Asia needs to take a leadership role in the global economy that reflects the continent’s growing clout, International Monetary Fund Managing Director Christine Lagarde said.
Asian officials should keep monetary policy supportive, while using fiscal policy to boost growth and macro-prudential measures to protect financial stability, Lagarde said in a speech Saturday in New Delhi. Adopting structural reforms to boost competitiveness, growth and jobs will be key, she said.
Lagarde, who was reappointed last month for a second five-year term, called Asia the “world’s most dynamic region,” noting it accounts for 40 percent of the world economy and will deliver nearly two-thirds of global growth over the next four years.
“Asia now affects the world more than ever before,” Lagarde said, according to the text of her remarks. “By the same token, Asia is now more deeply affected by global economic developments than ever before — and must respond to them.”
Lagarde, 60, said Asia’s rapid integration was one of the most striking global developments of the past generation. Many countries in the continent pulled off economic “miracles,” and several became world powerhouses, she said.
Still, policy makers need to step up their response to a range of global challenges, including volatile markets and capital flows, financial tightening and low commodity prices, she said. In a speech this week in Washington, the IMF’s No. 2 official, David Lipton, warned that global growth is weakening, and called on the world to revive the “spirit of action” that followed the 2008 financial crisis.
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Lagarde urged the following measures in specific countries:
- China should improve the “allocation of credit to help rebalance the economy away from debt-led investment.”
- Japan should reform its labor markets and corporate governance, and deregulate its product markets.
- India, which is at a “crucial moment in its history,” needs to improve the efficiency of its product markets, encourage private investment and boost infrastructure.
Despite Asia’s growth, income inequality has increased in 15 of 22 Asian economies since 1990, Lagarde said. Broadening access to health and financial services is essential to unlocking the potential of the region’s 4.4 billion people, she said.
Policy makers should focus social spending on the neediest, and make taxes more progressive, the IMF chief said. Barriers facing women should be removed, access to infrastructure such as water and electricity should be improved, and Asian countries should pursue greater trade integration, she said, adding that Asia has a “massive stake” in combating climate change.
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