Bhutan's prime minister Lyonchhen Jigmy Y Thinley said at the inauguration of a summit meeting Saturday that his country was willing to give "operational, tax and legal flexibility," for a permanent secretariat for the fund to be hosted in Bhutan.

"My delegation attaches high importance to this institution as a means of engendering meaningful co-operation in many important areas and we are confident that the Fund will evolve into a viable and effective SAARC mechanism," he said.

The 300 million dollar fund is tiny compared to the vast capital needs of the region.

In many countries of South Asia most of the government revenue is spent on vote-buying populist subsidies, and maintaining large public sectors.

When even this is not enough, governments dip into central bank financing (money printing) to give subsidies, causing high inflation, weakening the national currencies and impoverishing an area of 1.5 billion people which is already estimated to house half the world's poor.

In Sri Lanka this year a 138 million dollar budget for fertilizer subsidies has been busted up in five months, the finance ministry said, pushing up the annual cost of the subsidy towards 300 million dollars.

India has squandered around billions of dollars on fuel subsidies in the past year.

Selling fuel below cost causes cash flow deficits to petroleum firms which are then filled with commercial bank credit or subsidies that expand budget deficits and borrowings, causing high inflation when central banks print money to keep interest rates stable.

Politicians in the region spend massive amounts of money on fuel subsidies in particular due to a bizarre belief that 'inflation' is largely a petroleum phenomenon rather than a monetary one.

The capital development budgets of many South Asian nations are funded by donor nations, the World Bank and the Asian Development Bank (ADB).

In the five months to May Sri Lanka, a relatively small country with a population of only 22 million, said it had received commitments for a billion dollars in aid with Iran topping the list with an unusually large 450 million dollar slice.

Iran dwarfed ADB's 90 million US dollars and World Bank's 43 million and Japan's 42 million.

Iran has been seeking greater involvement with the region with the country becoming an observer in the SAARC grouping.

Meanwhile, countries like India have increasingly attracted private capital to build infrastructure, with the unshackling of price controls and de-regulation making it possible for commercial enterprises to operate.

Spectacular gains have been made across the region in cutting state involvement in telecommunications and breaking up government run monopolies in domestic and international communications which has seen tariffs plummeting in real terms.

Increasingly India is becoming an investor and lender to the region. In the five months to June India committed 109 million dollars to Sri Lanka in a tightly tied loan that requires the island to buy Indian equipment and services for railway development.

The SAARC grouping has come under pressure from critics to 'do something' to convert it from a 'talk shop' to a force that can bring tangible benefits to the people.

Updated