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Emerging economies lash out at US stimulus

IMF managing director Christine Lagarde said the United States' third round of quantitative easing - the introduction of new money supply to boost economic growth - could hurt emerging economies. (PHOTO: AFP)

Publication Date : 15-10-2012

 

IMF managing director Christine Lagarde said the United States' third round of quantitative easing - the introduction of new money supply to boost economic growth - could hurt emerging economies.

"This could strain the capacity of these economies to absorb the potentially large flows and could lead to overheating, asset price bubbles and the build-up of financial imbalances," she said at the International Monetary Fund (IMF) meetings in Tokyo yesterday.

Her view has found support from emerging economies.

It was supposed to be curtains down yesterday, but that did not stop delegates from hitting out at controversial policies like the US' decision to loosen monetary policy.

In its defence, the US argued that a strong US economy would boost global growth.

"It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,"

US Federal Reserve chairman Ben Bernanke said in prepared remarks for a seminar in Tokyo yesterday.

In a statement delivered at the meetings, Brazilian Finance Minister Guido Mantega vowed to do whatever was necessary to stop the "selfish" monetary policies of some developed nations from hurting his country's economy.

The Fed initiated a third phase of quantitative easing last month, with a plan to buy US$40 billion of mortgage-backed securities each month.

Developing countries also took potshots at the US for holding out on key governance reforms that could give them a bigger say in the running of the IMF.

Emerging economies - including powerhouses China and India - were upset that a proposal to shift 6 per cent of the IMF's voting shares to emerging economies was left undone.

Traditionally, the IMF has been controlled by the US and Europe.

Final approval for the changes has been stalled in the US Congress, with little movement expected before the presidential election next month.

The US accounts for nearly 17 per cent of votes at the IMF.

Yesterday, countries such as Brazil and China took veiled swipes at Washington, Agence France-Presse reported.

"To safeguard the IMF's legitimacy and effectiveness, we call on member countries to conclude the 2010 quota and governance reforms by completing the domestic approval process," Yi Gang, deputy governor of China's central bank, said in a statement.

The meetings in Tokyo last week saw the IMF's 188 members calling for policies to boost growth amid slowdowns in advanced economies such as the US, Europe and Japan.

Still, China indicated it might take a different tack from developed economies.

Controlling inflation is "our No. 1 job", said Yi.

 

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