Debt crisis in developing nations likely if slowdown continues: Kelegama

Mar 21, 2015 (LBO) – The main priority for policy makers worldwide should be to support a robust and balanced global recovery, a Sri Lankan economist said.

This involves promoting cooperation in reforming the international financial system, and ensuring sufficient resource flows to developing economies, Saman Kelegama, executive director of the Institute of Policy Studies of Sri Lanka said.

“The global economic slowdown, if it continues, is likely to result in a return of the debt crisis for more developing countries,” he said.

“There is a need to devise principles for the path of adjustment to reduce excessive debt that strike a social and developmental balance between financing, debt restructuring, and pace for policy reform.”

Asia is giving the lead for the growth dynamics of the world but also house a large segment of the global poor and has a large infrastructure deficit.

In this regard, he says for infrastructure funding the newly established Asia Infrastructure Investment Bank too should be utilized together with the Asian Development Bank to bridge the infrastructure deficit in Asian countries.

He was speaking at the sixth Asian Development Forum hosted by Sri Lanka in Colombo recently.

Kelegama also emphasized the necessity for promoting inclusive and sustainable industrialization.

Industrialization has been slow in some Asian nations with innovation lagging behind that of the West as human resources and skills need to be further developed to sustain the competitiveness of their products.

“Industrialization is essential for reducing income, productivity, technology, and skill gap with more advanced economies since there are limits to growth and development in agriculture dependent and service economies,” he said.

“Many resource rich economies like United States and Sweden closed income gaps with more advanced economies at that time through industrial development.”

Small economies like Switzerland, Singapore, and Taiwan did the same through industrialization.

Needless to say, he said that industrialization cannot be left to domestic and global market forces alone.

“Successful development cannot be gained by autarky nor with full integration in to world markets dominated by advanced economies, but if strategic integration in trade, investment, and finance designed to use foreign markets, technology, and finance in pursuit of national development,” said Kelegama.

“To achieve those human resources need to be developed with emphasis on skills, innovation capacity, and management.”

Sri Lanka’s Finance Minister Ravi Karunanayake along with Bambang Susantono, vice President, Asian Development Bank, a former Indonesian deputy transport minister also made keynote address at the event.

The Asian Development Forum was established through cooperation between Japan and the Republic of Korea, and the past host countries include Japan, the Republic of Korea, Thailand and Indonesia.