Opinion
97
David H. McCormick
under-secretary of the us Treasury for International affairs
A relationship strengthened by crisis
I
N recent years, emerging-market countries, including those assessing root causes and determining appropriate policy
in asia, have made impressive strides in strengthening responses can undermine the IfIs’ credibility and reduce the
their fundamentals, accelerating their economic growth and capital available to assist other countries in need.
cushioning themselves against external shocks. nevertheless, When resources are needed, however, the IfIs are a logical
as the events of recent months have shown, emerging markets place to turn, and they must show flexibility and adaptability to
are not immune from the current bout of global financial turmoil. help their member countries. both the International Monetary
In particular, slowing global economic demand poses fund and the World bank have taken encouraging steps to
daunting challenges for many asian economies, especially develop new programs and approaches and quickly increase
those that are more dependent on export-led growth. While most their commitments. The IMf recently established the short-
asian countries have had relatively limited direct exposure to Term Liquidity facility to help strong-performing members
mortgage-related assets, deleveraging by foreign investors and facing temporary liquidity problems. The World bank and the
slowing external demand have simultaneously created tighter multilateral development banks are also developing innovative
credit conditions and lower expectations for growth. This has led ways to strengthen country financial sectors and address
to heightened volatility in equity, money, and debt markets. potential shortfalls in trade finance.
These developments put to rest the notion of “decoupling,” Third, as the IfIs play an even more crucial role, further
the idea that economic growth in emerging markets, whether in delay in reforming them to include major emerging-market
asia or elsewhere, is independent from that of the developed economies will only harm their effectiveness and legitimacy. but
world. as the current crisis makes painfully clear, in this era of greater representation is not a one-way street: with greater voice
global trade and investment, our economies − and our prosperity and influence, emerging-market countries must assume greater
− are inextricably linked. In order to maintain strong economic leadership responsibilities and act as constructive partners in
growth in america, we need a strong, growing asia, just as these institutions.
asia’s success depends on a thriving us. fourth, governments and the IfIs cannot solve this crisis
The us-asia economic partnership can be strengthened alone, and they cannot and should not crowd out the private
if we heed the lessons that we have already learned from the sector. In situations where government intervention is necessary,
ongoing turmoil. undoubtedly, much of the current situation will we must consider specific ways in which the private sector can
be best understood with the benefit of time, but five lessons assist in the recovery. for example, the us has helped promote
are already coming into focus, and we should consider their financial-sector stability with direct capital injections, but
implications for the choices policymakers will make in the future. ultimately it is the banks that must resume responsible lending
first, openness to international trade and investment has to consumers and businesses. Moreover, the us Treasury has
been and will continue to be the linchpin of economic growth structured its Capital Purchase Program with disincentives for
for the global economy. The us and asia are more mutually long-term government ownership.
dependent than ever for their economic growth and prosperity. finally, both asia and the us must remain focused on
In the current climate of anxiety and uncertainty, policymakers addressing the fundamental macroeconomic policy challenges
must ensure strong communication and coordination, avoid that contributed to the crisis. some of these challenges, such as
beggar-thy-neighbor policies, and guard against protectionism. the buildup of global imbalances, have been discussed for many
fortunately, as the crisis has worsened, global policymakers years. The turmoil has led to a gradual rebalancing, with the us
have responded with coordinated policy action. The G-7 action current-account deficit beginning to narrow and emerging markets
plan aims to restore the flow of credit by securing interbank taking steps to boost domestic demand. but we must guard
lending, and coordinated central bank actions have provided against the re-emergence of significant imbalances, which means,
unprecedented levels of liquidity to the market. bilaterally, in part, assuring the exchange-rate flexibility that must play a
the strategic economic Dialogue (seD), which has been an critical role in allowing needed economic adjustments to occur.
invaluable forum for building us-China economic relations, Many of the important steps taken to stabilize the global
has been especially important in strengthening our lines financial system and economy, as well as to address the root
of communication and cooperation during the crisis. and causes of this crisis, will be achieved through the G-20. It is also
many policymakers around the world have reaffirmed their clear that the us and asia will be at the center of any effective
commitment to completing a successful Doha trade round and multilateral action. We must therefore seek to enhance our
refraining from raising new barriers to trade and investment. cooperation and leverage our regional, multilateral, and bilateral
second, it is also clear that developed countries must act dialogues and relationships to ensure the integrity and efficacy
rapidly and in concert to minimize the impact of the crisis on of these efforts.
emerging markets. as is always the case, however, resources The road ahead will not be easy, but the us-asia economic
alone cannot solve problems rooted in weak policies. before partnership will be at the heart of our recovery. and our
we provide financial assistance, whether bilaterally or through economic relationship will no doubt emerge even stronger as a
the international financial institutions (IfIs), we must determine consequence of weathering this storm together.
the underlying cause of economic vulnerability and ensure
necessary corrective action. Lending large sums before
Exclusive Macau Business / Project Syndicate
february 2009
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