Highlighting global economic performance in recent times, the Deputy MD said, "We've just experienced the fastest four-year period of increase in global incomes in 30 years. This income growth has been shared by countries across the world. The world's two most populous countries are also among the fastest growing-and this has rescued millions from abject poverty. Sub-Saharan Africa has had growth in excess of 5% in recent years. Global growth has been anchored by strong productivity growth in many countries".
Lipsky claimed that the performance of the global economy over the last five years was even more impressive because it has come in the face of adversity.
"Those to me are the cyclical roots of the present pattern of current account balances. Structural factors have contributed as well. Globalisation of capital flows has led to the growth and deepening in financial markets. These dynamics, when seen as changes in the investor base or the 'supply side' of capital flows, reveal some key structural changes".
He mentioned three of such changes to include that first, in industrialised countries, assets under management of institutional investors (pension funds, insurance companies and mutual funds) have surged, rising from $21 trillion in 1995 to $53 trillion in 2005.
Secondly, Lipsky revealed that the home bias of the investor base has declined markedly; and that globalisation of asset allocation has gained traction with declines in informational and other barriers and advances in financial innovation that allow unbundling and re-allocation of risk.
The third structural change, he said, was that emerging market central banks and sovereign wealth funds have become key global players in cross-border asset allocation.
"These structural changes make the assessment of the 'sustainable' level of current account deficits difficult. Rapid financial globalisation enables countries to finance larger current account deficits for longer periods of time than may have been possible, say even a decade ago. Old rules of thumb about what's good and what's bad, what's sustainable and not sustainable, have come under great question", he said.
He claimed that to help the process IMF, has been holding bi-lateral discussions with countries, and also through a new process of multilateral consultations, and that the first of these consultations have brought together participants from China, the Euro area, Japan, Saudi Arabia and the United States.
"The discussion has resulted in a better understanding of the policy agenda of each participant. And we hope that this will be reflected in policy choices that are in each country's interests but also contribute to the reduction of global imbalances", he said. Lipsky assumed the position of First Deputy Managing Director of the International Monetary Fund on September 1, 2006. His current professional activities include serving on the Board of Directors of the National Bureau of Economic Research. Prior to joining the IMF as First Deputy Managing Director, Mr. Lipsky served as a Director of several corporations and non-profit organisations.
Source: This Day Online
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