Brunei's Minister of Finance II at the Prime Minister's Office, Pehin Orang Kaya Laila Setia Dato Seri Setia Awg Hj Abdul Rahman with Cambodia's Finance Minister Kong Vibol (R) during the 15th Association of Southeast Asian Nations (Asean) Finance Ministers Meeting in Nusadua, Bali, Indonesia. epa

The Minister of Finance II at the Prime Minister's Office, Pehin Orang Kaya Laila Setia Dato Seri Setia Awg Hj Abdul Rahman bin Hj Ibrahim along with other Southeast Asian finance ministers met in Bali on Friday for talks to focus on capital controls to shield the region's booming economies from destabilising "hot money" inflows.

They also agreed to speed up regional integration and pursue plans for disaster insurance following the tsunami disaster that hit Japan, according to wire service reports.

The Ministers of the Association of Southeast Asian Nations (Asean) expressed concern over the rising food and oil prices that could adversely affect global recovery.

A joint statement released at the end of talks last night said the ministers had discussed concerns about the current surge in capital flows and emerging inflationary pressures combined with strong commodity price vulnerability, the AFP reported.

With Europe's sovereign debt crisis spreading to Portugal and much of the developing world's economies still in the doldrums after the global financial crisis, Asia has become a magnet for capital seeking better returns.

But much of the foreign capital has been in the form of volatile portfolio investments which can be withdrawn just as quickly as they were injected, raising fears for stability in economies that are leading the global recovery.

"We can intervene but we don't know exactly how to do so. In the past few days the inflows have been huge," Indonesian central bank Deputy Governor Hartadi Sarwono told reporters on Thursday.

"The capital inflows are so massive, and they don't just flow to Indonesia but in the region."

Indonesia, which holds the current chair of Asean, has said the ministers will also discuss food security and progress towards a planned common market in the region of more than 500 million people by 2015. The Asean region grew at around five per cent last year, up from 1.5 per cent in 2009 in the aftermath of the global credit crunch.

Analysts say Asia's emerging economies are poised for another year of solid growth in 2011 even if the impact of the catastrophic earthquake and tsunami in Japan remains unclear.

But inflation is a key concern for the region, which faces tighter monetary policies as authorities seek to temper price rises including in food staples such as rice.

The ADB warned this week that some developing economies were showing signs of "potential overheating" and said more flexible exchange rates and capital controls could help curb soaring prices.

Governments have tried a range of responses to 'hot money' but capital controls, such as transaction taxes and currency restrictions, have until recently been scorned by economists as unnecessary interference.

In February, the IMF recognised that such controls were justified in the face of destabilising imbalances in the global economy.

In a recent report on Asian economies, Standard and Poor's ratings agency said regional central banks might consider further capital controls and other actions to prevent risky asset bubbles.

Meanwhile, Indonesian President Susilo Bambang Yudhoyono on Friday called on Southeast Asian Nations to work to speed up economic integration, dpa reported citing Antara News Agency.

Yudhoyono, addressing a meeting of finance ministers, said member countries must take steps to liberalise financial services, develop capital markets and manage capital flows. The president also urged the ministers to work together to formulate customs policy to implement the so-called Asean Single Window, a project allowing member countries to exchange import and export data online.

"Another challenge is how to formulate taxation policy that can remove barriers to integration and guarantee regional dialogue which will result in real action."

Yudhoyono said reducing poverty remained a key challenge for Asean, noting that 118 million people in the region live on less than $1.25 a day. Therefore, I believe that our joint efforts must contribute to our capacity to address poverty.

Meanwhile, Bernama reported that Acting Chief of the Fiscal Policy Board at the Indonesian Finance Ministry Bambang Brodjonegoro said an Asean +3 Macroeconomic Research Office (AMRO) will be formed as early as May 1.

"AMRO will serve as an institution which will keep monitoring financial developments particularly those in Asean member states and will issue an early warning if any of them need financial support," Antara news Agency reported him as saying on the sidelines of an Asean finance ministers' meeting in Bali.

The plan to form the institute had been agreed upon at a meeting of deputy finance ministers. Hopefully, the institute could take over the role of IMF in controlling the financial conditions in 10 Asean member states, plus China, Japan and South Korea, he said.

"When any of the countries need support, AMRO will automatically recommend extra foreign exchange reserves shortly after receiving a request from the country concerned," he said.


-Courtesy by : Borneo Bulletin Weekend / April 9, 2011 - Saturday.