Accessibility links

Economic Challenges High on Agenda for South Asian Summit

Economic challenges will figure high on the agenda of South Asian leaders at their regional summit talks beginning Saturday in Bangladesh. South Asia's economic growth continues to be strong, but across the region an enormous number of people are still living in poverty.

Natural disasters have set the pattern for the past year for the majority of the people of South Asia. First there was the catastrophic tsunami that swept across coastal areas of the Indian Ocean basin. Since last month, Pakistan and India have been struggling to cope with an extremely powerful and deadly earthquake in Kashmir.

Despite those calamities, economic analysts say leaders of the South Asian Association for Regional Cooperation, or SAARC, still have some good news to share at their summit in Bangladesh.

Frank Harrigan, assistant chief economist at the Asian Development Bank in Manila, says even the humanitarian tragedies of the tsunami and earthquake have not dented South Asia's economies.

"Compared to overall world growth, South Asia is one of the fastest-growing regions in the world," explained Mr. Harrigan. "Six-and-a-half to seven percent is a very respectable growth rate, and it looks as if overall growth in South Asia has been trending up."

India's high-growth path has been spurred by rising investment and stepped-up consumption by its booming middle class, 300 million strong.

India gets attention due to the size of its economy, but other South Asian countries also have fared well. India's neighbor and rival, Pakistan, posted its fastest growth in more than two decades in the past financial year, and in Bangladesh, robust industrial growth and strong exports kept the economy healthy.

Fears that the tsunami would severely damage the economies of Sri Lanka and the Maldives did not materialize. The head of the Sri Lanka office of the credit rating agency Fitch Ratings, Alastair Corera, says the country's economy recovered quickly a few months after the high water receded.

"General expectations are they would end the year not too badly off, with tourism bouncing back reasonably well," he said. "Fisheries is still out, but other components of the economy such as agriculture and exports have done reasonably well."

Battered hotels have been rebuilt in the Maldives, and visitors have returned in droves to the idyllic Indian Ocean islands, putting the country back on a high-growth path.

Despite the good economic news, there are challenges facing the South Asian leaders at the summit in Dhaka, especially widespread poverty. Nearly one-third of this region's billion-and-a-half people eke out a living on less than $1 a day. Cities have grown richer and villages poorer, and the gap between economic classes has widened in all of SAARC's seven countries: India, Pakistan, Bangladesh, Sri Lanka, the Maldives, Nepal and Bhutan.

The Asian Development Bank's Mr. Harrigan says poverty is just one of the major hurdles confronting South Asia.

"Some of the common problems we are seeing across countries include growing income inequality and growth which in some places is largely jobless," he said. "There are fiscal vulnerabilities in many of the countries. Naturally, there are infrastructure shortfalls, particularly in rural areas. "

Strategies to combat poverty will be debated at the Dhaka summit. Host Bangladesh is expected to propose that SAARC dedicate its third decade to poverty alleviation. The grouping began in 1985 to forge economic solidarity and boost living standards in the region.

South Asia is far from achieving its goal of economic integration, however. The region has lagged behind the rest of the world in boosting regional trade, although it took a step forward by deciding last year to begin putting a free trade agreement in place in 2006.

But implementing a trade pact could be difficult. Most countries are wary of a regional free-trade deal because they export the same type of goods, especially textiles. D.H. Panandikar of New Delhi's economic research institution RPG says smaller countries are concerned that India's giant economy might overwhelm their markets.

"Other SAARC partners may feel that India is taking away the trade from them," he said. "But the fact is, if they do not import from India, they will have to import from somewhere else, for which they will have to pay a higher price."

Economists say regional trade is unlikely to take off substantially unless communication links in the region improve. They also are looking for a further reduction in political suspicion between India and Pakistan, the two biggest countries in the region.

Still, analysts hope the summit will deepen an understanding across the region that its main business should be business