BUSINESS & ECONOMY

IMF: global economic risk, market volatility still high

By Obinna Chima

IMF boss, Christine Lagarde

The International Monetary Fund (IMF) has warned policy makers across the world to remain cautious of the global financial crisis, saying economic risk and market volatility were still high.

The fund however stated that the spring meeting, which comes up next week would deliberate  and take decisions on the issues. 

Managing Director, IMF, Christine Lagarde, stated this in a speech titled: “Seizing the Moment—Thinking Beyond the Crisis,” presented at the Brookings Institution, a copy of which was e-mailed to THISDAY Thursday.

While urging the policy maker not to “let down their guard,” she pointed out that “emerging and developing nations should continue to be, a relative source of strength.”

Stating that the risk was higher in Europe, she acknowledged measures by some countries in Europe in recent months to confront financial crisis in that zone.

“But, let us make no mistake: the risks and the needs are still sizeable, and it would be imprudent to think otherwise,” Lagarde argued.

The IMF boss said there was need to address three fundamental issues. “The next steps needed to keep the crisis at bay, the building blocks needed to achieve more lasting growth and stability to put the crisis behind us and a strengthened IMF—can help us take advantage of the tectonic shifts taking place in the global economy.”

She added: “Clearly, the risk that looms largest is that sovereign and financial stresses return with renewed force in Europe. The steps taken by the Europeans in recent months are a timely reminder of the power of policy resolve and action. Yet there are still risks, hills to be climbed.

“Europe must keep up and build on these efforts: continued strong policies at country level; continued support from the European Central Bank; continued efforts to build a healthier banking system; and continued steps toward fiscal integration. The much expected decision of Euro Area Ministers to strengthen the European financial firewall has also been crucial.”

These actions, according to her, would help, slowly to restore confidence and reduce vulnerabilities, adding that economies needed a broader approach—and a stronger global firewall to tackle the crisis.

“In today’s global economy, with its dazzling array of instant interconnections, a stronger European firewall can only ever be part of the solution. A stronger global firewall will help complete the “circle of protection” for every country.

“Here, the IMF can help. But to be as effective as possible, we need to increase our resources. The fund needs to be able to stand behind all its members and meet the needs of all those affected by the crisis—those at the epicentre, and those who are bystanders.

“We are, of course, continuously reassessing global risks, taking into account developments in the economic climate as well as all policy actions including by Europe. The needs now may not be quite as large as we had estimated earlier this year,” Lagarde said.

According to her, the upcoming spring meeting next week would provide an opportunity for the fund to take decision on the issue.

She suggested that “monetary policy can also support growth where inflation remains in check—as is the case at present in virtually all advanced economies. For emerging economies, a bit more caution is required, especially if rising oil prices and extended credit booms begin to test the bounds of inflation.

“Low-income economies also need to strike the right balance. Even as they are being hit by reduced aid flows and reduced remittances, they must guard against current risks—especially those radiating out of Europe. Rebuilding their policy buffers is a priority.”