Political India: Engaging America

From The Hindu

The International Monetary Fund has cautioned that “global financial stability is still not assured and significant policy challenges remain to be addressed,” even four years after the onset of the largest financial crisis since the Great Depression.

The Fund also warned that the world was still very much witnessing a “two-speed recovery,” with progress in advanced economies significantly slower than that of emerging markets.

Releasing updates to two closely-watched reports, on “Global Financial Stability” and “World Economic Outlook,” the IMF voiced concern that for many key financial institutions “Balance sheet restructuring is incomplete and proceeding slowly, and leverage is still high.”

According to the IMF the interaction between banking and sovereign credit risks in the euro area remained a critical factor, and policies were needed to tackle fiscal and banking sector vulnerabilities.

At the global level, regulatory reforms were still required to put the financial sector on a sounder footing even if accommodative policies in advanced economies and relatively favourable fundamentals in emerging market countries had spurred capital inflows.

In the emerging market countries the Fund recommended that policymakers “will need to watch diligently for signs of asset price bubbles and excessive credit.” However it added that unlike advanced economies, where growth remained subdued and unemployment high, emerging economies were still buoyant.

In fact the scenario in emerging economies was beginning to suggest that inflation pressures were emerging, the IMF said, and there were now some “signs of overheating.”

Exhorting Euro area policymakers to embark on “comprehensive and rapid actions to overcome sovereign and financial troubles,” the IMF noted that such action would be essential to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally.