‘Oil price, rate hikes pose risks to Asia’

Agence France Presse

Jeju, May 15:

Soaring oil prices, the prospects of higher interest rates and terrorism threaten to derail the momentum of Asia’s economic growth, delegates to the Asian Development Bank (ADB) annual meeting were told on Saturday. Opening the two-and-a-half-day long conference, speakers led by South Korean prime minister Goh Kun said further structural reforms, increased regional cooperation and integration as well as peace and stability are needed to sustain the expansion. The Asia-Pacific is poised to grow 6.7 percent in 2005 from 6.8 percent this year, the highest compared with other regions in the world, but the speakers warned the road ahead remained fraught with pitfalls.

“Not all risks to the economic outlook have been lifted,” South Korean Deputy prime minister and minister of finance and economy Hun-Jai Lee said in his opening speech. “There continues to be the risk of terrorism, while oil prices are at a 14-year high. In addition, the global economy appears to be transitioning away from an extended phase of low interest rates,” he said.

“And this has brought to the surface concerns about how markets in both mature and emerging markets will react to rising interest rates.” On Friday, New York’s benchmark light sweet crude for delivery in June shot to an all-time high 41.56 dollars a barrel before easing to close at $41.38 on terrorism fears in Iraq and Saudi Arabia and hot global demand. The price broke the previous record of $41.15 set in October 1990, in the run-up to the Gulf War. Higher oil prices could hurt Asian economies, most of which import their fuel needs. As oil prices surged, speculation of a swift rise in near rock-bottom US interest rates also heated up as fresh data showed underlying consumer prices creeping higher and industry revving up. On May 4, Federal Reserve chairman Alan Greenspan and fellow policymakers left the federal funds rate, which banks charge each other overnight, at a 1958 low of 1.0 percent but they said rates can eventually rise at a “measured” pace.

A hike in US interest rates could trigger a domino effect among other central banks and dampen consumer spending which had helped power growth in several Asian countries when exports slumped. In a concrete step, the finance ministers of Southeast Asia as well as China, Japan and South Korea will meet on the sidelines of the conference later Saturday to discuss improvements to a network of bilateral currency swap arrangements designed to fend off future financial crises.