Inflation threatens Asia’s growth: ADB

Asia’s growth is threatened by spiralling inflation from higher food and fuel costs, an Asian Development Bank executive warned on Sunday, and called on governments to tighten monetary policies to deal with the scourge. The bank is reviewing its growth forecast of 7.6 per cent this year for Asia, excluding Japan, amid concerns inflation will widen income inequality and cause more people to plunge into poverty, said its managing director general Rajat M Nag. This comes after Asia’s growth last year hit a two-decade high of 8.7 per cent. The ADB in April forecast inflation to hit 5.1 per cent this year, the highest in a decade. But this forecast may go up, Nag told The Associated Press. Among the worst hit is Vietnam where inflation is more than 25 per cent. Singapore, Thailand, India, the Philippines and Indonesia are looking at inflation rates of between 7.5 per cent and 11 per cent. “The growth story is in danger because there are inflationary dark clouds in the horizon, which we have to recognise as the greatest concern,” Nag said on the sidelines of a two-day global economic forum here. “We feel that monetary policies have to be tightened so that inflationary expectations are tamed,” he said. Among the measures he suggested were raising interest rates, increasing banks’ reserve requirement and ensuring a flexible exchange rate. Some central banks have already raised borrowing rates in the past two months. Surging food prices, stoked by rising fuel costs that have increased production and transport costs, have triggered protests around the world in recent months. Riots have erupted over food shortages in the Caribbean and Africa. A number of Asian nations including India, Malaysia and Indonesia recently cut fuel subsidies amid rising world oil prices, which is expected to further send inflation soaring. “Inflation is the most regressive form of taxation and it hits the poor most. In Asia, roughly about a billion people are vulnerable to the food and fuel price increases,” he said. Nag defended the governments for reducing the unaffordable subsidies. But governments must ensure “targeted cash support” for the poor to protect them from the price hikes, he said. Asia, which is home to two-thirds of the world’s poor, successfully cut its poverty rate to about 19 per cent from 33 per cent in 1990, but this is under threat because of inflation, he said. Some 600 million people in the region survive on a dollar a day or less and an additional 400 million people live on just above a dollar a day. The Manila-based development lending institution last month announced $500 million (Dh1.8 billion) in emergency aid for poor countries struggling with soaring food prices. It will also double its lending for the agricultural sector in 2009 to $2 billion (Dh7.3 billion).