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Economy: World Bank on Asia; US deficit fears; S'Korea ratifies US FTA; IMF scheme

Updated On: Nov 23, 2011

The World Bank has released a new report on East Asian economies into 2012, with growth expected to moderate. Meanwhile, concerns are rising about the failure of United States lawmakers to agree on cuts to the country's deficit.

Elsewhere, South Korea's parliament has ratified a controversial free trade agreement with the United States, amid violence in the chamber and protests on the street. Finally, the International Monetary Fund has unveiled a new lending facility for countries to meet short-term financing needs.

World Bank East Asia and Pacific Economic Update

The World Bank says economic growth in East Asia continues to moderate, mainly due to weakening external demand. According to a new report, governments must focus on driving local demand and productivity amid uncertainties in Europe and a global growth slowdown.

In developing East Asian countries - excluding Japan, Hong Kong, Taiwan, South Korea, Singapore and India - gross domestic product is projected to increase by 8.2 percent this year (4.7 percent excluding China). But growth will slow to 7.8 percent in 2012.

The growth slowdown in East Asia has been particularly pronounced in industrial production. Exports of major regional industrial supply chains, especially electronics, have started to decline, especially after flooding in Thailand.

According to the World Bank, in the short term policy makers face the challenge of striking a balance between stimulating growth and fighting the effects of global uncertainty. The World Bank believes fiscal positions in most countries, while not as strong as before the 2008 crisis, leave sufficient space for fiscal stimulus if necessary.

The report also noted slow global growth presents an opportunity for governments to refocus on reforms that will enhance growth in the medium- and long-term. Higher investment, including in productive infrastructure, education, and in building social security systems, can help countries increase productivity and move toward higher value-added production.

Where levels of investments are already high, the World Bank said increasing the quality and efficiency of these investments should be the first priority alongside rebalancing growth towards domestic consumption.

Download: East Asia and Pacific Economic Update - Navigating Turbulence, Sustaining Growth [World Bank, 22 Nov 2011]

Report: East Asia growth to 'moderate next year amid uncertain outlook' [TODAY, 23 Nov 2011]

US Economy

Over in the United States, President Barack Obama has challenged Congress to vote next week to save an expiring payroll tax cut, a day after a high-profile effort to tackle the huge US deficit collapsed in acrimony.

"In the spirit of Thanksgiving, we are going to give them another chance," Mr. Obama said, referring to the upcoming American Thanksgiving holiday.

"Next week they are going to get to take a simple vote. If they vote no again, the typical family's taxes will go up $1,000 next year," Mr. Obama said.

A new Reuters/Ipsos poll shows that Americans blamed both Republicans and Mr. Obama for the failure of the congressional "supercommittee". On Monday, the bipartisan panel announced that they had failed to agree on measures to cut US$1.2 trillion from the US deficit despite months of talks.

Report: Obama pushes divided Congress to extend tax cut [Reuters, 22 Nov 2011]

Defence Cuts?

The Joint Select Committee on Deficit Reduction's failure to agree on a targeted plan for the required US$1.2 trillion in cuts means that an automatic deficit reduction will now come into effect.

Referred to as sequestration, this mechanism means that half of the needed cuts must come from the Pentagon and other defence-related agencies over the next decade.

There is still an outside chance that the US government could come up with a budget trimming US$1.2 trillion on its own. But if this does not happen, budget cuts will fall across the board, meaning the government cannot cut some areas more deeply to protect others, like defence.

Commenting on the situation, Defence Secretary Leon Panetta has warned that “the half-trillion in additional cuts demanded by sequester would lead to a hollow force incapable of sustaining the missions it is assigned”.

Last week, US President Barack Obama announced that the US would rotate 2500 additional troops through Australia, strengthening its presence in the Asia-Pacific. Mr. Obama previously said that potential future defence cuts would not affect the US commitment in Asia.

Analysis: Sequestration. So Far... [TIME, 22 Nov 2011]

Republican Presidential Candidates Hold TV Debate

Amid the political turmoil, the US Republican presidential candidates are holding another televised debate, moderated by CNN.

The debate is supposed to focus on foreign policy and national security, but candidates will also touch on the economy.

The prospect of deep spending reductions to military and homeland security budgets following the failure of the congressional supercommittee has caused alarm, with many referring to the country's economic situation as a national security threat.

Ahead of the debate, former House of Representatives speaker Newt Gingrich has emerged as a front-runner among the Republican presidential hopefuls. He has surged in opinion polls after scandals and misteps upset former leaders Herman Cain and Rick Perry.

Mr. Gingrich and former Massachusetts governor Mitt Romney are now the top Republican candidates.

Report: Republicans 2012: Newt Gingrich faces TV debate focus [BBC, 23 Nov 2011]

South Korea Ratifies FTA With United States

In South Korea, the country's parliament has ratified a controversial free trade agreement with the United States. The contentious vote was marred by violence in the parliament chamber and on the streets of the capital.

The bill passed on a vote of 151-7 during a special parliamentary session on Tuesday.

Outnumbered opposition lawmakers reacted angrily to the move to force a vote, shouting protests and setting off a tear gas canister in the chamber. As the session continued, lawmakers were forced to wear masks or cover their noses and mouths.

On the streets of Seoul, protestors clashed with the authorities but were stopped by police armed with water cannons.

The Korean vote paves the way for the FTA to come into effect. Last month, the US Congress approved the deal and President Barack Obama signed it into law.

But Korean critics are opposed to a clause that allows foreign investors to take disputes to an international arbitration panel. They call the provision an infringement of South Korea’s sovereignty.

Report: South Korea Passes Trade Agreement With The US [Voice of America, 22 Nov 2011]

IMF Expands Lending Tools

Meanwhile, the International Monetary Fund (IMF) has announced new measures to help countries protect themselves from the European debt crisis.

The new Precautionary and Liquidity Line (PLL) is designed to help countries with "sound economic fundamentals" and "sound policies" to meet short-term financing needs.

The PLL replaces the IMF's previous lending facility called the Precautionary Credit Line, and can be used "as insurance against future shocks" as well as to address short-term liquidity. Funding through the PLL will be capped at five times an individual country's contribution to the IMF, known as its quota, for six-month arrangements and 10 times for two-year facilities.

"The reform enhances the fund's ability to provide financing for crisis prevention and resolution," said IMF head Christine Lagarde.

"This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness."

Report: International Monetary Fund expands lending tools [BBC, 22 Nov 2011]







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