'Social, environmental risks' to Asia's growth

Fiona Chan Straits Times 16 Jul 13;

ASIA'S growth prospects are being threatened by rising income inequality and environmental degradation, a regional poverty-fighting organisation has warned.

A new Asian Development Bank (ADB) report noted that the region's economic policies have brought prosperity to many parts of Asia but neglected to tackle social and environmental problems.

"The strong priority on growth meant that the non-economic dimensions of development... have been generally underemphasised," said Mr Peter Petri, Carl Shapiro Professor of International Finance at Brandeis University in the United States, and Mr Vinod Thomas, the ADB's director-general of independent evaluation, who co-wrote the report.

"Asian economies typically kept social expenditures low and focused investments on economic infrastructure," they added.

This has led to income gaps widening over the last two decades, according to the report. Developing Asia's Gini coefficient, a measure of inequality, rose about 1.4 per cent a year between the mid-1990s and the late 2000s.

"The income distribution is worsening, and possibly undermining demand, in countries that are home to 80 per cent of the region's population," the authors said. "The trends suggest that inequality in Asia is still rising and neither national nor international trends... promise early improvements."

Environmental conditions in Asia are also deteriorating, the report noted. Developing Asia now accounts for 35 per cent of global carbon dioxide emissions - twice its share of global economic output - and this is projected to rise to 44 per cent by 2030.

Much of this is due to China and India, the largest and third-largest emitters of carbon dioxide in the world respectively, the report said.

If left unchecked, the growing emissions could raise global temperatures by 5 deg C by the end of the 21st century, according to the World Bank.

This would likely "depress crop yields, decrease water availability, and raise risks of intense weather events", added the ADB.

Its warnings join those of the International Monetary Fund, which in April cautioned that unequal income growth could cause Asia's economies to stagnate.

The ADB is urging the region's policymakers to broaden its successful "evidence-based policy- making" - a pragmatic trial-and- error approach - to one that adds the goals of social inclusion and environmental sustainability to economic progress.

"Evidence is now telling us that future growth will likely depend on halting today's negative social and environmental trends," said the report.

If policymakers fail to take heed, not only will economic growth be hurt, but so will "social cohesion and the legitimacy of governments", it concluded.