Asia's recovery - 'Exit' to where?

Developing Asia's rebound from the global economic crisis has taken hold. The Asian Development Bank predicts growth of 7.5 percent this year, up from a projected 5.2 percent in 2009 and exceeding 2008 growth.

Such robust expansion suggests authorities will "exit" accommodative policies adopted during the crisis earlier than the rest of the world. Indeed, monetary authorities in countries such as India and Malaysia have already pushed policy rates up a quarter-point, while many governments plan to reduce fiscal deficit targets this year.

But, the important question is: exit to where? As developing Asia exits this crisis, it must ensure it is not entering another. Authorities around the world have so far failed to deal with its underlying causes in a meaningful way. Structural problems, such as inadequate financial market regulation and excessive liquidity, remain despite constructive proposals on coordination of global macro-policy and financial regulatory reform. In developing Asia, large current account surpluses and reserve accumulation will continue to exacerbate the global imbalances that underpinned the current global crisis. Current account surpluses in the region, particularly in the People's Republic of China (PRC), declined only marginally during the crisis and are expected to reach even higher levels over the next few years.