NEW DELHI. Feb 1: Cash-strapped South Asian countries trying to woo elusive Japanese companies agreed on Monday that they must restore political stability In the region to attract sceptical foreign Investors, reports Reuter.

Economic experts from Tokyo and the seven-member South Asian Association for Regional Cooperation (SAARC) at a seminar in New Delhi said Tokyo was wary of investing in a region lacking political stability.

"No doubt ... the sensitive question of political stability must figure quite prominently in the thinking of the Japanese corporate sector as far as investing in South Asia is concerned," said Bangladesh's ambassador to India, Farooq Sobhan.

Sobhan said Japan was also watching the progress of economic reforms in SAARC. which groups Bhutan, Bangladesh, India. Maldives, Nepal, Pakistan and Shri Lanka.

"Whilst there is a strong measure of support for the economic reform programmes in the different South Asian countries, there is perhaps the feeling that these reforms need to take root and that much more still needs to be done in the area of implementation," he said.

The experts, meeting for the second time tn less than a year, agreed on the need to model SAARC after the Association of South East Asian Nations (ASEAN), which groups Indonesia. Malaysia,

The Philippines, Singapore. Thailand and Brunel.

"While by 1991 the number of Japanese investments in Industrial ventures was close to 3.000 in the ASEAN countries. It was just over 100* tn the SAARC countries," Sobhan said.

India's External Affairs Minister Dinesh Singh said boosting economic ties with Japan could help Improve political Ues among the member states of SAARC

"Economic cooperation between South Asian countries assisted by Japan can go a long way in removing misgivings, promoting collaboration and creating Interest in the well-being of one another."

The new climate created by recent economic reforms fn South Asian countries had generated "great opportunities for increased Japanese in vestment,' he said

There Is also a proposal to set up a Japan-South Asia centre tn Tokyo on similar lines as Japan ASEAN centre," he

said.

At the end of 1990 cumulative Japanese investments in South Asia represented only 0.02 per cent of Japanese investments abroad, Singh said.

Japan s 6.5 billion US dollar trade with the countries of South Asia amounted to around 10 per cent of Its 62 billion US dollars trade with ASEAN countries.

■Japanese Investment In this region has also been extremely small, less than two per cent of that in ASEAN," said Ram Narain Malhotra, a former Indian Central Bank Governor.

Japanese government officials say South Asia has become an Important area for future investments but said that sweeping economic re forma In the region were threatened by political Instability.

"The countries which fail to take off for industrialisation will have a tendency of suffering from a self-perpetuating vicious circle of economic difficulty and political Instability." said Selzaburo Sato, an Economics Professor at Japan's Keio University, who co chaired the seminar

"Frequent regional con filets often fuelled by divisive ethnic, religious and territorial Issues* could derail economic reforms In South Asia, he added