India’s central bank governor has hit out at the US and other industrialised countries for running selfish economic policies as their recovery leads to turmoil in emerging markets.
Speaking a day after the Federal Reserve took the latest step in withdrawing the monetary stimulus that fuelled inflows into developing countries, Raghuram Rajan said emerging markets helped pull the world out of the 2008 financial crisis and should not be ignored now. India, Turkey and South Africa have all raised interest rates this week.
This was in part to stop sharp devaluations fuelling inflation as investors switch into recovering developed countries such as the US.
Yesterday, the US reported an annualised pace of 3.2 per cent growth in the last quarter of 2013, validating the Federal Reserve’s decision to taper its asset purchases.
"International monetary co-operation has broken down," Mr Rajan, a former chief economist at the International Monetary Fund (IMF), said in a Bloomberg India TV interview, two days after the Reserve Bank of India raised its main interest rate by 25 basis points to 8 per cent.
“Industrial countries have to play a part in restoring that [co-operation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment.”
Mr Rajan's comments reflect the growing dysfunction of the international G20 process which now lacks the urgency of crisis summits in 2009 and 2010.
The US Congress recently refused to ratify a long-planned quota increase for the IMF that would give more say to emerging markets.
This week the Fed slowed its asset purchases without mentioning the volatility in emerging markets.
Mr Rajan said policymaking should be more co-ordinated, as it was during the crisis when emerging markets helped industrialised nations cope with their weakening economies.
“Emerging markets tried to support global growth by huge fiscal and monetary stimulus,” he said. If industrialised nations insisted on developing countries going it alone, then they “may not like the kinds of adjustments we will be forced to do,” he said.
“We need better co-operation and unfortunately that has not been forthcoming so far.”
Jahangir Aziz, chief Asia economist for JPMorgan, said: “[Mr Rajan] is articulating a concern that all central bankers in the fragile five will be telling you.”
Most analysts believe the sell-off in emerging markets currencies was triggered chiefly by country-specific problems and by fears of a slowdown in China.
(Copyright The Financial Times Limited 2014)
