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"What has been demonstrated in the last few weeks is how much
Asia is at the core of the global economy, and how much
disruption in one market in Asia can actually spill over to the
rest of the world," Christine Lagarde told a conference in
Indonesia's capital.
World stock markets and the currencies of many emerging markets
have seen large swings since China's decision last month to
devalue its currency.
Lagarde said the world economy was facing headwinds from China's
rebalancing, Japan's slow growth, falling commodity prices and
uncertainties surrounding higher U.S. interest rates.
Policies need to be tailored to each country, Lagarde said, but
mostly they would involve strengthening defenses with prudent
fiscal policy, reining in excessive credit growth, aligning
exchange rates to act as shock absorbers, maintaining adequate
foreign exchange reserves, and strengthening regulation.
"The authorities and the supervisors constantly have to remain
vigilant particularly when there are those new and innovative
products...those risks have to be under the watch of the
supervisors, be they in traditional banking, be they in these
disruptive banking systems or in these shadow banking systems,"
Lagarde said.
The IMF managing director, who is attending a conference on the
future of financing for development, said international
institutions, such as China's Asia Infrastructure Investment
Bank (AIIB), the Asian Development Bank and the World Bank,
should work together to meet the region's large infrastructure
financing needs.
(Reporting By Randy Fabi, Gayatri Suroyo and Nicholas Owen;
Editing by Simon Cameron-Moore)
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