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Global gloom hovers over South Asian economy
Updated:Oct 23, 2011
 
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The South Asian economy will suffer due to the global debt crisis that is spreading fast and taking the shape of a double-dip recession, South Asian experts said yesterday.The region was largely insulated from the 2008 global financial crisis because of fiscal stimulus. But this time all regional economies face some difficulties including soaring inflation, depreciation of local currencies, slowdown in export and remittance, hike in interest rate and climate change.They made the observations at the Fourth South Asia Economic Summit (SAES) organised by the Centre for Policy Dialogue (CPD) at Ruposhi Bangla Hotel in the capital.

The experts also came up with some suggestions such as boosting regional demand, cooperation and integration to tackle the looming crises.Noted economist and CPD Chairman Prof Rehman Sobhan presided over the inaugural session of the summit attended by stakeholders from the government, private sector, and civil society. Finance Minister AMA Muhith spoke there as chief guest.“Global economy is unlikely to return to pre-crisis level soon. We should be mentally prepared to live with it for two-three years,” said Ashfaque Hasan Khan, principal and dean of the Department of Economics of NUST Business School in Pakistan.

The ongoing debt crisis in Europe and the deceleration of growth in the US have created widespread uncertainty and nervousness in the global economy, he said.Khan, a former economic adviser to Pakistan's finance ministry, said export growth of India, China and Pakistan is slowing down with depreciation of local currencies against the dollar for the debt crisis.The devaluation causes a rise in inflation and invites tightening of monetary policy that increases costs of capital and hurts investment, he noted.

Economist Wahiduddin Mahmud said adverse episodes in the global economy will come through energy, food or other commodities. And the transmission of the effect of such crises may vary from country to country.“We have to learn the lesson to live with such episodes,” Mahmud said.Commenting on food crisis and Bangladesh's dependence on import, he said global grain prices will remain high, Bangladesh vulnerable to price shocks.

The noted economist, however, said such crises also offer scope for undertaking unfinished reforms. He suggested a regional strategy to ensure food security, and said opening up of regional food trade may create a win-win situation for all.CPD Distinguished Fellow Debapriya Bhattacharya said there is no doubt that the crisis is going to hurt South Asia.It would be much more difficult to put in place a response mechanism, said Bhattacharya.

Nagesh Kumar, chief economist of the United Nations Economic and Social Commission for Asia and the Pacific, predicted that a double-dip recession is building up very rapidly.The slowdown has already started affecting exports of many countries including the South Asian nations, said Kumar.According to him, the current crisis is different from the previous one in 2008, as the policy options for developed economies are much more limited now. It prevents the government from spending, he said.“Recent volatility in capital flows and depreciation of local currencies against the dollar also affect the South Asian economy, including India,” said Kumar.

The economist suggested greater transparency and regulation of futures and derivatives markets as well as regulation of conversion of food into bio-fuels.The rise in prices is not for demand pressure only, but also for increasing financialisation of commodity markets and speculative activity, he said.Additional demand within the region could minimise the impacts of sluggishness on developed countries, the economist said.

Foreign exchange reserves in the Asia-Pacific region stand at more than $5 trillion, which can be mobilised for the region's development needs, especially for reducing infrastructure gaps, Kumar said.Kalpana Kochhar, chief economist of the World Bank's South Asia region, said, “Global economy has entered a danger zone and South Asia is not totally immune to the volatility in capital markets.”The region requires rebuilding of fiscal space for countercyclical policy and dealing with urgent social and infrastructural needs.

Sarath Amunugama, senior minister for International Monetary Cooperation of Sri Lanka, called for deepening regional cooperation in South Asia to tackle all challenges.“The agreements that had already been signed should be implemented first. At the same time, new ideas should be taken for actions to materialise the potential benefits the region has,” said Amunugama.

Sir Fazle Hasan Abed, founder of Brac, the world's largest NGO, said if the crisis hits again, the poor would be affected badly.Poorer people are affected more than others for having fewer buffers. They also lack assets, he said.Former Saarc Secretary General Ibrahim Hussain Zaki called for a regional integration for mutual benefits.Earlier, Finance Minister AMA Muhith inaugurated the summit.

Muhith pinpointed five areas of priorities -- food security, water and sanitation, connectivity, energy development, and trade and human aspects of migration -- in terms of regional cooperation and integration.He said the currency volatility should be discussed.Muhith said he opposes hydropower as it obstructs natural flow of water.“Harnessing solar energy is the best way for us,” said the finance minister.CPD Executive Director Prof Mustafizur Rahman delivered the address of welcome.

( DAily Star Online)

 
 
 
 
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