Asia must brace for possible economic shocks: IMF
  • | AFP | July 12, 2010 09:09 PM

Asian nations must brace for possible threats to the world\'s economic recovery but a global double-dip recession is unlikely, the International Monetary Fund chief said Monday.

IMF managing director Dominique Strauss-Kahn has said "policymakers need to remain attuned to negative shocks," while citing a potential spillover from the eurozone debt crisis, the sharp rise in capital inflows into Asia and the risks of overheating.
(AFP/Kim Jae-Hwan)

"Policymakers need to remain attuned to negative shocks," said IMF managing director Dominique Strauss-Kahn, citing a potential spillover from the eurozone debt crisis, the sharp rise in capital inflows into Asia and the risks of overheating.

But Strauss-Kahn said he does not foresee a global double-dip recession and the economic recovery is on track.

"I don\'t believe there will be another dip. Our baseline is that there will be a recovery," he said in a speech to a conference in the central South Korean city of Daejeon.

The IMF last week forecast growth for all Asia in 2010 of 7.5 percent compared to an average 4.6 percent worldwide.

Strauss-Kahn hailed the continent\'s role as "a global economic powerhouse" in the wake of the global slowdown.

"As Asia\'s economic weight in the world continues to rise, its stake in the economic performance of other countries is rising too," he said, crediting reforms put in place since the 1997-98 East Asian financial crisis.

"So, despite being hit hard initially, Asia was able to bounce back quickly from the global financial crisis."

But with Europe and the United States expected to face a possibly extended period of lower growth, the IMF chief urged Asia to increase domestic investment and consumption to counterbalance reliance on exports.

"It\'s encouraging that many of the changes needed to foster and sustain this second engine of growth are already under way across the region," he said.

These include strong social safety nets, which can boost private consumption, better infrastructure to encourage private investment and more flexible exchange rates, he said.

South Korea\'s Finance Minister Yoon Jeung-Hyun called for changes to the quota voting system of the Washington-based IMF to reflect Asia\'s growing voice.

He also urged it to come up with a "detailed and realistic" plan for tackling the volatility that can arise from rapid international capital flows.

"I believe the IMF has an important contribution to make, by proposing and enacting concrete and realistic measures to strengthen financial safety nets around the globe," Yoon said.

South Korea, which will host a G20 summit in November, has been pushing the issue of a global financial safety net -- partly to discourage the excessive accumulation of unproductive foreign exchange reserves.

Strauss-Kahn said Asia would get a bigger say in the IMF and this could be completed by the G20 summit.

The IMF chief told a press conference it was "time to rebuild relationships with Asian countries" and said their economies should have been rebuilt after 1997-98 in a "less painful" way.

In South Korea the crisis is still known as the "IMF crisis" amid lingering resentment at the fund\'s tough prescriptions.

Strauss-Kahn described Europe\'s problems as manageable but warned that slow growth in Europe could reduce Asian exports.

But the real threat, he said, stems from excess liquidity heading for dynamic emerging economies in Asia and elsewhere. This should be handled through different tools such as currency revaluations and capital controls.

Strauss-Kahn noted that the US dollar has been "very resilient" during the crisis and would remain the most important world currency.

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