Deflation a bigger threat:

ADB warns govts not to ease up on pump-priming

Deflation now appears to be a bigger threat, instead of inflation, and governments must turn their attention to it before it gets out of hand, the Asian Development Bank (ADB) said.

Rajat Nag, ADB Managing Director General, shared the belief of some economists that it was too early to worry about the risks of inflation brought on by the stimulus programs being carried out across Asia.

Nag said an early reversal of the expansionary fiscal and monetary policies of Asian economies could choke their recovery efforts.

"We should be more concerned about deflation rather than inflation. Deflation is worse than inflation," Nag said during the Asia Leadership Dialogues organized by Platinum Circle, a group of corporations that generate at least $100 million in revenue a year.

Deflation, according to the American Heritage Dictionary, is a persistent decrease in the level of consumer prices, or a persistent increase in the purchasing power of money because of a reduction in available currency and credit. Nag said, a prolonged global crisis, such as the one currently gripping the world economy, could trigger deflation.

In the case of the Philippines, inflation has eased substantially this year, as a result of soft demand and base effects. The Bangko Sentral ng Pilipinas has projected inflation to settle at -0.3 percent in July, the lowest in 22 years. But the BSP clarified that the likely drop in average consumer prices in July should not be considered as deflation. Monetary officials said that average consumer prices would likely go back to positive territory, in the fourth quarter, after hitting negative levels in the third.

Businesses are discouraged from making investments due to falling prices. Deflation can curtail efforts to boost the economy.

Nag said, policymakers should not lose sight of the objective of keeping consumer prices relatively stable. But he stressed that, at the moment, efforts to boost spending are more important in order to keep Asia from falling into a recession.

The ADB expects Asia to grow by 3.4 percent this year before accelerating to 6 percent next year. The slowdown from last year's growth of 9.4 percent was blamed on the plunge in exports, as the recession in the United States and Europe led to anaemic demand. The United States and Europe are two of the biggest export markets for Asian goods.

"Authorities cannot afford to take their eyes away from inflation ... but for the time being, public spending is important," Nag said during the forum.

The ADB executive said stimulus programs implemented by Asian governments were the reason why the region had escaped falling into a recession.

Pump-priming efforts would continue to fuel growth in Asia, which Nag said could be the world's growth driver by 2020, if appropriate policies were maintained.

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'Rich getting richer faster'

MANILA (AFP): Asia's economic growth and social order is being threatened by a lack of equality that has seen hundreds of millions of people left in poverty, the Asian Development Bank (ADB) warned.

ADB managing director general Rajat Nag said despite the sharp growth enjoyed by the region in the past 30 years there was a widening gap between rich and poor.

"The rich are getting richer faster than the poor are getting richer," he said, warning that it could foster disorder and impede growth.

The global financial crisis had worsened the situation, he said, warning that "for Asia, this is a social crisis."

Speaking at a forum of the Platinum Circle business group in Manila, Nag said there were still about 620 million people in the region living on less than a dollar a day and 700 million without access to drinkable water. There were also 107 million children under five who were underweight and 100 million children not enrolled in primary school.

This could result in a huge population of physically and mentally deficient people in Asia, he warned.

Additionally, the large youth population could become "a demographic curse," if Asian countries don't find jobs for them, he said, adding that "only 60 percent of young men and 40 percent of young women are employed."

To raise more people out of poverty, Nag said Asia had to spend about 400 billion dollars a year on infrastructure. He also called for further integration of Asian economies to make them less dependent on Western nations.

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