Asian Development Bank Urges Unity To Stem Cash Leak

Bloomberg

May 5 (Bloomberg) -- Asian countries should cooperate to stem an outflow of the region's savings that could be used to improve infrastructure and eradicate poverty, the Asian Development Bank President said.

Asia needs $1 trillion of investment in roads and utilities while ``large private savings are flowing out of the region,'' Asian Development Bank President Haruhiko Kuroda said today at the bank's annual meeting in Hyderabad, India. ``One solution is bond-market development.''

Investment in Asia plunged during the Asian financial crisis that hit the region in 1997-98 and has never really recovered as companies and individuals sought out returns in the U.S. More developed Asian bond markets might keep that money at home, reduce the cost of borrowing and help countries in the region fund everything from education to infrastructure to research and development.

``Asian governments need to do a lot more to develop the region's bond markets to give issuers cost-effective alternatives to bank financing, which is typically more expensive,'' Surinder Kathpalia, managing director at Standard & Poor's in Singapore, said in an interview in Hyderabad. ``This would help reduce the cost of raising funds for Asian borrowers.''

Investment as a proportion of gross domestic production in Asia, excluding China, fell to 23.1 percent in the period between 2002 and 2004 from 34.4 percent in the three years before the Asian financial crisis of 1997-98, Yiping Huang, an economist at Citigroup, said in an April 28 report.

Asia's Surplus Cash

The U.S. current account deficit, which measures trade and investment, has more than doubled since before the Asian financial crisis, with Asia funding one third of the increase, said Hong Kong-based Huang. Asia's combined current account surplus is about $1.7 trillion, according to an estimate by India's finance ministry.

``There is a need for an Asian bond market to properly utilize the surpluses,'' said Ashok Chawla, the No. 2 bureaucrat in the Indian Ministry of Finance. ``Why should this surplus fund the U.S. current account deficit? It can be reinvested in Asia, particularly in countries in need to improve their infrastructure.''

Asia needs to find ways to raise money to provide safe drinking water, improve transport, energy and utilities and create jobs in a region where the Asian Development Bank estimates 1.9 billion people live on less than $2 a day.

``Such a bond market is possible, as many countries in the region have built up reserves, which can be used to hedge against currency shocks,'' William Streeter, managing director and head of international public finance for Japan & Asia Pacific at Fitch Ratings, said in an interview in Hyderabad.

``A pan-Asian market will be a regional source of capital,'' said Streeter, whose company is advising Japan's National Institute for Research Advancement in its initiatives toward creating a regional bond market.

To contact the reporters for this story:
Amit Prakash in Hyderabad, India at aprakash1@bloomberg.net;
Rob Delaney in Hyderabad at robdelaney@bloomberg.net.