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Watch out for risk bubbles, says Jica [29-01-2013]  
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FRONTIER economies in Asia such as Cambodia, Bangladesh and Mongolia have been enjoying strong growth in recent years but the countries must be careful not to grow too fast as they risk bubbles, warns a Japanese development agency.

Japan International Cooperation Agency (Jica) vice-president Kiyoshi Kodera said central banks must be vigilant.

"Although they are not in a danger zone, these economies which have been enjoying outreach growth rates of more than 6.0 per cent on the average, must also focus on policy reforms as well as economic diversification with inclusive growth," he said yesterday at the close of a one-day seminar here, jointly organised with the International Monetary Fund (IMF).

Other frontier economies which participated in the conference were Laos, Maldives,Mongolia, Myanmar, Nepal, Timor-Leste and the Kyrgyz Republic.

The growth stories of these countries have led to a significant reduction in poverty but may lead to rising income inequality as seen in the emerging Asia.

With a combined population of more than 350 million people, IMF director (Asia and Pacific Department) Anoop Singh said, these economies have the potential to become part of the "new generation of emerging Asia".

Frontier Asia, he said, calls for faster reforms and need to improve institutions and increase investments in infrastructure.

"More emphasis also will have to be placed on improving regulatory and supervisor frameworks to keep up wth the rapidly changing financial system."

Jica vice-president Hiroto Arakawa said Tokyo-based agency has approved increased spending totalling US$5.4 billion (RM16.5 billion) in 2013 towards infrastructure as well as projects in social sector in 2013.

On markets like Malaysia where Jica had been actively participating before, Arakawa said the nature of assistance has taken on a paradigm shift towards a "horizontal type" relationship with technical assistance and knowledge transfer.

It was instrumental in the Malaysia-Japan International Institute of Technology for Japanese-style engineering education - partnerships with 24 Japanese universities and training support.

Under the south-south cooperation, it also partnered with Bank Negara Malaysia in an Islamic education programme for students from the Middle East region.

Meanwhile, Bank of Thailand governor Prasarn Trairatvorakul also warned Frontier Asia countries to ensure social inclusion, ecology and stability of the financial system in their economies as the disruption of any of the three could affect equitable growth.

Referring to the Asian financial crisis in the late 1990s when the Thailand economy succumbed to the large outflow of foreign capital, he said there is no fixed formula but it is best to closely monitor and develop "shock absorbers" .

The Thai financial system underwent regulatory reforms and is now more resilient to support growth.

Source:BUSINESS TIMES
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