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Inflation challenge remains, but Asian outlook positive: ADB official.

TOKYO, Sept. 4 Kyodo

Asian economies still face challenges caused by untamed inflation, but the overall economic outlook for the area is positive as more moderate growth in China and India will make their economies more sustainable, a senior official of the Asian Development Bank said Thursday.

''We think inflation is still the biggest challenge, though fuel prices have started to come down and that should reduce some of the inflationary pressures,'' said Rajat Nag, managing director general of the Manila-based bank.

''However, we feel the growth potential of Asia is still very good, robust and solid and we think although the growth rate will be somewhat lower than last year, it will still be very positive -- certainly stronger than anywhere else in the world,'' Nag said in an interview with Kyodo News.

He projected that Asian developing economies as a whole will post 6 to 7 percent growth this year. Nag said that moderation of growth in fast-rising China and India is ''a good thing'' because he believes it is important for such major emerging economies to grow at a more sustainable rate.

As for the Chinese economy after the Beijing Olympics, the Canadian ADB official said it is ''only natural to expect'' that the growth rate will be lower after a huge construction and capital investment boom in the run-up to the sports extravaganza.

If fast growth continues over the long term, it could result in economic capacity constraints and higher inflation. Therefore, a slowdown in the growth will mean a sustainable expansion, he said.

Nag said Asian policymakers should tackle persistent inflation through a combination of fiscal and monetary policy measures, and should not resort to price controls or export bans because they do not solve the problems of macroeconomic fundamentals.

The official said challenges for the Asian economy will remain for another ''10 months to a year'' as the end of the U.S. subprime woes that have been rattling the global financial market is not yet in sight.

''Asia's export markets are in North America and Western Europe, so economic growth in those regions is very important. I don't think that we have seen the end of the effects of the subprime crisis,'' he said.

Nag, who visited Japan to hold talks with Japanese aid officials, expects Tokyo to continue to play an important role in the international aid architecture by providing not only financial resources but also knowledge and technical know-how.

''While I understand that domestic resource constraints or domestic budgetary constraints naturally require the government to privatize and maybe realign its expenditures, I feel Japan continues to be very supportive of international development -- not only in Asia but in Africa and other parts of the world,'' he said.

Japan's official development assistance budget has been cut for nine straight years due mainly to tight state finances. This led Japan, a former world No. 1 donor, to be surpassed by Germany and France in 2007 and tumble to fifth place among 22 major donors in terms of ODA disbursement.
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Publication:Asian Economic News
Date:Sep 8, 2008
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