Financial reform must continue

It has been a rocky few months for Asia, as decelerating growth has mixed unpleasantly with fears about the end of cheap global credit. During the first half of 2013, the region's economies underperformed relative to the International Monetary Fund's April projections, owing to tepid demand from advanced economies, a slowdown in China, as well as some softening in domestic demand.

Part of the decline in the region's fortunes is also structural, reflecting factors such as increasingly binding supply bottlenecks in India and declining returns to investment in China. The impact of these factors has become more visible as the effects of the post-global financial crisis stimulus used by Asian economies have dissipated, and will need to be addressed through bold structural reforms to boost the region's growth in the years ahead.

Of late, Asia has been hit hard by portfolio outflows in anticipation of the tapering of the US Federal Reserve's quantitative easing (QE) measures. As a result, assets have been significantly re-priced, especially in India and Indonesia, where fundamentals, notably in the form of high inflation and current account deficits, have been weaker.