ADB Institute calls for Asia capital controls

HONG KONG—Asian countries should erect capital controls to counter an influx of hot money into the region, stoking worries over asset price bubbles, the Asian Development Bank Institute said Thursday.

Masahiro Kawai, the dean and chief executive of the arm of Manila-based Asian Development Bank, said the region continued to face risks from rising asset prices and surging inflation.

“Given the region’s robust growth prospects, emerging Asia continues to face capital inflows which pose significant challenges in macroeconomics management and financial sector reform,” Kawai said at a seminar in Hong Kong.

“Some of these economies exhibit signs of overheating, inflation and asset-price bubbles.”

Kawai added that “a combination of policies is needed, including capital inflow controls…to limit volatile capital inflows.”

His comments follow moves by central banks in South Korea, Thailand and Malaysia to slow a surge in the value of their currencies against the US dollar.

Last week, the Group of 24 emerging and developing economies rejected an International Monetary Fund plan for managing capital flows, saying measures should be up to the individual country to decide.

Kawai also said Thursday that China should allow its currency, the yuan, to rise at a faster pace against the US dollar if it wants to contain domestic inflation.

Last week, China said its inflation rate rose 5.4 percent year-on-year in March — the fastest pace since July 2008 and well above the government’s 2011 target of four percent — and 5.0 percent in the first quarter.

That was more than twice as fast as the 2.2 percent rate recorded in the first three months of 2010.