Asia must brace for possible economic shocks: IMF chief

DAEJEON – Asian financial policymakers must brace for possible further shocks given risks to the global economy such as the eurozone turmoil, the International Monetary Fund chief said Monday.

“Policymakers need to remain attuned to negative shocks,” said IMF managing director Dominique Strauss-Kahn, citing a potential spillover from Europe’s debt crisis, the sharp rebound 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 a 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 said the continent has “emerged 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 underway across the region,” he said.

These include strong social safety nets, which can help 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 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 and representation in the IMF and other international financial organisations.

“We are now working on a second stage that will do even more to help align Asia’s representation” in the IMF, he said, adding such work could be completed by the G20 summit.

Strauss-Kahn said the international lender was working to strengthen its effectiveness in supporting Asia in the period ahead.

The IMF can help it improve its analysis of economic and financial risks and ease international policy collaboration, he said. –Agence France-Presse