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Asia Must Respond Immediately to Needs of Ageing Populations

May. 14, 2007

TOKYO, JAPAN – Critical reform measures need to be taken soon before the impact of ageing populations takes its toll in developing countries in Asia, the Asian Development Bank Institutes Dean, Masahiro Kawai, said during a recent seminar on ageing in Asia.

For far too long we have tended to focus on high-income economies in the region like Japan, and the newly-industrialized economies — Republic of Korea; Hong Kong, China; Taipei,China; and Singapore — that are far advanced in the ageing curve, said Mr. Kawai. But many of the middle-income developing countries and a few low-income developing countries in the region are on the same demographic path.

Many countries in Asia, particularly in East Asia, are now on the edge of drastic demographic changes. Some countries will face demographic challenges related to a declining share of their working populations and an increase in the share of aged dependents as early as 2015-2020.

These dramatic societal changes are expected to have adverse effects on countries economic performance and prospects through a decrease in the labor force, and lower saving and investment rates. However, there are a number of Southeast Asian countries that will face the opposite problem. Although populations are still very young in these countries, over the next two decades a bulge in the size of the working age population will occur. This raises the potential for significant levels of unemployment and related social problems.

Asias developing countries should be brought into the discussion on ageing as soon as possible, as many of these countries are ageing faster than they are developing, Mr. Kawai said.

Given the speed at which ageing is occurring in the region, difficult policy choices will have to be made soon, both at the national and regional levels, he said.

While recognizing that many of the policy reforms needed to tackle ageing — such as raising the mandatory retirement age, restructuring pension benefits, increasing taxes, or allowing free movement of goods, services, capital and labor — are fraught with controversy, reforms should not be put off until it is too late, he said.

We start to think about ageing as a looming crisis, but I truly believe that ageing only becomes a crisis if we allow ourselves to be caught unprepared, if we lack the foresight and the courage to refashion our policies and institutions to deal with its consequences, Mr. Kawai said.

Speaking on the impact of ageing on regional development, Professor David Canning, of Harvard University, emphasized that the underlying message for policymakers is one of change.

Ageing is a good, were living longer, healthier lives, he said. But we need to change what we do as individuals and as societies, so that we can take advantage of ageing.

Unless critical reform measures are taken soon, many developing countries in the region will face the prospect of population ageing at low levels of income, Mr. Canning said.

In addition to discussing policy responses at the national level, panelists at the seminar also explored measures that could be taken at the regional level, as economic interactions are also expected to take place among countries that are economically integrated but ageing at different speeds.

Dr. Ralph C. Bryant, of the Brookings Institution, described how the domestic effects of ageing could be influenced by cross-border transactions. Failure to take into account the macroeconomic effects working through exchange rates and cross-border transactions could lead to an inaccurate assessment of the net impacts of demographic change.

Macroeconomic interactions in response to heterogeneous demography can alter the relative sizes of economic activity in nations and regions, he said, and explaining how outputs, capital stocks and consumptions could be redistributed across borders. Such redistributions can have major consequences for the relative welfare of nations.

Osaka University Professor Charles Horioka noted that while ageing is expected to lead to a decline in national saving rates, the prospects are less worrisome at the regional or global level. Since the population ageing process is proceeding at different speeds in different countries, declines in household and private saving rates can be expected to begin at different times and proceed at different speeds in different countries.

So there is no danger of a region-wide or worldwide collapse in saving rates in the near future, Mr. Horioka said.

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