Himalayan News Service

Kathmandu, February 4:

Asian region needs immediate investment to recover from economic difficulties, says a report on World Economic Situation and Prospects for (WESP-2005). According to a statement issued by United Nations Information Centre (UNIC) in Kathmandu, extensive reconstruction is required following the havoc inflicted by tsunami which calls for an increase in investment within the Asian region. The report stated that various forms of enhanced international cooperation should complement domestic actions. In order to make sure that global growth is not derailed, cooperation is necessary to ensure coherence among national policy actions to address imbalances. Improved cooperation in exchange rate policy among major developed countries and with the leading developing economies in Asia should be used to devise a phased and non-disruptive approach to any necessary changes in exchange of rate regimes, WESP-2005.

The high aggregate rate of growth in 2004 in part reflected the fact that improvement was almost universal: every region except South Asia and the Commonwealth of Independent States (CIS) grew more rapidly in 2004 than in 2003. In these two exceptional cases, growth slipped from its previous high levels but remained above six per cent and seven per cent, respectively, according to the global report. All the groups of the countries with special development challenges – the least developed and landlocked countries and the small island developing states (SIDS) – grew by more than five per cent in 2004, says the report.

At the beginning of 2005, the cyclical recovery in the world economy was reaching its zenith as growth of gross world product (GWP) rose by four per cent in 2004, compared to 2.8 per cent in 2003 and a forecast of 3.25 per cent made for 2005. Growth in developing countries was the fastest for more than two decades, while output in the remaining econo-mies in transition continued to increase more rapidly than in the other major country groups.

The overall outcome of the various financial flows was a seventh consecutive year of a net transfer of resources out of developing countries, at a record level of $300 billion in 2004. Except for sub-Saharan Africa, all developing regions as well as the economies in transition, experienced a negative net transfer, states the report. However, some of this net transfer reflected positive rather than negative developments: as a result of strong growth in export revenues, some countries had trade surpluses which they chose to use as a means to improve their self-insurance against possible balance-of payments difficulties, either by increasing their foreign exchange reserves or by reducing their foreign debt. The perceived need for such self-insurance must been seen as a major deficiency of the international financial system.

According to a global report, these increases in foreign exchange reserves were partial reflection of the global external imbalances, which not only persisted but increased in 2004. “The largest of these imbalances was the United States’ trade deficit which rose to more than $650 billion, or above five per cent of GDP. This was countered by surpluses in a number of Asian developing countries, Japan and the EU. These imbalances were one of the forces causing the exchange rate of the dollar to continue its three year decline and to reach a new low against the Euro in 2004.”