|ADB warning on
(AFP) - Developing Asian nations must carefully
manage a massive inflow of foreign capital and avoid
remedies that could create destabilising
“distortions”, the Asian Development Bank chief
Haruhiko Kuroda told Asian leaders at a summit in
the Vietnamese capital Hanoi that capital flows are
one of two risks that regional economies face as
they rebound from the last global downturn.
His comments came shortly before the US Federal
Reserve is expected to announce it will go into a
second round of quantitative easing, injecting more
money into the banking system to further stimulate
the world’s biggest economy.
The first risk is if the recovery in the developed
economies falters, Kuroda told presidents and prime
ministers as well as US Secretary of State Hillary
Clinton and the Russian foreign minister.
“The second risk is capital flows, which could
complicate macroeconomic management,” Kuroda said.
“We must be prepared,” he said.
Referring to Asian economies outpacing growth in the
developed world, Kuroda said “faster growth and
higher yields can draw excessive -- and potentially
volatile -- capital flows into the region”.
“Authorities are watching asset prices and exchange
rates carefully, with several beginning to use
well-targeted capital controls to limit
speculation,” he said.
“Care must be taken, however, not to create
Hammered by the financial turmoil that began in
2008, the United States, Japan and Europe are moving
to weaken or cap their currencies in a bid to make
their exports more competitive in the global market.
They have also injected more money into their
banking systems to stimulate growth.
But because growth in the developed world is anemic
and unemployment high, a large chunk of the money is
heading to emerging markets, including in Asia,
where it stands to gain better yields.
According to the Washington-based Institute of
International Finance, net private capital flows to
emerging economies are projected to reach 825
billion dollars this year, or over two billion
dollars a day, up from 581 billion dollars in 2009.
The massive inflow has been a key factor pushing
Asian currencies higher, which have made their
exports more expensive on the global market.
It has also led to steep gains in stocks and
property prices, stoking fears of “bubbles” which
could later burst if the money is withdrawn quickly
and prompted individual central banks to impose
capital controls and other measures to cool down