Washington, April 13 (IANS) Faced with a slowing world economy and market turmoil, world financial leaders propose to closely follow how India tackles the problem of rising prices by balancing growth with the potential risks to price stability.
"India has become more and more a big player in the world economy," International Monetary Fund (IMF) managing director Dominique Strauss-Kahn said at a press conference Saturday after a meeting of the Fund's primary advisory body.

"The Indian economy is hit, as the other ones, by the financial turmoil on the one hand and the increase in prices on the other hand. So, the answers India, as others, are trying to give to the situation are very important ones," he said.

Strauss-Kahn said the way Indian Finance Minister P. Chidambaram underlined the problem of the increase in food prices, of the consequences it may have, had impressed everybody in the International Monetary and Financial Committee (IMFC).

"He was then followed by many ministers referring to his first speech and approving what he has said," Strauss-Kahn said. "So, I think Chidambaram takes the lead on this question, and it is following his question and his proposal that we are going to work in the coming weeks."

Strauss-Kahn also appreciated Chidambaram's support for the quota and voice reform, and the income reform of the Fund. He and a long list of other ministers were "so happy of the reform and approving not only the result of the reform, but the fact that the Fund is moving".

The proposed reforms seek to give emerging economies - India, China, Brazil, Mexico and South Korea - a little more voting power in IMF. The 185 member countries are expected to approve changes in their relative voting power later in April, although some nations that stand to lose from the shift - such as Russia, Argentina, Saudi Arabia, Iran and Egypt - oppose the move.

IMFC met Saturday as part of the IMF-World Bank Spring Meetings to discuss how to handle the deteriorating growth prospects for the global economy, the still unfolding events in financial markets, and the growing threat of rising inflation in some economies. Earlier, addressing the IMFC, Chidambaram had urged policy makers and central banks to carefully balance growth and financial stability considerations with the potential risks to price stability.

Describing the emergence of global inflationary pressures as "another worrisome development", he said: "The deflationary impact of globalisation seems to have run out with increasing wage and inflationary pressures."

"There is growing apprehension that financial stability concerns are distracting central banks in advanced economies from emerging inflation risks," Chidambaram said.

Strong inflationary pressures are also evident from the supply side. Rising food prices are an increasing concern not only in developing countries but also in developed economies.

This rise has been exacerbated by the increasing diversion of food grains and other crops towards bio-fuels, he noted. Fuel prices continue to remain high and volatile. The confluence of these developments has implications for long-term inflationary expectations.

"Policy makers and central banks will, therefore, have to carefully balance growth and financial stability considerations with the potential risks to price stability," Chidambaram said.

In a communiqué issued after its meeting, IMFC urged strong action to counter the economic slowdown, and supported the Fund's efforts to step up analysis of global threats while welcoming measures to reform the multilateral institution.

"While each country's situation is different, coherent action must be taken, taking due account of cross-border interactions," the 24-member IMFC said.

IMFC chairman Tommaso Padoa-Schioppa said: "There was a sense in the meeting that the string of bad news about markets and the global economy had not come to an end and that "a global crisis has to be addressed by a global institution" like the 185-member IMF.

Strauss-Kahn said the severe and looming problems facing the global economy had helped revive support for multilateralism at the meetings because global problems required global answers. "The spirit of multilateralism is alive and kicking," he declared.

Strauss-Kahn outlined key problems facing the global economy as continued financial turmoil resulting from the effects of the sub-prime crisis in the US, slowdown in the world economy with no decoupling from this trend by emerging markets, and mounting inflation because of high commodity prices, including food prices.

In addition, he said that new imbalances might have appeared in the global economy as a result of the turmoil. The IMF has been involved in a process to try to help countries reduce global payments imbalances.

The IMFC said it supported efforts by the Fund to sharpen its analysis of the financial sector, macro-financial linkages, exchange rates and spill overs as well as deepening work on financial stability issues, while better integrating global and cross-country perspectives.

It underscored the need for the Fund to work with the Financial Stability Forum and other bodies to ensure that lessons from the crisis are shared and agreed policy actions implemented rapidly.

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