IMF warns world economy at risk, urges Asian economies to be on guard
International Monetary Fund chief Christine Lagarde yesterday warned the world risked plunging into a “downward spiral” of financial instability and urged Asian economies to be on their guard.
Lagarde said Asia was not immune to problems currently sweeping the eurozone, as she began a two-day visit to China likely to focus on the deepening debt crisis in Europe.
“Asia is not immune. Whether it is the trade channel or whether it is the financial sector which can operate as a crisis accelerator, Asia needs to be prepared,” Lagarde said.
“If we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability,” she said at the International Finance Forum in Beijing.
Lagarde has so far held talks with Chinese central bank governor Zhou Xiaochuan on the “global economic situation”, the People’s Bank of China said in a brief statement.
Foreign ministry spokesman Hong Lei said Lagarde would also meet with “state leaders” but did not specify who they would be.
Any discussions are expected to touch on China’s possible contribution to a bailout fund — the European Financial Stability Facility — established to provide support to the bloc’s struggling economies.
European leaders have called on China, which has the world’s largest foreign exchange reserves at $3.2 trillion, to invest in the fund.
But a move to help developed European countries out of the current crisis would be a hard sell for China where millions of people still live in poverty, and inflation and housing costs are straining household budgets.
Lagarde also added to pressure on Beijing for a faster appreciation in the yuan, saying that while China was on the “right path” in terms of boosting domestic demand, a stronger Chinese currency “in real effective terms” was needed.
The United States and Europe — major buyers of Chinese products — have accused Beijing of deliberately keeping its currency undervalued to give its exporters an unfair advantage. Beijing has rejected the charges.
At the G20 summit last week, China pledged to promote greater flexibility in the currency, but analysts do not expect to see a dramatic change in the value of the yuan given the importance of exports to the Chinese economy.
-With The Daily Star input
