Global Challenges, Global Solutions: Some Remarks - Lead intervention by Dr. D. Subbarao, Governor, RBI, at the IMFC, IMF, Washington D.C on April 16, 2011

posted 29 Apr 2011, 05:01 by CA Naresh Shah

1.  Recent experience suggests that globalization offers incredible opportunities but also poses immense challenges.  If the years before the global financial crisis - the period of the so called ‘Great Moderation’ - demonstrated the benefits of globalization, the devastating toll of the crisis showed its costs.  Just as in the case of an economy, there are price setters and price takers, in the international economy too, there are economies which shape the forces of globalization and those that have to shape their policies to adjust to those forces of globalization. The post-crisis reform effort - whether here at the IMF or at the other global fora such as the BCBS, FSB, WTO - is all aimed at managing the forces of globalization for maximizing our collective welfare. For these reforms to be sustainable, it is important that they are even handed as between those who shape the forces of globalization and those who have to adjust to the forces of globalization.

EMEs in the Global Context

2. Before I get to specific issues, let me make a brief comment on EMEs in the global context. The shift in the global balance of power in favour of EMEs is by now a familiar story. It may be useful to put some numbers around that. Setting GDP at 100 in the base year of 2000, against the aggregate growth of 17 per cent in the decade 2000-10  of advanced economies, emerging market and developing countries (EMDCs) grew by 82 per cent and BRICs (Brazil, Russia, India, China) by a whopping 127 per cent. When we look at shares in global GDP, the share of advanced economies in the global GDP dropped from 80 per cent in the year 2000 to 67 per cent in 2010, with a mirror increase in the share of EMDCs.

3. 2010 was a year of recovery, and EMEs powered this by contributing to nearly three quarters of global growth in 2010. EMEs were also the motive force behind the estimated expansion of world trade by 12 per cent last year, an impressive reversal from shrinkage of 11 per cent in 2009.

4. These trends have an interesting implication for the decoupling hypothesis, which was intellectually fashionable before the crisis.  As a matter of fact, the crisis failed to validate the decoupling hypothesis, as all EMEs were affected, admittedly to different extents. What the crisis, in fact, reinforced is that the economic prospects of advanced economies and EMEs are interlinked through trade, finance and confidence channels.  

5. Let me now move on to specific issues. In the context of the theme of the session, I want to address five topics which are all interconnected

CA Naresh Shah,
29 Apr 2011, 05:02