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.