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The Future of Asia 2012

Asia At Risk Of Middle-Income Trap: Indrawati

Friday, May 24, 2013

TOKYO (Nikkei)--Asian economies must reform to sustain growth and continue reducing poverty, Sri Mulyani Indrawati, the managing director of the World Bank, said Friday in Tokyo.

Indrawati pointed out that poverty reduction is decelerating and the so-called middle-income trap - the inability to create industries that allow populations to become high-earners - poses a challenge.

"More growth is required to achieve the same poverty reduction as before," Indrawati said at the 19th International Conference on The Future of Asia. This is a result of growing inequality, she said.

To transcend the middle-income trap and reduce poverty, Indrawati said Asian nations need to focus on their current strengths and make structural changes.

"Maintaining macroeconomic stability and openness to trade, investment and ideas will remain important as income levels rise," she said. Countries also need to embark on financial reform to fund innovation, improve education systems and spend public money wisely, she argued.

"Transparency, accountability and participation are important in making this work," she said.

Looking to China, Indrawati said that the country faces great challenges as it tries to transcend the middle-income trap. She argued that the financial sector, land markets, the fiscal system and government all need to be reformed if the country is to succeed.

Other economies can benefit from China's transformation. "Some of (China's) labor-intensive industries are likely to move elsewhere," she said. "Those countries that have invested in infrastructure and their education system will definitely benefit most from this trend."

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.