Western nations can learn from Asia: IMF chief

In a lecture entitled “Asia and the Promise of Economic Cooperation”, Lagarde said Asia had risen from the Asian financial crisis stronger and more resilient on the back of sound macroeconomic and structural policies.

“Since the Asian crisis, corporate debt-equity ratios have fallen by two-thirds. Financial leverage and reliance on foreign funding are also lower. The ratio of short-term foreign debt to official reserves, a key indicator of external vunerability, fell by a third or more,” she added, citing that both public and private sector finances had been managed well.

She said that Asia was still open to the world and open for business.

“These are important lessons for the advanced economies who are facing severe challenges now,” she said.

Lagarde noted that American policy-makers must avoid the “fiscal cliff”.

“If expiring tax provisions and spending cuts were indeed to come into play, growth in the US would fall to zero or below and the rest of the world will not be immune. This policy uncertainty must be resolved and it will require all sides coming together.

“The euro zone, which is still facing a crisis, must also deliver on its policy commitments at the national and regional level fiscally, financially and structurally. And again, all players must play their part,” she said yesterday.

She urged the United States and Europe to take action, as they had a “special responsibility to act”.

On another note, she said countries were able to cooperate and collaborate with each other at the regional and global level, and via the IMF.

A regional example of Asean countries' commitment to deeper cooperation is the Chiang Mai Initiative Multilateralisation (CMIM), which is a regional financial safety net of growing importance within the global financial system.

It was designed to provide short-term liquidity support arrangement for Asean+3 member countries during a financial crisis.

The CMIM is an initiative that is a self-managed reserve pooling arrangement by member countries, governed by a single agreement.

“At the global level, Asia has a major and highly-respected voice in global economic governance, including through the G20 where it has six members,” she said.

The Malaysian Economic Association and Malaysia’s central bank hosted Lagarde’s visit to Malaysia.

Lagarde spoke on three topics: the policy agenda for advanced economies and the implications for Asia, the virtues and benefits of further economic cooperation within Asia and the broader importance of international policy cooperation.