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ADB chief urges Asia to tackle reform to cope with Fed tapering

Asian Development Bank President Takehiko Nakao attends the Asian Financial Forum in Hong Kong January 13, 2014. REUTERS/Tyrone Siu
Asian Development Bank President Takehiko Nakao attends the Asian Financial Forum in Hong Kong January 13, 2014. REUTERS/Tyrone Siu

By Tetsushi Kajimoto

TOKYO (Reuters) - Asian Development Bank (ADB) President Takehiko Nakao urged emerging Asian economies on Wednesday to promote sound macroeconomic policies and structural reform to cope with any impact of the withdrawal of U.S. monetary stimulus.

Nakao, former Japanese vice finance minister for international affairs, told Reuters in an interview that despite a recent emerging market rout, Asian economies will not fall back into the kind of financial crisis they experienced in the late 1990s because they have firmer fundamentals.

"The most important thing is to enhance investment environment in the way that will encourage long-term capital inflow from outside," Nakao told Reuters in an interview.

"They must continue efforts to implement structural and sound macroeconomic policies."

The ADB chief also said the Japanese central bank's quantitative easing was having a positive impact on the region's economies as it helped spur direct investment from Japan into the region.

Japan logged a weaker-than-expected 0.3 percent growth in the fourth quarter with disappointing exports, private consumption and capital spending.

But Nakao said Japanese domestic demand was still growing and that would help Asian countries such as Indonesia and the Philippines who highly rely on exports to Japan.

"For those countries, Japan's domestic demand-led recovery is positive and the Bank of Japan's monetary easing is probably encouraging Japanese direct investment in Asia," he said, while declining to comment on any further monetary easing by the Bank of Japan (BO).

The BOJ stuck to its expansionary monetary policy on Tuesday and extended special loan programs to help buoy growth. While the bank is in no mood to act soon, market pressure for further stimulus may increase if there is more evidence that growth is losing momentum.

On China, Nakao said the world's second biggest economy could sustain growth above 7 percent for the time being, and he believed Chinese authorities would prevent shadow banking problems from causing default or systemic risk.

"Chinese authorities are leaning not to rely on fiscal measures too much," Nakao said.

When he was vice finance minister for international affairs from August 2011 to March 2013, Chinese officials told him that they should not readily resort to fiscal stimulus as it would leave debt burden and inefficiency in the economy, Nakao said.

"I thought that was noble thinking. But there's room for doing such thing if growth slows to an extent that it causes problems."

(Reporting by Tetsushi Kajimoto and Yuko Yoshikawa; Editing by Dominic Lau and Robert Birsel)

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