Noeleen Heyzer UN Under-Secretary-General & Executive Secretary of UNESCAP Executive Secretaries Dialogue with the 2 nd Committee 25 October 2007 Managing financial flows for inclusive & sustainable development in Asia & the Pacific

1 Content 3. Way forward 1. Current situation & macroeconomic policy challenges 2. Potential social costs

2 1. Short-term capital flows: historic highs… Surpassed pre-Asian crisis levels Other investments flows rising

3 1. Short-term capital flows: more volatile

4 1. Large inflows: partly due to good economic fundamentals

5 1. But… … increasing risk of sudden & large capital flow reversals Speculative capital flows have increased Excessive investor appetite for risk Booming yen carry trade ($331 billion, 2007)

6 2. Social Costs: Lessons of 1997 Financial volatility, economic crisis & frequent economic shocks devastate the poor: Poverty, unemployment, inequality

7 2. Social impact of financial volatility - inflows Foreign reserve accumulation & sterilization reduce potential public health & education expenditure Relentless currency appreciation affects employment

8 2. Social impact of financial volatility - outflows 4. Credit crunch will hit sub-prime borrowers 1. Sudden capital reversals, heavy toll on the poor 2. Inequality rises, marginal workers suffer most 3. The poor take longer to recover

9 2. Social protection systems insufficient – Restricted (formal sector) – Limited relevance to critical needs Weak social protection systems increase social costs Social protection systems in Asia-Pacific:

10 3. Way Forward Modern financial markets get you where you want to go fast; we are better off with them. But accidents are bigger. – Merton

11 3. Manage large & volatile capital flows 3 priorities: 1.Boost domestic demand as buffer against external shock 2.Deepen financial markets, to benefit from capital flows 3.Strengthen regional cooperation, to lessen the impact of financial volatility

12 3. Improve social protection systems Develop regional social protection framework for Asia-Pacific Build broad-based social resilience & inclusive growth Invest in women Target most vulnerable, less skilled

Thank you