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South Asian central bankers to stay clear of tension, talk shop

Amid fears of war between nuclear-armed India and Pakistan, while Sri Lanka struggles for peace, South Asian central bank officials meet this week to improve processes that would boost trade in the region.

"We will mostly discuss clearing issues," Sri Lankan central bank Governor Amarananda Jayawardena told Reuters on Wednesday. "We have to decide what we are going to do in the future."

The central bankers, starting a two-day meeting in the Sri Lankan capital Colombo on Thursday, are hoping to modernise the two-decade old Asian Clearing Union which includes South Asian countries and Iran.

"The world has changed and we have to see what we can do," Jayawardena said, adding they would discuss ways of improving clearing of monetary instruments so trade can benefit.

Jayawardena said the central bankers would not touch upon the current tensions in the region -- or even talk about its economic impact. "We will not discuss any of that. We are just going to talk about clearing," he said.

The meeting comes in the middle of a dangerous military standoff between the region's two biggest nations, India and Pakistan, both of whom have nuclear weapons and the missiles to deliver them.

Reserve Bank of India Governor Bimal Jalan is attending the meeting, though his Pakistani counterpart Ishrat Husain has stayed away citing "official engagements" at home. Executive director Farhat Saeed will represent Pakistan.

Though neither government has said anything so far about the costs of the military build-up that has mustered more than a million men at the border, analysts have expressed concern.

Standard & Poor's warned last week India's ratings could be downgraded if the military situation persisted and led to a worsening of the country's fiscal deficit.

The rating "depends on how long this situation will persist and affect the yields or the fiscal situation," Takahira Ogawa, an S&P director told Reuters then.

While Pakistan has enjoyed a stable outlook on its B-minus long-term foreign currency rating since December 1999, S&P said higher military expenditure could strain Pakistan's fiscal conditions and hit investor confidence.

"At this point in time, our ratings on Pakistan are still valid. But if you have a military situation where expenditures go up it will have fiscal implications," S&P's sovereign ratings specialist Chih Wai Liew said.

"And not only that, things you can't measure like investor confidence would be hurt, which will again have implications for revenues," he added.

Two other South Asian nations, Sri Lanka and Nepal, have also been mired in conflict.

Sri Lanka is struggling to rebuild, after a ceasefire deal signed with separatist rebels with whom it fought a 20-year war, and Nepal is battling a six-year Maoist rebellion that has killed more than 4,000 people.

For Sri Lanka, the central bankers' meeting in its capital comes at a time when hopes are high that lasting peace will revive the economy.

"Things are looking much brighter now, but real recovery will be next year once we get all our infrastructure bottlenecks out of the way," said Arjunna Mahendran, head of Sri Lanka's Board of Investments.

"Hopefully, by then we will have a better view of the peace process and how it is going forward."

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