Recovery from the global economic crisis is firmly on track in developing East Asia, with real GDP growth, industrial production, and exports all surpassing pre-crisis levels. Output rose 9.6% in 2010 and is projected to grow by about 8% in 2011 and 2012.

The region has the potential to secure its recovery and continue on its path of rapid and sustained growth—if it is able to harness opportunities and meet various challenges. Managing inflation was the key short-term challenge in the region this year, which was complicated by a surge in portfolio capital inflows and large increases in food and commodity prices. Looking forward East Asia and Pacific countries need to increase regional integration to take advantage of a rapidly growing China. Reducing inequality and social exclusion, making cities in the region resilient to natural disasters, and addressing the effects of climate change are also important for continuous growth.

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As the region’s development needs have become more sophisticated, the knowledge agenda has grown in significance. Among the Bank’s knowledge products, the March edition of the twice yearly East Asia and Pacific Economic Update provided analysis of the impact of the earthquake in Japan on the regional economy just days after the disaster. Regular country economic reports were produced for China, Indonesia, Malaysia, Mongolia, the Philippines, and Thailand. The Bank worked with partners to publish Climate Risks and Adaptation in Asian Coastal Megacities this fiscal year. A flagship study on higher education in East Asia to support productivity and growth has been conducted. The Bank also launched the Conference on East Asian Development, bringing together senior policy makers and development experts to discuss regional development challenges and opportunities to prepare for a more prosperous future.

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Increasing resilience to extreme climate events, rising sea levels, and other natural hazards is a major medium-term challenge for the region, which has experienced more than 70% of the world’s natural disasters and sustained 82% of total disaster fatalities since 1997. The Bank’s work encompasses analytical and advisory services in disaster and climate change risk assessments, the development of risk financing options, and risk-mitigation policies. This year the tragedies of the floods and cyclone in Australia, and the earthquake and tsunami in Japan, required mutual learning and understanding between the Bank and its donors.

Regarding risk mitigation, a policy note on Preparing for Asia’s Next Big Earthquake was released in October 2010, leading to seismic retrofitting in schools in Indonesia.

In post-disaster reconstruction an $11.8 million project in Samoa will support the relocation and rehabilitation of communities on the island of Upolu, affected by the 2009 earthquake, by providing new access roads and rebuilding damaged roads and seawalls. A $3.5 million grant through the Java Reconstruction Fund was mobilized to finance the reconstruction of housing and community infrastructure destroyed by the 2010 eruption of Mount Merapi through an existing community-driven development program.

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China became the world’s second-largest economy in 2010, representing about 9.5% of global GDP at market exchange rates. At these rates, per capita GDP nonetheless remains below the world average. The Bank committed to China around $1.7 billion this fiscal year for 14 projects this fiscal year, of which three were carried over from the previous year. About 76% of ongoing Bank-financed projects in China include a strong focus on the environment.

The Bank’s partnership with China now emphasizes economic analysis, policy advice, technical assistance, and training. For example, the Bank is working with China’s Development Research Center of the State Council, together with the Ministry of Finance, to prepare a joint report that develops a policy agenda for rapid and sustainable growth in order for the country to transition to a high-income economy.

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In the Lao People’s Democratic Republic the 1,070 megawatt Nam Theun 2 Hydroelectric Project was inaugurated in December 2010. The project was supported by $1.3 billion in financing from 27 parties, including the Bank. Revenue generated from the sale of electricity to Thailand has been channeled into spending on education in poor districts ($2 million), rural roads ($1.7 million), and public health ($1 million). The Bank is also working with the government on a broader program to strengthen public financial management.

In the Philippines a Bank-financed conditional cash transfer program is serving as the backbone of a modern and consolidated social protection system. More than 1.4 million households are benefiting from the program.

Vietnam has made substantial progress in adopting market-oriented reforms, positioning it to achieve middle-income status after transitioning from an IDA to an IBRD blend country in 2009. This year the Bank began developing the next country partnership strategy with the Vietnamese government covering 2011–16. The Bank approved a $330 million loan to support the Trung Son Hydropower Project, which will help meet the country’s rapidly increasing demand for electricity.

The Bank also enhanced its analytical and financial support to the Pacific Islands. The first country assistance strategy for Kiribati places climate change adaptation at the center of a three-year plan that supports the government’s efforts to manage groundwater reserves, improve rainwater collection, and develop new sources of water. In Tonga the country assistance strategy for 2011–14 focuses on economic reform as a way to build resilience to food and fuel price shocks.

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