Don't draw wrong lessons from India and China

By siliconindia   |   Tuesday, 20 October 2009, 22:06 IST   |    23 Comments
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Don't draw wrong lessons from India and China
Washington: The U.S. Federal Reserve Chairman Ben Bernanke has stated that the Asian countries should not draw lessons from India and China, as they have expanded even at the time of global economic slowdown, having "least financially open" economies. He said that such closed economies will supress the chances for greater growth. "At this point, while risks to the economic outlook certainly remain, Asia appears to be leading the global recovery," said Bernanke at an Asia economics conference in Santa Barbara, California. Bernanke said that as the countries with the most open economies, such as Singapore, Hong Kong, and Taiwan took the biggest hits as a result of the turmoil, and China, India and Indonesia, which are "among the least financially open" economies, expanded throughout the crisis. He said that greater global integration increases vulnerability to worldwide economic shocks, and also expressed his concern that Asian nations could draw the wrong lesson. According to Bernanke, greater openness would promote stronger growth over the longer term. "Protectionism and the erecting of barriers to capital flows should thus be strongly resisted. Striking a reasonable balance between trade and growth in domestic demand is the best strategy for driving economic expansion," said Bernanke. Bernanke blamed the imbalances partly for the recent financial crisis, as Asia has relied too heavily on exports for economic growth, while the U.S. has relied too much on spending. "To achieve more balanced and durable economic growth and to reduce the risks of financial instability, we must avoid ever-increasing and unsustainable imbalances in trade and capital flows," he said. The Asian economies had managed to recover quickly from the 1990s crisis because of exports, opined Bernanke, and cautioned that "too great a reliance on export demand can also pose problems." Spending in the U.S. and other advanced economies have fallen as a result of the crisis, lowering the U.S. current account deficit to less than three percent of Gross Domestic Product (GDP) in the second quarter from five percent of GDP in 2008. Bernanke also backed a call by the G20 leading economies including India to rebalance the global economy, and said that the Asian nations should put in place policies that discourage excess saving and boost consumption.

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