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POLITICAL ECONOMY
ADB chief warns on inflation, capital flows
by Staff Writers
Hanoi (AFP) May 3, 2011


Asian governments must keep a tight rein on inflation and may need to consider controls on capital flooding into the region, the Asian Development Bank (ADB) chief said Tuesday.

"Inflation will need to be carefully managed using a mix of policy measures -- especially given the harder impact of inflation on the poor, which in Asia still number in the hundreds of millions," ADB president Haruhiko Kuroda told a news conference at the start of the bank's annual meeting in Vietnam.

The Manila-based bank, which aims to reduce regional poverty, said last week that governments had already moved to soften the impact of food inflation through measures including tax cuts for food, setting price controls and introducing subsidies.

But it said more needed to be done in the region, which has rebounded rapidly from the 2008 global economic crisis.

The bank warned soaring global food prices threaten to push tens of millions of Asians into extreme poverty and cut the region's economic growth this year.

Domestic food inflation in developing Asian nations hit 10 percent at the start of this year, with double-digit rises in the price of wheat, corn, sugar, edible oils, dairy products and meat.

At the same time, global oil prices have also soared.

"Rising food and oil prices have been stoked by the unexpected upheaval in the Middle East and North Africa, while the devastating earthquake and tsunami in Japan have created further global unease," Kuroda said.

While battling inflation, Asia's governments are also dealing with inflows of capital which Kuroda said might need to be controlled "in some cases, in some countries, in some occasions".

But he said such controls should not be a regular policy tool.

"Capital controls are really complicated policy tools, not so easy to implement, and in the long run capital controls could create distortions in the capital market," Kuroda said.

The International Monetary Fund (IMF) last week said flows of money into Asia's surging economies remain a "key concern" for policymakers already battling inflation.

Those flows are "extraordinarily large" in some countries, including China, Indonesia and the Philippines, the IMF said.

Several countries -- including South Korea, Indonesia and India -- have tightened monetary policy to try to head off huge inflows of capital from investors seeking better returns on their money than in the sluggish West.

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