A “real danger” of economic boom and bust hangs over several Asian countries, and they must tighten monetary policy further to avoid them, IMF deputy managing director Naoyuko Shinohara has said.
In an interview with Emerging Markets in Hanoi, Shinohara also stressed the need for governments in the region to pay more attention to issues of economic and social “inclusiveness” in their policies and budgetary allocations.
Some debate at the ADB annual meeting will centre on “various kinds of risk to the global economy”, and “inflationary pressures and the risk of overheating” will figure in this discussion, Shinohara said.
“Headline inflation is moving up, mainly because of the increase in commodity prices, although core inflation is not that high – yet,” he noted.
“If you look at the stance on monetary policy, some countries are still a little bit slow [to react]. In some countries there is room to tighten monetary policy, in order to prevent inflation coming to the fore,” he said, although he declined to specify which countries.
Shinohara acknowledged that Asian nations face a “delicate task” in trying to balance the need to keep inflation in check with the equally important need to keep economic growth on track.
“The question is: will the output gap disappear this year? It is important to have [appropriate monetary policy] otherwise you might have boom and bust [situations] arising.
“This is a real danger. Monetary policy should come back to neutral or a little tighter.”
Shinohara also underlined that “inclusiveness [...] is important for all of us” in economic policymaking. “We have seen problems in the North Africa and the Middle East over issues of distribution. Economic growth itself is not enough.”
ADB president Haruhiko Kuroda this week drew attention to the need for development policies to focus more on inclusiveness in order to ward off possible social stresses in Asia.
The IMF is “mainly concerned with macroeconomic frameworks”, Shinohara said – but these also impact issues of inclusiveness.
“We are interested in expenditure frameworks: budgetary expenditures, social safety nets and how to increase productivity. Many things can contribute [to addressing inclusiveness]”.
Shinohara said he was confident that the IMF can work together smoothly with regional monetary arrangements such as the Chiang Mai Initiative Multilateralized (CMIM), which is in effect a quasi-Asian monetary fund.
The IMF and regional arrangements both have their own “comparative advantage”, and by working together can “add value”, he said.
He dismissed the idea of a possible conflict developing between loan “conditionality” as defined by the IMF and that imposed by regional financial arrangements.
The IMF and the European Financial Stability Fund cooperated well on the conditions to be imposed on borrowing countries such as Greece and Ireland during the European financial crisis, he noted. The important thing is to have “consultations in advance”, he added.