Reforms to prevent economic sector excesses needed

Reserve Bank of India Governor highlights way forward:

Ramani KANGARAARACHCHI

Central Bank of Sri Lanka has acquired a great reputation for professionalism, integrity and sense of purpose over the last 60 years. As Central Banks of emerging economies , both Central Bank and Reserve Bank of India have their tasks cut out for them, Reserve Bank of India Governor Dr Duvvuri Subbarao said .

Central Bank Governor Ajith Nivard Cabraal presenting ‘Retrospect 2010’ as a token of appreciation to Reserve Bank of India Governor Dr Duvvuri Subbarao at the Central Bank yesterday.

Speaking on “Frontier issues on the global agenda - Emerging economy perspective” at the Central Bank yesterday Subbarao said both countries need to learn from the best in the world, but adapt each one’s learning to the demands and culture of maturing emerging economies.

“Both countries need to remain sensitive to the core concerns of an emerging economy all the time and be at the frontiers of domain knowledge,” he said.

He said all the global crises have taken a devastating toll on global growth and welfare, and each time of crises experts have said that this time it is different claiming that the old rules do not apply and the new situation is dissimilar to the previous one.

However, it would be too costly for the world to heed this lesson and everyone should cooperate not only to firmly exit from the crisis but also to ensure not to sow the seeds of the next crisis in resolving the crisis.

He said emerging market economies have not completely decoupled from the advanced economies and their economic prospects remained linked to the prospects of advanced economies.

However, all will be collectively better off if all segments of the world grow at a sustainable pace. Elaborating on the issue of global rebalancing he said it is necessary to address three inter-related issues namely, exchange rate flexibility, capital controls and an agreement on a framework for strong, sustainable and balanced growth.

Dr Subbarao said protectionism is an important issue on the global agenda and protectionist pressures may arise again.

But global welfare will be maximized when collectively resisting short-term pressures and put long-term interest ahead of narrow short-term advantage.

Referring to financial sector reforms he said vigorous reforms in the sector are underway and the reform agenda is driven by the need to prevent the type of excesses in the financial sectors of advanced economies that led to the crisis. But emerging economies too will have to implement these reforms, he said.