Challenges for Emerging Asian Economies in Managing Capital Flows

Background

Up until recently emerging Asian economies have received massive capital inflows while also recording current account surpluses. To moderate currency appreciation pressure, monetary authorities of emerging Asian economies have intervened in the foreign exchange markets. Even so, currencies of emerging Asian economies have tended to appreciate against the US dollar, threatening the competitiveness of their export sectors. Capital inflows to Asia have been reduced recently due to the ongoing US subprime loan problem. However, once US financial stability is restored and the credit crunch eases, capital inflows to Asia will likely resume and in a big way, posing serious policy challenges, including for exchange rate policy, financial sector supervision and fiscal policy management.

How should individual countries deal with massive capital inflows? What regional cooperation initiatives can be introduced to best utilize capital inflows while maintaining prudent macroeconomic and financial sector stability?

ADBI has recently completed a study aimed at addressing these questions. It will present the key findings and policy challenges that have emerged from this study which covers nine Asian countries. Panelists will provide their insights into ADB Institute's work on this topic and debate the above questions.