IMF Chief Lagarde emphasises Asia, China role in global recovery

Christine Lagarde, Managing Director of the International Monetary Fund (IMF) emphasised the important role of Asia, and especially China, in achieving global economic recovery.

“The rise of Asia in the global economy is really the defining economic success story of modern times. And so today, it is no surprise that Asia is propelling the global recovery,” she said in a speech at the International Finance Forum in Beijing.

She noted in particular the achievements of China in growing by an average 10 percent a year and pulling half a billion people out of poverty over the past three decades. “No wonder that when I visit this region, I feel that I am filled with hope and optimism about the future.”

Lagarde said that “in our increasingly interconnected world, no country or region can go it alone. We are bound together by our economic success--or failure.”

She added that the advanced countries had a special responsibility to enact policies to restore confidence and lift growth. She said that she was encouraged by the framework agreed by Euro Area Leaders on October 26 and the G20 endorsement of it at Cannes.

Lagarde called on the advanced economies to strike the appropriate balance in fiscal and monetary policies to promote stability and growth, push ahead with structural policies to boost competitiveness and employment, and strengthen financial regulation to make the financial sector safer and to put it back in the service of the real economy.

Turning to Asia, Lagarde noted a difficult balancing act: “Countries need to prepare for any storm that might reach their shores. But some face continued overheating pressures and risks to financial stability from prolonged easy financial conditions.”

She advised Asian countries to respond nimbly, and change course if the global economic environment deteriorates further. “For example, policymakers can ease off the fiscal brakes, draw on reserves or regional reserve pooling arrangements, and reactivate central bank swap lines,” she said.

She added that the social dimension was very important. “It is at the forefront of thinking of the leaders in Asia. Tremendous efforts have been made and are continuing to be made to build better social safety nets and investing more in infrastructure, health, and education.” she said.

Lagarde also commented that she believed China is on the right path--as laid out in its comprehensive 12th five-year plan, in terms of reducing domestic vulnerabilities and reorienting the economy towards domestic consumption.

Referring to fiscal policy, she noted that “if the growth outlook deteriorates significantly, it could become the first line of defense, given ample fiscal space and capacity to deploy resources quickly.”

Noting that China has already made good progress on the road to rebalancing, she said that: “Now is the time to move further from exports and investment toward consumption—including by further boosting household incomes and expanding social safety nets.”

She also said that reform of the financial system was important, and that “as we have said before, China also needs a stronger currency in real effective terms.”

Lagarde also stressed the importance of IMF governance reforms in giving a greater voice to emerging markets and developing countries, noting that “One result of these governance reforms is that China is in our top three shareholders. So China is a very important member of the IMF—which is only fitting, given its very important role in the global economy.”

 “China has once again taken the global central stage and plays a crucial role—today and into the future,” she said.