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ADB’s Nakao Confident Asia to Weather Impact of Fed Tapering

Asian Development Bank President Takehiko Nakao said he’s confident emerging Asian economies will weather the impact of reduced U.S. monetary stimulus, predicting growth of about 6 percent this year and next.

“I would like to give a more sanguine view” about the impact of tapering of Federal Reserve asset purchases, Nakao, a former Japanese vice-finance minister, said in an interview yesterday at the ADB’s Tokyo office. “The market has already incorporated elements of the tapering-off to some extent and there was a certain overreaction on the side of the market.”

Strengthening U.S. and Japanese economies should help emerging Asian nations in 2014, Nakao said. At the same time, it’s important that policy makers in the region use the period of stability to address domestic policy needs, he said.

The U.S. Federal Reserve said earlier in December it is trimming its monthly bond purchases to $75 billion from $85 billion, taking the first step toward unwinding its unprecedented stimulus program. Emerging-market stocks plunged after May 22, when Fed Chairman Ben S. Bernanke said for the first time it could withdraw stimulus, and then rebounded after the Fed decided in September to maintain its quantitative-easing program.

Needed Reforms

“The risk is that the market is not convinced about the stability of the economies so the policy makers should be mindful that their policies should be very strong,” said Nakao. For example, Indonesia and India should take care of their fiscal deficits, and Indonesia “must pursue needed structural reforms, especially liberalization of the retail market and financial market,” he said.

Nakao, 57, also indicated that diplomatic tensions between Japan and China aren’t yet at a level that would require altering the ADB’s economic projections. Thailand’s political unrest leaves it risking lost opportunities in attracting investment from abroad, with many other options now in Southeast Asia, Nakao said.

The ADB raised its 2014 growth forecast for China to 7.5 percent from 7.4 percent earlier this month while cutting its forecast for Southeast Asia to 5.2 percent from 5.3 percent. It maintained its forecasts for developing Asia to grow 6 percent this year and 6.2 percent next year.

Broader Focus

The ADB chief, who took office in April, said he’s broadening the Manila-based lender’s agenda beyond a focus on the provision of credit. The bank is increasingly organizing the sharing of policy expertise among its members, in areas from grappling with climate change to managing urbanization.

He said the ADB is working “at a very high level” with Chinese officials to support their new five-year plan, in fields from water management and solar energy to reforming the fiscal relationship between China’s regions and its central government.

On Japan, Nakao said there have been “strong signs” that the Bank of Japan’s policies are bearing fruit, adding that he was more optimistic deflation would end.

“Japan should continue to pay attention to structural policies to enhance growth,” and consider how it addresses issues of fiscal consolidation, including the social security system, Nakao said.

Japan’s core inflation accelerated to the fastest pace since 2008 last month, bringing the rate past the halfway point to the central bank’s 2 percent inflation target. Consumer prices excluding fresh food rose 1.2 percent from a year earlier, the statistics bureau said today in Tokyo.

To contact the reporters on this story: James Mayger in Tokyo at jmayger@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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