Haruhiko Kuroda may have left the Asian Development Bank,
but the man and his policies overshadowed the ADBs annual
meeting, which concluded Sunday in New Delhi.
Kuroda headed the development bank for eight years before
leaving in March to become governor of the Bank of Japan, where
he has initiated an unprecedented program of quantitative
easing. The impact of a surge in liquidity from Japan on the
rest of Asia was a major topic of discussion at the meeting,
which gathered Finance ministers and central bankers from the
ADBs 67 member countries.
The quantitative easing, or unconventional monetary
expansion it is needed to support the growth of those
countries to get out of deflation, to stabilize the
system, Nakao, 57, a former Japanese vice Finance
minister in charge of international affairs, said at a news
conference at the end of the four-day meeting. The easing
across the globe is needed. It continues to stabilize growth of
the global economy, including the emerging markets, but at the
same time, it is true we should be mindful of the negative
spillovers from the QE and others effects from advanced
economies to the emerging economies.
Other officials warned that Japans policies, combined
with similar aggressive easing moves by central banks in the
U.S. and Europe, could destabilize markets across Asia by
flooding them with liquidity.
More than $1.5 trillion is expected to flow into
emerging-markets economies in Asia in the coming three years,
Governor Amando Tetangco of the Philippine central bank said
during a panel discussion on capital flows.
Capital flows carry with them certain risks, he
said. First, they lead to easy financing, which leads to
strong credit growth and asset inflation. Second, they carry
risk, as part of these funds are relegated to shadow banking.
The third risk is a reversal of flows. Although capital
is flowing strongly from developed to emerging-markets
economies at the moment, Tetangco said Asian countries
couldnt count on that continuing indefinitely. In
the longer term, emerging-markets economies must be prepared
for the reversal of these flows, he said.
The challenge for the Philippines and other countries is to
see that inflows are channeled into sustainable long-term
investments, Tetangco said. We need to be able to
transform this into financing, to increase the absorption
ability of the economy, he said. There is a timing
mismatch. Portfolio flows can happen very fast, but utilizing
these flows can take time.
Kuroda, who attended the meeting as BOJ governor, said in
interviews that the BOJs QE program has so far sent
investment flows from Japan into the U.S., but he acknowledged
that money would eventually find its way into other Asian
Its not hard to see why. According to the ADB,
Japans economy, which shrank by 0.6 percent in 2011 and
grew 2 percent in 2012, is likely to expand by just 1.2 percent
this year and 1.4 percent next. The rest of Asia, however, is
projected to grow by 6.6 percent this year and 6.7 percent in
2014, according to the bank.
Asian countries need to develop policies to ensure that
growth is inclusive; that is, that it benefits the poor, said
Nakao. He told the ADBs board of governors in his
inaugural speech that the bank will support lending that
promotes what he calls the three I's
innovation, inclusiveness and regional integration.
Founded in 1966 by regional governments led by Japan and the
U.S., the Manila, Philippinesbased ADB is the
regions only multilateral lender. The bank dispenses an
average of $10 billion in loans annually, mostly to fund
infrastructure projects in the regions poorer nations.
The banks president has always come from Japan, which
along with the U.S. owns a stake of 12.78 percent.
After Kuroda stepped down in March, there was speculation
that China and India would seek to increase their stakes in the
bank currently 5.45 percent and 5.36 percent,
respectively and to put forward one of their nationals
for the presidency. But Japan insisted on retaining the post
and put forward Nakao who, just like Kuroda before he joined
the bank, was a former vice Finance minister in charge of
Sources said that Palaniappan Chidambaram, the Indian
Finance minister who chaired the meeting, had spoken to Nakao
about the possibility of India taking a bigger stake in the
bank by adding more capital. On the capital increase
issue, I must say it is a complicated issue, Nakao said.
We must get the views of the board of directors. I
dont have any specific views about it.
Another talking point at the meeting were the continued
discussions among Brazil, Russia, India, China and South Africa
about forming a BRICS development bank, which some see as a
potential rival to the ADB and other multilateral institutions
such as the International Monetary Fund and World Bank. Nakao
played down talk of competition, though.
Of course, there is huge financing need for
infrastructure in Asia, Nakao said. There is a
reason people want another channel for infrastructure lending.
So it is really understandable. It is a good idea to have that
bank. I dont think we should regard them as a rival. If
that kind of bank can be successfully implemented, I hope we
can cooperate with each other.