5, 2009

Mr. Chairman, President Kuroda, Fellow Governors, Ladies and Gentlemen:

On behalf of the delegation of the Republic of China, I would like to thank the Government and people of Indonesia for their generous hospitality. Bali is an island paradise. Its stunning scenery and long history have nurtured the development of captivating art and culture, epitomized by painting, wood carving, and folk dance. This is a perfect setting for the annual gathering of the ADB family. I would also like to extend my sincere gratitude to the staff of ADB for their hard work in organizing this event.

Since President Kuroda took office, ADB has been committed to promoting regional economic and financial integration. Concrete results have also been achieved in infrastructure building and poverty reduction in Developing Member Countries (DMCs). In mid-2008, ADB started pursuing Strategy 2020, a framework formulated in line with the United Nations Millennium Development Goals for developing nations. Strategy 2020 is the grandest reform project undertaken by ADB since its inception in 1966. It lays out the blueprint for economic and social development in Asia Pacific into the year 2020. With poverty reduction remaining the overarching goal, Strategy 2020 encompasses three strategic agendas: inclusive economic growth, environmentally sustainable development, and regional integration. ADB will also focus its operation on five core areas including infrastructure, environment, regional cooperation and integration, financial sector development, and education. By 2020, private sector development will account for 50% of ADB’s lending portfolio and regional cooperation and integration will make up 30%.

To meet these aspiring goals with resources commensurate with its vision, ADB secured US$11.3 billion from donor members for the Asian Development Fund (ADF) in May 2008. While we are heartened to see such a generous contribution to the ADF, we must remind ourselves to make the best use of these resources through prioritization, raising efficiency in program implementation, and strengthening governance and institution-building.

ADB’s loan loss reserves are expected to increase in the face of the current financial crisis. ADB must remain cautious and monitor financial risks closely as its annual allocable net income could begin to drop in 2009 through 2011. The possible depletion of borrowing headroom after 2011 is also a major concern. Against this backdrop, ADB is planning to execute in May a capital increase of US$109.8 billion to boost its capital base to US$164.7 billion.

ADB has performed commendably amid the financial turmoil as its operation remains sound and the state of its finance healthy. Its operating income of the ordinary capital resources rose to US$700 million in 2008 from the US$670 million of 2007. In 2008, the Asia Pacific region was initially hard hit by surging oil and raw material prices before its exports, output, and employment suffered the fallout from crisis-hit countries in the second half of the year. ADB’s response was swift, proactive, and flexible. It quickly provided lending and guarantees totaling US$4 billion to help cushion the impact. I commend President Kuroda and his staff on their good work.

The international community now faces the most severe economic downturn since the Great Depression. ADB forecasts the economy of the Asia Pacific excluding Japan region will only grow by 3.4% in 2009, a significant decline from the 6.3% of 2008. The situation has become critical as unemployment soars and the associated social instability might ensue.

To mitigate the economic and social impact on DMCs, ADB is ready to boost its assistance to DMCs through Public Investment Programs in infrastructure and social sectors, Trade Finance Facilitation Program (TFFP), policy recommendations and financial support to address the existing weakness in financial systems, participation in emergency response programs, and strengthened monitoring and support for regional approaches to the crisis.

While I find ADB’s apt response to the crisis and timely support for DMCs exemplary, it has also occurred to me, to better help the economically challenged countries, a larger portion of allocable net income could be transferred to the ADF and the Technical Assistance Special Fund. In addition, I think the TFFP, another countermeasure focus of ADB, with an aim to promote regional trade, is heading in the right direction. My country will actively encourage our banks to participate in the TFFP.

It is beyond question that one of the most important actions that can be taken to address the global financial crisis is to strengthen regional cooperation. Here, ADB can play an active role. The United Nations panel of expert economists led by Dr. Joseph Stiglitz called on international financial institutions to provide additional funding to developing countries and support for regional cooperation agreements. The G20 leaders also urged multilateral development banks to increase funding to assist member countries and play a greater role in promoting financial stability. Given ADB’s extensive experience, highly qualified staff, advanced technology, and other valuable resources, it should take the lead in furthering cooperative relationships among member countries.

Under the Chiang Mai Initiative, the ASEAN+3 countries began setting up bilateral swap arrangements in 2000. A lot of progress has been made since then. In February 2009, the Chiang Mai Initiative Multilateralization process was speeded up with the size of the reserve pool increased from US$80 billion to US$120 billion. I believe a multilateral swap arrangement across Asia with ADB as the intermediary is the best way forward. Loan arrangements could also be established as an additional source of funding to allow ADB to borrow from the member countries with ample foreign exchange reserves.

As global imbalances and the US sub-prime mortgage debacle triggered a financial crisis worldwide, the volatility of the US dollar exchange rate has exerted enormous pressure on regional financial stability. Asian countries should establish a formal regional exchange rate coordination mechanism to maintain the stability of Asian currencies.

The development of Asia’s bond markets crossed a significant milestone with the launch of ADB’s Asian Currency Note Programme in 2006. Under the Programme, ADB can issue Asian currency bonds with maturities of one year and above to a total of US$10 billion anytime within the 30 years starting from 2006. To date, only a few countries including mine have joined the platform. We believe that involving more countries in this Programme would further promote the development of Asia’s bond markets. Incidentally, as governments around the region aggressively expand public expenditure to stimulate demand, the resulting borrowing needs would broaden the scale of domestic bond markets. Moreover, if such bond issues can be denominated in a basket of Asian currencies, they will also contribute to regional financial integration.

In retrospect, the 1997 Asian financial crisis, the collapse of the IT bubble in 2000, the global financial turmoil triggered by the subprime mortgage meltdown, and the recent H1N1 flu we now face have all revealed a more sinister face of globalization. These traumatic events serve as a painful reminder that a seemingly isolated incident in any corner of the world can, through a variety of channels, quickly make its impact felt across a region or the globe. At this important juncture, it is all the more important to work hand in hand to shield Asian economies from external shocks. Regional cooperation at all levels and in all forms should be inclusive. All economies with adequate strength and ample foreign exchange reserves should participate.

I would like to reiterate that the Republic of China is a founding member of ADB and has fully carried out her membership responsibilities. My delegation continues to protest against the unilateral alteration of our membership designation. I would also like to call on member countries to respect each other concerning the equal opportunities of hosting meetings and workshops of ADB. Lastly, I wish the meeting every success and all the participants good health.

Thank you.