Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region

This paper examines whether the resource positions of the developing counties in the Asia Pacific region and the support they are receiving from donor countries are adequate to ensure that the MDG will be attained by 2015. It begins by examining the extant record of economic growth and emphasises the need for higher economic growth in order to accelerate the pace of poverty reduction. It argues that neither the level of economic growth nor its current structure can ensure that MDG1 is attained by 2015. The paper argues that domestic savings and investment rates in most large developing countries in the Asia Pacific region are not high enough for growth rates to rise high enough to ensure that MDG1 (halving poverty measured at $1 PPP per capita over the period 1990-2015) is attained. Further, the ICOR in most of these countries has been stagnant or rising in many of these countries so that it would be unrealistic to expect sharp enough rises in the productivity of capital to ensure that existing investment rates can ensure that MDG1 is attained by 2015. The paper then examines some of the reasons for this lacklustre performance. Tax revenues have been stagnant and public expenditures on education and health have been low whereas many developing countries in the Asia Pacific region bear substantial burdens of debt servicing. Many of these countries also face considerable capital flight, exacerbating already tentative external situations. Furthermore whereas the current outlook for FDI looks promising for some Asian countries, international aid has been stagnant and in, many cases, net financial flows into developing countries has been negative. The paper then considers avenues for increasing the resource base for these counties. It considers a variety of measures including tax reform and expenditure switching policies. It advances policies to reduce capital flight and argues that international debt reduction should accompany any policy to increase international aid to the developing countries of the Asia Pacific region. It lists a number of additional sources of multilateral aid that could replenish developing country resources but argues that measures to increase the absorptive capacity of developing countries as well as reduction in the volatility of aid must accompany to increase international aid. Further, increases in international aid should ensure that the real exchange rates of the recipient countries should not rise. If the real exchange rates were to rise, some of these countries could be exposed to Dutch disease type of phenomena.