Restoring the international financial stability to avoid a global crisis will be on the top agenda of the annual meetings of the World Bank and International Monetary Fund, said Lin Yifu, Senior Vice-President and Chief Economist of the World Bank in a recent interview with People's Daily.
He also stressed the importance of addressing problems in developing economies in a timely way. He believes that China is in the best position among the developing countries of dealing with the impact of the downturn of developed economies. With its massive forex reserves, healthy fiscal portfolio, large current account surplus and small share of foreign investment in the whole economy, China can secure a strong growth by boosting its domestic economy and demand.
Lin is concerned over the current slump of the global economic growth and the possibility of a recession in developed economies including the US. Developing countries may see their economic growth slow down by at least 3 percentage points from the average speed of 7.8 percent last year but will still stand at 4 percent.
Historical experience shows that every one percentage point of economic slowdown gives rise to 20 million of new poverty population. More than 100 million people have lived below the poverty line again since the food and oil prices soared early this year.
Lin attributes the rising food and energy prices and the US financial crisis to the global economic slow down. Although those crisis are caused by different reasons and affect different groups, the fact that they took place in the same year adds to the difficulty of decision making in many countries.
The US government's unprecedented bailout scheme shows its resolution on solving the problem. People hope that the plan would restore the market confidence and stabilize the financial situation. Confidence matters most in finance.
Globalization means countries are interwoven in terms of capital and finance. When developed countries are grappling with tight liquidity in their financial crisis, developing countries will also feel the similar strain of less international capital flow or even face the possibility of similar crisis.
“The imminent task is to stabilize the international financial order to avoid a global crisis. International cooperation is necessary to achieve that,” said Lin.
He believes that developing countries relying on investment and export will be affected much once there is a turbulence in the developed countries which are their most important source of capital and export market.
The most important lessons that developing countries should learn from the US financial crisis, said Lin, is that for any financial innovation, effective regulatory efforts must be in place and the substance and risks of the innovation are fully understood.
By People's Daily Online
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