Dhaka, Bangladesh (BBN) – The leading bankers, economists and experts of the country on Tuesday suggested ensuring deeper understanding among the South Asian countries to face challenges posed by external sector openness.
 

The suggestion came at a SAARCFINANCE seminar on ‘Management of External Sector Openness – South Asian Country Experiences’ organised by the Bangladesh Bank (BB) at a city hotel.
 

“Such region-wide forging and deepening of contacts for mutual learning and experience sharing were indeed the building blocks of regional integration,” BB Governor Atiur Rahman said while speaking as a chief guest at the seminar.
 

He also said regional integration initiatives shore up defences against external instability, putting up a collective front as a single large economic region.
 

While the instability risks could be particularly severe for smaller open economies, even the larger economies with deep, large domestic markets were far from immune, as seen in the last global financial crisis, the BB governor observed.
 

“We in the SAARCFINANCE member economies are managing our external sector openness in trade and investment flows striking a careful balance between the imperatives of promoting growth and safeguarding macroeconomic and financial sector stability,” Dr. Rahman noted.
 

He also said openness to global capital flows likewise spurs growth by attracting investment inflows, but at the same time heightens instability risks from volatile trends of global capital flows arising both from speculative position taking and from spillovers of persistent imbalances in major economies.
 

“External opening up also poses new demands on approaches in safeguarding of monetary and financial stability,” the central bank chief observed.
Addressing the seminar as a keynote speaker ABM Azizul Islam, former adviser of the caretaker government, said the dependence on external private flows to finance investment and accelerate economic growth was fraught with many risks.
 

“Excessive dependence on external financial flows exposes an economy to the double jeopardy of an exchange rate crisis and a financial sector crisis which reinforces each other and causes a vicious spiral,” he noted.
 

Short-term capital flows such as portfolio and equity investments and bank debt do not have a significant effect on growth and, in fact, have sizable adverse effect in times of crisis and more so in countries with weaker institutions, the senior economist added.
 

 “Very recently a number of developing countries including India faced large outflows,” the former adviser explained.
 

“So the question is: to what extent should South Asian countries liberalise their capital account policy regimes and how to balance the potential trade-off between higher growth and greater instability?”
 

Mr Allah Malik Kazemi, change management adviser of the BB, said openness was very vital for boosting the country’s overall business activities amid some risks.
 “We need deeper understanding for taking better decisions on stability and adjustment of challenges posed by the external openness,” the senior central banker said while explaining the main objective of the seminar.
 

Among others, Mr Abu Hena Mohammad Razee Hassan, deputy governor of the BB, and Mr Akhtaruzzaman, economic adviser of the central bank, spoke on the occasion.    
 

The SAARCFINANCE was formed in October 1998 as a network of central bank governors and finance secretaries of the SAARC countries—Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, Afghanistan and Sri Lanka.
 

It is now working to promote cooperation, research, training and exchange of ideas and information on economic and financial issues among its member countries.
 

BBN/SSR/AD-29Apr14-11:69 pm (BST)