World Bank says asset bubbles an emerging problem for the region
By Yasmine Yahya, Channel NewsAsia | Posted: 11 November 2009 1353 hrs

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SINGAPORE: The World Bank warned on Wednesday that Asian economies face the risk of overheating, and governments must carefully manage when they withdraw their stimulus policies.

There is a lot of money floating in the financial system as a result of government stimulus packages to fight the recession. And with Asia growing again, the World Bank said the region's central banks should start looking out for irrational exuberance in their economies.

"If one isn't careful, you could start to create asset bubbles in certain markets. And this will present a particular challenge to the central bankers of this region, in that traditionally, they would follow the Federal Reserve in part because of their currency policy that is linked to their export policy," said Robert Zoellick, president, World Bank.

Mr Zoellick also warned that there is a risk of inflation, and admitted that solutions to avoid or fix asset bubbles are not easy to come by.

He said governments must find a way to withdraw their stimulus policies so that the transition back to growth, led by the private sector, is smooth. One way is through public-private partnerships in infrastructure projects.

This sentiment was echoed by Singapore's Finance Minister, Tharman Shanmugaratnam, who said Asia must boost private investment rates to avoid a return to large and unsustainable global current account imbalances.

Mr Tharman said: "Investing in Asian infrastructure is not a silver bullet for curing current account imbalances, but it comes close. Current estimates of the gaps in infrastructural investment vary, but they are all large.

"In a recent study, the Asian Development Bank estimated that Asia needs to spend about US$8 trillion over the next ten years to build and maintain new power, transport, water and sanitation and telecommunications infrastructure."

However, Mr Tharman said the private sector now accounts for only about 20 per cent of infrastructural investments in Asia, and so there is room for more private sector participation in such projects.

- CNA/sc