Christine Lagarde, Managing Director of the International Monetary Fund, highlighted today the increasing leadership role that Asia plays in the global economy—and in the IMF.
“During the dark days of the global financial crisis, it was Asia that kept the flame alive, accounting for about two-thirds of global growth, she said in a speech on “Asia and the Global Economy: the Promise of Integration” at the Global Public Lecture hosted by the Malaysia Economic Association. “Clearly, the momentum is here, the dynamism is here, and the futurestarts here.”
Ms. Lagarde also emphasized the virtues of economic cooperation, particularly trade and finance, within Asia. “There is no question about it: looking ahead, Asia can benefit from opening even more doors to trade.” With regard to financial integration, Ms. Lagarde said there is even wider scope for progress. She noted that more than 90 percent of ASEAN cross-border portfolio investment flows are with advanced economies outside Asia. “Asia—with its current account surpluses—is simply not investing enough of its savings in itself,” she said.
Greater regional financial integration could open up a host of new benefits. Ms. Lagarde noted that it can boost domestic demand—partly by making it easier for small businesses in countries like Malaysia to gain access to credit. It can make economies safer, by allowing more insurance against volatility and adverse developments. And greater access to financial services by the poor can reduce inequality, she said.
Integration does not come without costs, Ms. Lagarde emphasized. More financially-integrated economies more exposed to volatilities, she said, highlighting the importance of economic management and better regulation. “Making the most of financial integration also means better regulation,” she said, which include global rules like the Basel III reforms, as well as local rules, like stronger and more harmonized regulatory frameworks, including in the area of cross-border supervision. “Here, Asia has a unique opportunity to get financial integration right—avoiding the missteps and excesses of the west,” Ms. Lagarde said.
Ms Lagarde also urged policymakers to take the actions needed to achieve a decisive turn in the global crisis. She noted that the global slowdown is spreading to regions that have previously held up well. “In this interconnected world, there is really nowhere to hide,” she said adding that from all sides, Asia is exposed to sudden shifts in sentiment. “Going forward, we believe that growth will pick up again, and that Asia will retain its position as a growth leader—expanding 2 percentage points faster than the world average next year,” she said. “But none of this can be taken for granted. It depends on the actions of global policymakers, especially in the United States and Europe. And ‘action’ is the operative word.”
Finally, Ms. Lagarde also urged greater international policy cooperation. “Asia understands this well”, she noted. She highlighted that at the regional level, the Chiang Mai Initiative Multileralization and the emergence of the ASEAN +3 Macroeconomic Research Office (AMRO), is a good example of the ASEAN countries’ commitment to deeper cooperation. At the global level, Asia has a major and highly-respected voice in global economic governance, including through the G20 where it has six members. And Asia also plays an increasingly important role in the IMF.
In this regard, Ms. Lagarde noted that the membership came together to boost the IMF’s firepower by $461 billion—bringing the Fund’s total lending power to over $1 trillion. “I am very appreciative that Asia played such a leading role in building that financial firewall.” “It is a vote of confidence in the Fund,” she said. More than that, it is a vote of confidence in partnership, in solidarity, in the idea that by helping others, you are also helping yourself,” Ms. Lagarde concluded.