By J. C. Suresh
TORONTO (IDN) – When an international commission headed by Nobel laureate Willy Brandt drew attention to global economic interdependence in its report in 1980, the world was divided between rich North and the poor South. More than three decades later, the International Monetary Fund (IMF) is asking what were until recently developing countries to help stave off the European financial crisis resulting in the global economy sinking like Titanic.
The Fund is looking to work ever more closely with Asia to lessen the impact of the global crisis on the region and to help promote sounder and stronger growth globally, David Lipton, IMF First Deputy Managing Director, had said.
Lipton, who was appointed late last year to the IMF management position, told participants at Asian Financial Forum in Hong Kong that "Asia’s economies today are strong and showing great promise, in part because of the reforms introduced courageously, and not without painful consequences, when Asia faced its own crisis in the nineties."
He added: "But now it is problems in the rest of the world, Europe in particular, that pose a risk to Asian prosperity. Now, Asia has a stake in seeing Europe solve its problems and even in playing a role in that process."
Beyond that, Lipton cautioned, Asia has its own challenges, both in the near and longer term, but "by working together, more and better than in the past, Asia and the IMF can help ensure stability and prosperity for the region and for the world,” he added.
Reflecting on the global outlook, Lipton observed that "at the global level, the pace of economic activity is weakening, and the risks for Europe and the world are high." But, he emphasized, "rather than allow ourselves to be paralyzed by pessimism, it is time to focus on the more hopeful perspective of working our way through this crisis. If there is good news, it is that we know what policies are needed, and we are busy trying to muster the finance to support those policies."
Without bold action however, "Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs. And in today's interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia," Lipton said, reflecting its tight trade and financial links with Europe.
The IMF official pointed out that Asia had emerged from the 2008 financial crisis with its global standing strengthened and called on Asian policy makers to stay the course with fiscal normalization to rebuild buffers eroded since the 2008 crisis; pause monetary tightening as long as inflation forecasts remained within central banks' targets; ensure liquidity and funding in the banking sector; and further reduce external vulnerabilities by lengthening debt maturities, securing credit lines and further expanding currency swap arrangements, either bilaterally or through the multilateral Chiang-Mai Initiative (CMI).
CMI is a multilateral currency swap arrangement among the ten members of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China (including Hong Kong), Japan, and South Korea. It draws from a foreign exchange reserves pool worth US$120 billion and was launched on March 24, 2010.
The initiative began as a series of bilateral swap arrangements after the ASEAN Plus Three countries met on May 6, 2000 in Chiang Mai, Thailand, at an annual meeting of the Asian Development Bank. After 1997 Asian Financial Crisis, member countries started this initiative to manage regional short-term liquidity problems and to facilitate the work of other international financial arrangements and organizations like International Monetary Fund.
Lipton added that "should downside risks materialize in force, policymakers in Asia would need to respond swiftly, as they did in 2008/2009."
“As Asia goes forward, the IMF stands ready to be a partner," Lipton said, adding that "the IMF learned important lessons from Asia's experience that we are now applying to programs across the globe, including in Europe."
Two areas he singled out where the IMF’s work can support the region's interests are enhancing economic and financial surveillance for crisis prevention, and strengthening the global financial safety net – including sharper surveillance of economic spillovers and macro-financial linkages, but also new lending tools, such as the precautionary credit line, specifically tailored for crisis by-standers.
Efforts are also underway to better integrate IMF resources with regional reserve pooling arrangements like the Chiang Mai Initiative and enhance cooperation with them.
At the same time, Asia looks set to take a bigger role at the IMF, Lipton said. He noted the importance of an increased role for Asian members within the IMF, which is reflected among other recent developments in the package of quota and voice reforms that were agreed in 2010.
These reforms will increase emerging Asia's representation by more than a quarter, with Japan and China the second- and third-largest shareholders and India also in the top ten. Asian nationals are now 40 percent of the IMF’s management team, and the IMF will hold its 2012 Annual Meetings in Tokyo in October 2012. "Given its rise as an economic powerhouse, it is only natural that Asia's voice in the IMF should become increasingly influential," Lipton noted.
While all eyes are on Europe right now, “by working more and better together, Asia and the Fund can help bring about sustained economic growth- for the region and for the world," Lipton said. [IDN-InDepthNews - January 22, 2012]
Picture: IMF First Deputy Managing Director David Lipton | Credit: IMF
2012 IDN-InDepthNews | Analysis That Matters
Follow us on Twitter and Facebook: