Presentation By: Naoyuki Shinohara Deputy Managing Director International Monetary Fund Asian Institute of Management Manila, November 4, 2011

1. The Asia-Pacific Economic Outlook and Policy
Challenges in an Uncertain Global Environment
Naoyuki Shinohara
Deputy Managing Director
International Monetary Fund
Asian Institute of Management
Manila, November 4, 2011 1

2. Plan of the Presentation
1. Advanced Economies: Outlook and Risks
2. Emerging Asia: Outlook, Risks, and
Policies
3. The Philippines: Short and Long Term
Challenges
2

3. Advanced Economies
Outlook and Risks
3

4. Global Outlook
In advanced economies, adverse feedback loops
between fiscal and financial vulnerabilities remain a
key concern
Bank CDS spreads Sovereign CDS spreads
(5-year, basis points) (5-year, basis points)
600 700
Lehman Current Lehman Current
500 600
500
400
400
300
300
200
200
100 100
0 0
Euro area United States Euro area United States
Note: Current refers to data as of October 28.
4

5. Global Outlook
In the U.S., household balance sheet are still repairing
U.S. House Price Indices U.S. Household Net Worth
(January 2006 =100) (Percent of disposable personal income;
business cycle peak = 100)
Case-Shiller 20-city index
CoreLogic (incl. distressed) 110
CoreLogic (excl. distressed)
105 Case-Shiller national index (2006Q1=100) 105 Range of previous
recessions, 1953-2001
100
100
95
95
90
90
85
85
80
80
75
75 Current episode
70
70
65
11
10
12
13
14
3
7
0
1
2
4
5
6
8
9
2006 2007 2008 2009 2010 2011
5

6. Global Outlook
Global growth has been revised down
WEO Real GDP Growth Projections
(percent change from a year earlier)
Euro
World U.S. Area Japan Brazil Russia India China
2011
4.0 1.5 1.6 -0.5 3.8 4.3 7.8 9.5
(Sep 2011)
2011
(Apr 2011)
4.4 2.8 1.6 1.4 4.5 4.8 8.2 9.6
2012
(Sep 2011)
4.0 1.8 1.1 2.3 3.6 4.1 7.5 9.0
2012
(Apr 2011)
4.5 2.9 1.8 2.1 4.1 4.5 7.8 9.5
6

7. Global Outlook
Risks to the global economy are tilted to the
downside
Risks to the Global Outlook
(Baseline forecast and selected confidence bands)
90 percent confidence interval 70 percent confidence interval
50 percent confidence interval
90 percent confidence interval (April 2011)
7
6
Central forecast
5
4
3
2
1
0
-1
-2
2007 2008 2009 2010 2011 2012
7

8. Emerging Asia
Outlook, Risks and Policies
8

9. EM Asia Outlook and Risks
Financial turbulence in advanced economies
has spilled over to Asia and activity is moderating
Stock Indices Exchange Rate against U.S. Dollar Selected Asia: Manufacturing PMI
(Percent change; (Percent change, increase = depreciation; (Seasonally adjusted; 50=neutral)
as of October 31, 2011) as of October 31, 2011)
Change since August 1 Change since August 1 end-2010 Aug-11 Latest
Largest 2-month change since January Largest 2-month change since January 60
2008
2008 58
10
50 56
0 40 54
52
-10 30
50
-20
20 48
-30 46
10
-40 44
0 42
-50
-60 -10 40
Australia
New Zealand
Singapore
China
Japan
India
Korea
Hong Kong SAR
Hong Kong SAR
Hungary
Australia
Indonesia
Korea
Mexico
Poland
India
Thailand
Philippines
Malaysia
Singapore
Euro
Russia
China
Brazil
New Zealand
Japan
Vietnam
Taiwan Province of China
Malaysia
Japan
Korea
Hong Kong SAR
China
Australia
New Zealand
Vietnam
Euro area
Latin America
Thailand
Emerging Europe
Indonesia
India
Philippines
Singapore
United States
Taiwan Province of
China
Taiwan Province of China
Note: latest data refer to October
2011, except for Hong Kong SAR
and New Zealand (September
2011). 9

10. EM Asia Outlook and Risks
Growth forecast have been revised down slightly,
but risks tilted decidedly to the downside
Asia: Projected GDP Growth Asia: GDP Growth
(in percent; year over year) (Central forecast and selected confidence
intervals; in percent)
Difference
Actual data and 10
from April
latest projections
2011
2010 2011 2012 2011 2012 9
Central forecast
Industrial Asia 3.7 0.0 2.5 -1.7 0.2
Australia 2.7 1.8 3.3 -1.2 -0.2 8
Japan 4.0 -0.5 2.3 -1.9 0.2
New Zealand 1.7 2.0 3.8 1.1 -0.3 7
Emerging Asia 9.5 7.9 7.7 -0.2 -0.3
China 10.3 9.5 9.0 -0.1 -0.5
6
Hong Kong SAR 7.0 6.0 4.3 0.6 0.1
5
Korea 6.2 4.0 4.4 -0.5 0.2
Taiwan Province of 4
China 10.9 5.2 5.0 -0.2 -0.2
3 90 percent confidence interval
India 10.1 7.8 7.5 -0.4 -0.3
2 70 percent confidence interval
Indonesia 6.1 6.4 6.3 0.2 -0.2
50 percent confidence interval
Malaysia 7.2 5.2 5.1 -0.3 -0.1 1
Philippines 7.6 4.7 4.9 -0.3 -0.1
Singapore 14.5 5.3 4.3 0.1 -0.1 0
Thailand 7.8 3.5 4.8 -0.4 0.3 2007 2008 2009 2010 2011 2012
Vietnam 6.8 5.8 6.3 -0.5 -0.5
Asia 8.3 6.3 6.7 -0.5 -0.2
10

11. EM Asia Outlook and Risks
Another global recession:
Would hit emerging Asia hard through the trade channel…
Selected Asia: Contribution of Non-Asian Export-Oriented Asia: Private Domestic
Final Demand to Value Added Demand and Exports
(In percent of GDP) (Year over year percent change)
60 Private domestic demand (left scale)
1995-2000 2001-2010
50 Exports of goods (right scale)
10 50
OECD 8 40
40 average
(2005) 6 30
30 4 20
2 10
20 0 0
-2 -10
10 -4 -20
-6 -30
0
-8 -40
Philippines
Singapore
China
Thailand
Indonesia
Malaysia
Korea
of China
Taiwan Province
-10 -50
-12 -60
2000:Q1
2002:Q1
2004:Q1
2006:Q1
2008:Q1
2010:Q1
2011:Q2
Note: Includes China, Hong Kong SAR, Japan,
Korea, Malaysia, the Philippines, Taiwan Province of
11
China, and Thailand.

12. EM Asia Outlook and Risks
… and the financial channel
Selected Asia: Foreign Holdings in Local Consolidated Claims of European and U.S.
Currency Government Bonds Banks on Selected Asia
(In percent of total outstanding local currency (In percent of GDP; as of 2011:Q2)
government bond)
Other European banks
Indonesia Korea Malaysia Thailand U.K. banks
25 Euro area (excl. France) banks
40 French banks
20 U.S. banks
35
15
30
10
25
5
20
0
15
of China
Taiwan Province
Philippines
China
India
Thailand
Malaysia
Indonesia
Japan
Australia
New Zealand
Korea
10
5
0
2000:Q1
2001:Q1
2002:Q1
2003:Q1
2004:Q1
2005:Q1
2006:Q1
2007:Q1
2008:Q1
2009:Q1
2010:Q1
2011:Q3
Note: Claims are on immediate borrower basis. Uses sum of
quarterly GDP in U.S. dollar between 2010:Q3 and 2011:Q2 in
the denominator.
12

13. Policies
Downside risks may warrant a pause in monetary tightening
Fiscal normalization should be allowed to stay the course
Emerging Asia: Overheating Index and Asia: Cyclically Adjusted Fiscal Balances in
Vulnerability to 2012
a Slowdown in G2 Growth (Deviation from 2002-07 average, percent of GDP)
2.5
Increasing vulnerability
to slowdown in G–2
2
2.0
1
Overheating index
CHN
1.5
(2011:Q2)
IDN
KOR 0
IND MYS
1.0
SGP -1
overheating
PHL THA
Increasing
pressure
0.5
TWN -2
0.0
0.00 1.00 2.00 -3
Change (in percentage point) in -4
Philippines
Singapore
of China
China
India
Taiwan Province
Thailand
Indonesia
Australia
Japan
Malaysia
GDP growth following a
Korea
New Zealand
Hong Kong SAR
slowdown in growth in G–2 by 1
percentage point
Note: Responses to a slowdown in G–2 growth are based
on regression estimates, and include effects of
discretionary policy measures.
13

14. Policies
Exchange rates:
room for further appreciation
Selected Asia: REER FX Reserves to Short Term Debt
(index, 2007=100) (end of 2010, in remaining maturity basis)
Korea Indonesia Philippines
Thailand China 1000
160
800
140
600
120
400
100
200
80
0
America
Europe
EM Eastern
EM Latin
60
China
India
East Asia
ASEAN
(excl.
China)
40
Sep-11
Jan-91
Jan-96
Jan-01
Jan-03
Jan-06
Jan-08
Jan-11
Jan-90
Jan-92
Jan-93
Jan-94
Jan-95
Jan-97
Jan-98
Jan-99
Jan-00
Jan-02
Jan-04
Jan-05
Jan-07
Jan-09
Jan-10
ASEAN includes Indonesia, Malaysia, the Philippines,
Thailand, and Vietnam.
14

15. Policies
What if there is another global crisis/recession?
Asia has ample room to respond:
 Draw on abundant FX reserves or regional reserve
pooling arrangements
 Shift aggressively to ease monetary policy
 Reverse fiscal consolidation (for those with fiscal
space)
 Guarantees bank liabilities
 Deploy extraordinary measures (such as expansion
of central bank balance sheets or exceptional liquidity
provision) should rates approach the zero bound
15

16. Policies
Advancing rebalancing would reduce the vulnerability to
external shocks, and help make growth more inclusive
Global Current Account Balances EMs: Change in Gini Index, Last Two Decades
(in percent of world GDP) (In Gini points, since 1990)
Rest of the world Emerging Asia Population-weighted average
Japan and Germany Oil exporters
China United States Simple Average
3
Projections Other Asia
2
South Asia
1 Industrial Asia
NIEs
0
ASEAN
-1 SSA
MENA
-2 Global
discrepancy Lat AM
-3 CEE
2000
2004
2008
2012
2013
2001
2002
2003
2005
2006
2007
2009
2010
2011
2014
2015
-4 -2 0 2 4 6 8 10 12
16

17. The Philippines: Short and Long
Term Challenges
17

18. The Philippines
Philippines: Growth has slowed,
but inflation has remained elevated
Philippines: Contributions to Growth Headline CPI Inflation Private Credit Growth
(In percentage points; y/y) (In percent; y/y) (In percent; y/y)
Private consumption Indonesia Malaysia Indonesia Malaysia
Public consumption Philippines Thailand
Fixed investment Philippines Thailand
20 Change in stocks
14 40
Net exports
12 35
15
10 30
10
8
25
5
6
20
0 4
15
2
-5
10
0
-10 5
-2
-15 -4 0
2008Q1
2008Q2
2009Q1
2009Q4
2010Q3
2008Q3
2008Q4
2009Q2
2009Q3
2010Q1
2010Q2
2010Q4
2011Q1
2011Q2
Mar-11
Mar-07
Mar-08
Mar-09
Mar-10
Sep-10
Sep-11
Sep-07
Sep-08
Sep-09
Dec-07
Dec-08
Dec-09
Dec-10
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Mar-07
Mar-10
Mar-11
Mar-08
Mar-09
Sep-07
Sep-09
Sep-10
Sep-11
Sep-08
Dec-07
Dec-08
Dec-09
Dec-10
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
18
18

19. The Philippines
In the Philippines, poverty reduction remains a key issue
The Philippine Development Plan focuses on inclusive growth
Selected Asia: Change in Poverty Headcount
(In percentage points, since 1990;
at 2005 PPP prices) Key measures for inclusive
At $2 per day At $1.25 per day growth in the Philippine
Mongolia (2005, 22.4/49.1) Development Plan:
Malaysia (2009, 0.0/2.3)
Bangladesh (2005, 49.6/81.3)  Infrastructure investment
Thailand (2009, 10.8/26.5)
Sri Lanka (2007, 7.0/29.1)  Governance reform
Philippines (2006, 22.6/45.0)
India (2005, 41.6/75.6)
 Investment in education and
Nepal (2004. 55.1/77.6) health
Cambodia (2007, 28.3/56.5)
Lao P.D.R. (2008, 33.9/66.0)  Supporting the poor
Indonesia (2009, 18.7/50.6)
China (2005, 15.9/36.3)
Vietnam (2008, 13.1/38.5)
-75 -50 -25 0 25
19

20. The Philippines
As in other ASEAN economies, strengthening sustainable growth in
the Philippines will involve more infrastructure spending
Effect of Infrastructure on Private
Infrastructure Gap Investment Spending
(In percent of GDP: increase associated with one
percent increase in infrastructure)
ASEAN
Other Emerging Markets 2.5
Non-Asia Advanced Economies
Phones per 1,000 Electricity 2.0
60 people generation (billion 200
(LHS) kilowatt hours per 180 1.5
50 capita, RHS)
160
40 140 1.0
120
30 100
0.5
80
20 60
0.0
10 40
Electricity
Cellphones
Telephones
20
0 0
Latest
Latest
1995
1995
2005
2005
20

21. Summing up
• Risks of adverse feedback loops from fiscal
Advanced Economies: and financial fragilities persist
Outlook and Risks • G2 growth has slowed
• Risks tilted to the downside
•Healthy growth thanks to strong domestic
demand
Emerging Asia: Outlook, • But downside risks dominate—does this call
Risks, and Policies for a pause in tightening?
•Advancing rebalancing demand is key, and
will also lead to more inclusive growth
The Philippines: Short and •Resilient growth and inflation elevated
•Over the medium term, need to make growth
Long Term Challenges
more inclusive and increase infrastructure
21

22. Conclusions
Asia is still expected to continue growing at a solid rate in 2011
and 2012. But downside risks from a weakening global economy
have greatly intensified.
 Persistent weakness in advanced economies underscores the
importance of shifting the growth model in Asia.
 This means advancing the policies needed for rebalancing and
maintaining flexible exchange rates. This would help shift the
engines for growth toward domestic demand and make growth
more inclusive.
 In the near term, Asia should pause monetary tightening in those
countries where there is room, to allow time for greater clarity on
the prospects for the advanced economies. But fiscal consolidation
should be allowed to run its course, and Asia has still room to
respond if downside risks materialize.
22

23. THANK YOU.
23