Recent volatility in global financial markets demonstrated how much Asia is at the core of the global economy and there is reason for continued confidence in the region as the region's governments fully understand from past experience how to tackle such problems, International Monetary Fund Managing Director Christine Lagarde said Wednesday.
Speaking in the Indonesian capital Jakarta, Lagarde said some Asian economies have gained their place among the advanced economies, while some have achieved emerging market status. "Others are still climbing the ladder of development. Together they have become a key source of global growth," she added.
Lagarde praised Asian countries for using bitter experience from the region's financial crisis in 1997 to withstand the 2007-08 global financial crisis and the 2013 Taper Tantrum.
"Now you are feeling the impact of China's rebalancing, Japan's continued slow growth, and falling commodities prices. You are facing the prospect of higher U.S. interest rates," the IMF Chief said.
"...there is reason for continued confidence in the region. Your governments fully understand what needs to be done and are ready to take further action if needed."
Policies must be custom-made to suit different countries' situation and should include prudent fiscal policy, curbs on excessive credit growth, adequate foreign exchange reserve and establishing regulatory and supervisory oversight for the financial sector, Lagarde said. Further, she said the exchange rate must be allowed to act as a shock absorber.
On Tuesday, Lagarde said Asia as a region is still expected to lead the global growth, but the pace is turning out slower than expected. She also warned of the risk that Asian growth may slow even further given the recent spike in global risk aversion and financial market volatility and urged emerging economies, including Indonesia, "to be vigilant to handle potential spillovers from China's slowdown and tightening of global financial conditions".
She also said global economic growth is set to moderate and will likely be weaker-than-expected earlier due to sluggish recovery in advanced economies and a further slowdown in emerging economies.
The Washington-based lender had lowered its global growth projection for this year to 3.3 percent in July. The projection for the next year was maintained at 3.8 percent.
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