Dont draw ‘wrong lessons’ from India, China: US Fed chief

By Arun Kumar, IANS,

Washington : Even as Asian countries appear to be leading a world economic recovery, the head of US central bank has cautioned them against drawing “wrong lessons” from the continued expansion of countries like China and India.

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“At this point, while risks to the economic outlook certainly remain, Asia appears to be leading the global recovery,” Federal Reserve Chairman Ben Bernanke told an Asia economics conference in Santa Barbara, California Monday.

While countries with the most open economies, such as Singapore, Hong Kong, and Taiwan took the biggest hits as a result of the turmoil, he said, China, India, and Indonesia, which are “among the least financially open” economies, expanded throughout the crisis.

While conceding that greater global integration increases vulnerability to world-wide economic shocks, he voiced concern that Asian nations could draw the wrong lesson and said greater openness would promote stronger growth over the longer term.

“Protectionism and the erecting of barriers to capital flows should thus be strongly resisted,” Bernanke said. “Striking a reasonable balance between trade and growth in domestic demand is the best strategy for driving economic expansion.”

Among the risks, Bernanke pointed to the imbalances that he blamed partly for the recent financial crisis, in which Asia has relied too heavily on exports for economic growth, while the US 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,” Bernanke said.

Economies in Asia managed to recover quickly from the 1990s crisis there, thanks to exports, the Fed chairman said, but he cautioned that “too great a reliance on export demand can also pose problems.”

Spending in the US and other advanced economies has already fallen as a result of the crisis, lowering the US current account deficit to less than 3 percent of gross domestic product in the second quarter from 5 percent of GDP in 2008.

Backing a call by the Group of 20 leading economies including India to rebalance the global economy, Bernanke said Asian nations should put in place policies that discourage excess saving and boost consumption.

Bernanke said that while trade imbalances had started to narrow as US households ramped up saving in response to a deep recession eating at their wealth, he cautioned that the imbalances may begin to grow anew as the global economy recovers and trade volumes rebound.