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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