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In the news: De Rato prods China, India to uphold strong growth

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 2005
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During a recent visit to Asia, IMF Managing Director Rodrigo de Rato encouraged China and India to bolster their already successful growth performance by taking steps that would help their economies guard against potential external shocks and cope with growing global competition.

China

In Shanghai on March 14–16, where he attended a meeting of the IMF’s Capital Markets Consultative Group and met with Chinese officials, de Rato said China should seize this moment of economic strength and gradually move toward more exchange rate flexibility. After a meeting with Zhou Xiaochuan, the Governor of the People’s Bank of China, de Rato told a news conference that such a move would be in the interests of the Chinese people and to the advantage of the Chinese economy. He said that this shift in policy would better protect China against external shocks and make it easier to conduct an autonomous monetary policy, but added that it was up to the authorities to choose the timing.

At the close of China’s National People’s Congress the previous day, Chinese Premier Wen Jiabao reiterated China’s commitment to move to a market-based, managed floating exchange rate, but did not provide a timetable. De Rato also welcomed the authorities’ commitment to policies aimed at restraining the overheating of the economy.

India

On the second leg of his trip, de Rato visited Mumbai and New Delhi on March 17—19 and praised India’s vibrant economy, saying that the change in India is palpable: business leaders and citizens are brimming with confidence, and investors are taking note. But more needs to be done, he said, if the country is to progress at an even more dramatic rate.

Speaking at the Reserve Bank of India, de Rato observed that India is competing and winning in the global marketplace—not only in the information technology sector but also in steel production and the pharmaceutical and biotechnology sectors. He compared India’s current economic boom to the early stages of the “takeoff” previously experienced by other Asian economies. Indeed, he said, if India can boost annual growth from 6 to 8 percent annually, it can double average incomes in 11 rather than 16 years, dramatically raising living standards.

If this is to be India’s century, de Rato observed, a dynamic private sector will be essential, as will the country’s ability to thrive amid global competition. He urged the government to put its fiscal house in order and open up its economy to more trade and investment. India’s exports still account for less than 1 percent of total world exports, and average trade tariffs remain high—at about 22 percent—though plans are afoot to bring these down to ASEAN levels—around 8 percent—by 2009. The new budget makes a good start, but de Rato counseled that quicker cuts in tariffs, combined with lower nontariff barriers and an improved business climate, would allow Indian business to achieve economies of scale and fully participate in international production chains.

Some domestic sectors also need restructuring to attract investors. The country’s huge and talented pool of entrepreneurs can play a vital role, too, de Rato said, but creativity, risk taking, and enterprise must be rewarded. The continued success of India’s large textile and clothing sector, for example, will be dependent on lower trade barriers, liberalized labor laws, and reduced business regulation. These key changes, he said, would give India the flexibility it needs to adapt and flourish.

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