KATHMANDU: Decisive action coupled with greater reliance on domestic demand will lead Asia out of the current downturn, ADB president Haruhiko Kuroda told a seminar audience at ADB’s 42nd annual meeting in Bali on Sunday.

The Governor’s Seminar on “The Global Financial Turmoil and Implications for Asia” discussed how developing Asia’s economies have been affected by the crisis and how they can contribute to a return to global financial stability and economic growth.

In his introductory remarks at the seminar, Kuroda noted that Asian governments have responded quickly to the crisis with appropriate financial, monetary and fiscal policies and so far the impact on financial stability has been limited. However, he warned the “longer or deeper” the crisis gets the greater the risk to the region’s financial sector.

“This grave situation needs more vigorous and concerted efforts by all concerned to bring growth in the region back to its higher trajectory and support the global recovery,” he said.

A recent ADB report forecast that developing Asia’s economies will experience a sharp slowdown in growth as the full impact of the severe recession in industrialized economies is transmitted to emerging markets. The report, Asian Development Outlook 2009, released 31 March, forecast that economic growth in developing Asia will slide to just 3.4 per cent in 2009, down from 6.3 per cent last year and a record 9.5 per cent in 2007. If the global economy experiences a mild recovery next year, the outlook for the region will improve to 6 per cent in 2010.

Sri Mulyani Indrawati, Minister of Finance and ADB Governor for Indonesia, warned that a continued reversal in capital inflows could exert significant macroeconomic pressure on the region. Foreign capital took flight immediately following the onset of financial turmoil last September. Asia’s stock market indexes fell even more sharply than advanced markets and currencies tumbled, placing significant pressure on country’s balance of payments. Sri Mulyani said these pressures are one of the region’s “biggest challenges.’

Kuroda said that the pronounced impact of the current global downturn on the region’s growth underlined the risk of excessive dependence on external demand. He said developing Asia should rebalance its growth to get through the global crisis and boost its resilience to large external shocks in the long run.