South Asian Central Bankers Concerned Over Indo-Pak Tension

Colombo, May 30: | Updated: May 31 2002, 05:30am hrs
South Asian central bankers began a two-day meeting on Thursday aiming to streamline monetary dealings between their countries, but with the cost of a war between India and Pakistan never far from their minds.

Central bank officials from India, Pakistan, Bangladesh, Nepal and Sri Lanka gathered in Sri Lankas capital to swap ideas on how to rein in budget deficits, keep inflation under wraps and improve the regions allure to foreign investors.

But talk on the sidelines of the conference was dominated by the economic threat to the region of any escalation in the military stand-off between India and Pakistan.

India and Pakistan have yet to spell out how much the confrontation is costing their economies in terms of military spending or diversion of resources. Nor have they given any indication of what impact a war might have.

We all hope that there will be no major crisis, no war and therefore there will be no economic impact, Bangladesh Bank governor Fakhruddin Ahamed said.

A war would hurt Bangladesh badly because India is its biggest trading partner, Mr Fakhruddin said, adding that the damage could not be quantified.

Its very difficult to quantify at this point of time. What will be the impact of a war I dont know. Reserve Bank of India governor Bimal Jalan declined to give any estimate of the cost of a war but said the central bank was fully prepared to meet any increase in government borrowings for military needs.

I dont know whether it will increase or not, but we are absolutely confident of handling any government borrowing requirement without disturbing the market as of now, Mr Jalan said on the sidelines of the meeting.

He said a recent fall in Indias foreign exchange reserves after 32 straight weeks of touching record highs of over $55 billion was a blip caused by some valuation changes.

Analysts attribute the drop to the central banks effort to shore up the rupee which had been pressured by fears of war with Pakistan.

Military tensions between India and Pakistan come at a time when the impoverished region is already torn by conflict.Sri Lankas economy has been devastated by a nearly two-decade long civil war with Tamil rebels fighting for a separate homeland in the North and East of the island nation.

A ceasefire in the last few months and a peace process that is slowly moving forward has raised hopes the government can finally turn its attention to rebuilding the country. The Himalayan mountain kingdom of Nepal was shaken last year by a royal massacre in which the king and his entire family were assassinated by his own son. Nepal is also battling a Maoist insurgency.

We have not yet started feeling the impact of the problem between India and Pakistan. But we have some other external shocks, like September 11, then the royal palace massacre and the Maoist insurgency problem, Nepal Rastra Bank governor Tilak Rawal said.

If there is full-scale war, then it will have very adverse effect on the economies of countries in the region.

We are already in neck deep trouble, and if this is added, well be in serious, serious trouble.We dont want this to happen.

(Reuters)