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Home / Business News / Asia seeks ways to fight inflation

Asia seeks ways to fight inflation

Rising food and commodity prices will dominate Asian Development Bank meeting.

business Updated: May 02, 2008, 23:26 IST

Rising food and commodity prices that are stoking inflation will probably dominate the meeting of the Asian Development Bank as the region’s finance ministers seek ways to shield their economies from higher costs.

Japan’s Fukushiro Nukaga, China's Xie Xuren, South Korea’s Kang Man Soo and Southeast Asian ministers are meeting at the sidelines of the Asian Development Bank’s annual gathering in Madrid this weekend. Inflation in Asia is expected to reach a decade-high this year even as economic growth cools, ADB predicts.

Crude oil has risen 85 per cent, and rice prices have more than doubled since Asian finance ministers met a year ago in Kyoto, Japan. The increases have stoked social tensions and led to wider fiscal deficits as governments subsidise food and energy costs for their people.

“Inflation will be pushed to the fore over global growth concerns,” said Tetsuo Yoshikoshi, the analyst at Sumitomo Mitsui Banking Corp in Singapore. “There’s little Asia can do to avoid a global slowdown but cooperation to contain inflation, especially on food prices, is possible.”

Slower Growth

Asian governments are predicting growth to be at the lower end of targets, or are reducing their forecasts even as they increase their estimates for inflation.

The US economy grew 0.6 per cent in the Q1, matching the pace of the previous period, which was the slowest since 2002. The International Monetary Fund last month lowered its forecast for global growth this year and said there’s a 25 per cent chance of a world recession, citing the worst financial crisis in the US since the Great Depression.

The Bank of Japan on April 30 said the world’s —largest economy will probably expand at a slower pace this year than it had expected six months ago, while almost tripling its forecast for core consumer prices. Indonesia lowered its growth estimate on the same day, and South Korea has said its economy entered a ‘downturn.’

Foreign Reserves
Finance ministers from China, South Korea and Japan will gather for a meeting on May 4, before getting together with their counterparts from the 10-member Association of Southeast Asian Nations. Besides inflation and the outlook of the region’s economies, issues like pooling of foreign-exchange reserves and the development of bond markets will be discussed.

Officials last year agreed to set aside part of their $3.4 trillion of foreign reserves to be tapped by member nations when needed, an expansion of a current arrangement that only allows for bilateral currency swaps.

‘Counter Instability’
The ministers from South Korea, Japan and China will discuss setting up a forum on the economy and financial regulatory issues when they meet in Madrid, South Korea’s finance ministry said. The three finance ministers “will discuss setting up an Asian Financial Stability Forum to strengthen regional cooperation among the policy and financial supervisory authorities to counter instability of international financial markets,” the ministry said.

“The purpose of the fund would be to heal wounds when they are still small should liquidity or financing problems arise,” Hiroshi Watanabe, Japan’s former top currency official, said. “It would be like a first-aid measure that would provide care before the International Monetary Fund gets involved.”

Fighting Poverty

At last year’s meeting, the bank was rebuked by members on its long-term plan to focus on financing roads instead of fighting poverty. The group is owned by 67 member countries, both from within and outside of the region.


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