Asian economies have been hit differently by the pandemic and have responded differently by way of fiscal and monetary policy. The first post in this series traces differences in economic impact to differences in infection incidence, mobility loss due to transmission mitigation measures, and export decline. This post on fiscal policy and the next on monetary policy look at macro policy responses within the context of policy space.
The 'new fiscal consensus' holds that major advanced economies have the fiscal space to go big on stimulus and should do so in response to the pandemic. In a recent webinar sponsored by the Ashoka Centre for Economic Policy in Haryana, India, Olivier Blanchard made the case for the new fiscal consensus and Arvind Subramanian then responded on the relevance for emerging market economies such as India. This post extends elements of their analysis to the major emerging economies of Southeast Asia: Indonesia; Malaysia; the Philippines; Thailand; and Vietnam.
Blanchard explained that to preserve a stable debt/GDP ratio, the following condition must hold:
With the August 28 announcement by Prime Minister Abe of his intention to step down from his position within weeks, his record in a number of areas will inevitably face scrutiny and evaluation. Here, I lay out, in brief, my views on his government’s macroeconomic policies, which quickly became known as Abenomics. Like most governments, his had both successes and missed opportunities. But Japan clearly has changed as a result of his economic policies. And the debate around Abenomics anticipated issues that remain highly relevant in the current global policy debate.
When the last global crisis hit in 2008-09, the major economies of East Asia, but for one, had ample fiscal space to respond, and took advantage of that. This time around, the positioning is more mixed and the threat potentially much greater.
In Asia, the shock of the Great Financial Crisis (GFC) was inflicted mainly through export loss and capital flight. Domestic financial systems remained sound and productive capacity intact. A quick shot of fiscal stimulus was just the remedy to tide an economy over until global trade rebounded and financial capital returned. Use of such a strategy shows up in Figure 1 as a sharp increase in the debt-to-GDP ratio in 2009 for Malaysia, China, Vietnam, Thailand, Korea, and Taiwan, with the ratio then declining or stable in 2010. Two countries – the Philippines and Indonesia – saw no increase in their debt ratios in 2009, riding out the crisis without recourse to fiscal stimulus.