Sat, April 24, 2010
Business > Economy

Post-crisis challenges urge global economic cooperation

2010-04-24 09:16:31 GMT2010-04-24 17:16:31 (Beijing Time)  Xinhua English

BEIJING, April 24 (Xinhua) -- Amid the world economic recovery that still faces great uncertainties today, all countries should enhance policy coordination and cooperate in coping with post-crisis challenges.

Related G20 urges IMF to deliver on quota share reforms by November IMF chief warns world economy still in "dangerous place" Global economic crisis hampering poverty reduction, other MDGs Finance ministers, central bank governors and economists from more than 180 countries will discuss main global issues at the spring meetings of the International Monetary Fund (IMF) and the World Bank (WB) slated for Saturday and Sunday in Washington.

Sovereign credit crisis, exit strategies from stimulus measures and financial regulatory reform are the main challenges the world economy currently faces.

Although the recovery is better than expected, developed economies have not got rid of the downturn as their sovereign debts and fiscal risks have been highlighted recently.

Greek Finance Minister George Papaconstantinou on Friday formally requested activation of the European Union (EU)-IMF support mechanism to pull the country out of its severe economic and debt crisis.

The Greek move came after a higher-than-expected 2009 budget deficit announced by Eurostat and a lowered bank credit rating by international rating agency Moody's.

Greece is not the only country that is suffering sovereign credit crisis. Sovereign credit ratings of Iceland, Ireland, Mexico, Italy, Portugal and Spain have also been downgraded.

Moreover, the sovereign credit of the United States, Britain, Germany and France has also been questioned.

Such a crisis reflected the prevailing debt-repaying pressure of the governments against the backdrop of the financial crisis.

Over the past two years, many countries have borrowed massive loans to stimulate their economy.

The IMF estimated 4.5 trillion-U.S. dollar bonds would be issued globally in 2010, tripling the average amount of money that the developed economies have borrowed in the past five years.

To alleviate the investors' concerns and avoid a global sovereign credit crisis, each country should regulate its fiscal order and curb deficit and the sharp rise in public debts.

The exit strategies from monetary and economic stimulus policies, adopted since the start of the financial crisis, have also brought new challenges to the world economy and added uncertainty to its recovery.

This year, the effects of the stimulus policies are estimated to be weakening. The rebound of inflation pressure is forcing countries to consider an exit from their stimulus strategies.

However, when and to what extent the main economies withdraw their stimulus strategies vary due to differences concerning the impacts they have suffered, the pace of their recovery and the outlook of inflations.

Historical experiences show that unordered and untimely "exit" will only lead to severe consequences. Therefore, all countries should cooperate in the timing and rhythm of stimulus withdrawal to keep the recovery stable.

Financial regulatory reform is another challenge. The financial crisis, which had been triggered by systematic and fundamental lapses, was also attributed to the lack of effective financial regulation in some developed countries.

Although some progress has been made in reforming financial regulation at the end of 2009, heavy bargaining still existed between stakeholders in the United States and the EU.

To avoid a new crisis, cooperation should therefore be boosted to promote financial regulatory reform.

Furthermore, all countries should fulfill their commitments made at the Group of 20 financial summits, ensure that emerging countries have a greater say in international financial organizations, and promote the structural reform in the governance of the IMF and the World Bank.

Regarding the improvement of the financial system, the nations should enhance cooperation in cross-border supervision and crisis management as well as payment regulation in financial institutions, so as to provide an early assessment, warning and handling of possible risks facing the international financial system.

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