A role for Asia in the world economy

David Burton, Washington DC

The recently concluded Spring Meetings of the International Monetary Fund in April focused on several key questions of concern to the international community -- the prospects for sustaining global economic growth; reducing vulnerabilities in the international financial system; achieving poverty reduction in the world's poorest nations; and the future direction of the Fund itself.

In the discussions, various issues were raised, including by Bank Indonesia Governor Burhanuddin Abdullah and other senior delegates of Asian countries, representing one of the world's most vibrant regions. These issues have since been echoed at the meetings of the ASEAN + 3 finance ministers and other international fora.

The rapid growth of emerging market economies in Asia has been a notable feature of the global economy in recent years. This growth has been led most visibly by China and, increasingly, India, but several other Asian countries play an important and vibrant role as well. The strong performance of these economies, combined with the continued dynamism of the U.S., has helped sustain the current worldwide expansion, offsetting ongoing sluggishness in Europe and also in Japan, where growth has remained sporadic despite progress in bank and corporate sector restructuring.

This positive performance has spurred new confidence about the future. Asia's growing role in the global economy has also naturally increased the region's desire to assume a higher profile in the international financial community. In the years and decades to come, economic policy decisions in Asia will have profound effects on the global economy. Given the IMF's role in fostering international economic and financial stability, deepening the two-way dialogue with Asia on national, regional, and global issues will be crucial.

The IMF pays close attention to economic developments in Asia -- and to what Asian leaders have to say. One key concern being voiced in the region concerns crisis prevention: more needs to be done to ensure that Asia -- indeed, all regions -- are well protected against future economic and financial shocks. The Fund takes this message to heart. The IMF's regular consultations with every member country reflect the lessons learned from the Asian Crisis -- especially about building strong financial sectors and developing the capacity to detect vulnerabilities sufficiently early to head off crises.

The IMF's lending programs in the region at present are confined to low-income countries such as Bangladesh and Mongolia. However, dialogue on policy issues and technical advice provided by international experts remain central to the IMF's activities in Asia. The IMF can also help in regional crisis prevention efforts by providing analysis of global and regional economic developments and key issues.

It is important to recognize the crucial steps that Asia has taken to safeguard its stability, including the building of substantial foreign exchange reserve cushions in many countries. The IMF fully supports the steps being taken toward building regional cooperation, including the Chiang Mai Initiative, as well as the Asian Bond Funds and other initiatives to develop more resilient capital markets. The Fund has expertise in the process of regional financial integration, drawing on the experience of other regions, and can continue to share this with Asian policymakers.

With its increasing global role, Asia also is expressing concern about the weight of its voice within international organizations. With regard to the IMF, this is primarily a question about bringing quotas (i.e. capital shares) and voting power more closely in line with economic weight. This will require consensus within the membership of the Fund, which so far has remained elusive. But the international community must continue to work on this issue as it has important implications for the future effectiveness of the IMF in fulfilling its key mandate of fostering global economic stability.

Asia's economic dynamism can serve as a model for other regions. At the same time, its growing weight in the world economy carries with it broader responsibilities. Along with policy actions and reforms in the U.S., Europe, and elsewhere to foster global growth and deal with economic imbalances, Asian countries must play their part by continued policy reforms, including, in some cases, adoption of more flexible exchange rate systems. Ensuring appropriate voice and participation of all stakeholders should greatly enhance the international dialogue aimed at sustaining growth and reducing vulnerabilities.

The work ahead to further build a strong and resilient international financial system contains difficult challenges. The IMF will continue to work with Asia, as with member countries in all regions of the world, to help meet them.

The writer is director of Asia and Pacific Department, International Monetary Fund.