Asia faces up to challenges of global crisis

NUSA DUA, Indonesia (Reuters) - Indonesia's president acknowledged on Monday the political, social and environmental challenges in Asia posed by the financial crisis after the region agreed on a $120 billion emergency fund to counter the downturn.

"Poverty is worsening in many countries. Businesses are struggling. The extremely urgent climate change agenda could be affected," Susilo Bambang Yudhoyono said in opening remarks to the annual meeting of the Asian Development Bank.

"If all this goes unchecked, down the road we could see social and political unrest in many countries," he told representatives of the ADB's 67-member countries, including finance ministers and central bank governors.

Many Asian exporters have seen their shipments halve from year-earlier levels as the deepest global downturn in decades has hammered world trade.

The ADB has forecast that the region's economies are likely to grow just 3.4 percent in 2009, the slowest pace since the Asian financial crisis a decade ago. It sees growth recovering to 6.3 percent next year if demand rebounds.

The ADB is meeting on the Indonesian resort island of Bali, where finance ministers from 13 East and Southeast Asian countries on Sunday set up a $120 billion emergency fund aimed at countering capital flight of the type that hit during the 1997/98 Asian financial crisis.

It is Asia's first independently managed multilateral liquidity facility and will be launched by the end of the year.

Japan, the region's biggest economy, also announced a plan to supply up to 6 trillion yen ($61.54 billion) to support its neighbors in an economic downturn.

DOMESTIC DEMAND

Growth in many Asian countries will slip this year below levels seen by analysts as essential to maintain jobs growth.

Yudhoyono said Indonesia's growth will ease this year to a range of 4 percent to 4.5 percent. But analysts say growth below 6 percent could fuel unemployment.

Waning demand for Asia's exports highlighted the need for Asian countries to develop domestic consumption, ADB Governor Haruhiko Kuroda said.

"They need to spend more on health, education and social security to reduce household needs for precautionary savings. They need strategies to transfer more corporate savings to households to encourage greater consumer spending."

But transforming household savings into consumer spending and investments has been a difficult task for Asian policymakers.

Among the ASEAN, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, savings exceed investments by at least 10 percent, ratings agency Standard and Poor's estimates.

To counter the crisis, the ADB plans to ramp up lending to about $33 billion in 2009 and 2010, almost a 50 percent increase over 2007-2008.

The Manila-based multilateral lender is funded by donations mainly from Japan, the United States and European nations.

If approved, the bank will also create a $3 billion fast-disbursing facility to meet "urgent needs" sparked by the crisis, Kuroda said.

Asia threatens to become a major source of global carbon emission unless it invests more in clean energy, Kuroda said.

Unless such steps are taken, he said, the region will "quickly become the main driver of climate change."

(Writing by Raju Gopalakrishnan; Editing by Neil Fullick)