News Room - Business/Economics

Posted on 09 Jan 2009

Asia must boost investment to weather financial crisis: US economist

Asian governments must boost investment by tapping into their foreign exchange reserves and adopting an expansionary monetary policy to help their economies weather what could be a prolonged global crisis, renowned American economist Jeffrey Sachs said Wednesday.

 

Speaking at an Asian Development Bank forum in Manila, Sachs said Japan -given its US$1 trillion reserves and the need to stop the yen's appreciation -could take the lead in pump priming the region by lending to other countries in Asia.

 

Japan has the second largest reserves in the world, after China, the latter whom Sachs said must also reverse its current contractionary policy to fund the country's massive domestic economy.

 

Sachs -an American economist who has advised governments in Latin America, Eastern Europe, and the former Soviet Union on the transition from state-run to market economies -said he expects the crisis to be "significant and relatively prolonged...a crisis that will take many years to work through."

 

"I like to view this crisis as an opportunity for Asia given the chronic underinvestment in the region," Sachs said. "Public spending has a very high social return and also has a very high macroeconomic purpose right now."

 

Meanwhile, Sachs said he expects the US dollar to be "the weaker currency of the future" compared with its major rivals because of very expansionary monetary policies adopted by the US government.

 

However, he described the Japanese yen's rise in recent months as " exaggerated," adding that an exchange rate of Y90 to a dollar is "too strong given the state of the Japanese economy."

 

"That's why I'm suggesting more monetary expansion in Japan, even intervention in foreign exchange markets to keep the yen at a more realistic level, which to my mind, should be at Y100 to a dollar."