Capital flows will return to Asia once credit crunch ends - ADB official

Madrid (ANTARA News) - Once the global credit crunch eases Asia will see the return of the large capital inflows which put the squeeze on their economies, a senior Asian Development Bank (ADB) official said on Saturday.

"We can expect massive capital inflows into Asia once financial stability is restored," Masahiro Kawai, the bank's head of regional economic integration, was quoted by Thomson Financial as saying at the ADB's annual meeting in the Spanish capital Madrid.

Global financial markets were still in the middle of the credit crunch that emerged from the U.S. subprime crisis but confidence will be restored in six to 12 months, he said.

"And then where will they invest? Maybe not in the U.S. because we expect the U.S. economy to continue to stagnate for several quarters ... it will be in Asia," said Kawai, a special advisor to the ADB's president.

While the return of capital flows would help Asian nations finance investment, Kawai warned that "this may not be all good" as it also could erode competitiveness.

Before the start of the credit crunch, many Asian nations saw their currencies rise as low interest rates in countries such as Japan and Switzerland encouraged investors to borrow cheaply there to invest in fast-growing developing economies.

Regional currencies such as the Thai baht, Indonesian rupiah, Singaporean dollar and Philippine peso have all appreciated sharply against the dollar recently, making life tougher for exporters in the region.

The issue dominated the ADB's last annual meeting held in Japan in May 2007, with the president of the Manila-based lender, Haruhiko Kuroda, calling on Asian nations to step up their financial cooperation to cope with the large capital inflows.