Daejeon, KOREA July 12, 2010 (LBO) – Asian economies must prepare to face huge and highly volatile capital flows and possibly more economic shocks given recent problems in Europe, the International Monetary Fund has warned. The sharp rebound in capital inflows, and related risks of overheating and credit and asset bubbles, remain key challenges for Asian policymakers, IMF Managing Director Dominique Strauss-Kahn said.
A global financial safety net was needed to avoid the possible destabilising effects of volatile capital flows, he told Asia 21, an IMF conference on Asia’s emergence in the global economy which began in the South Korean city of Daejeon Monday.
“We know capital flows can reverse quickly in times of panic, even from countries with sound macroeconomic and financial conditions,” Strauss-Kahn said.
“Huge amounts of money may flow from one county to another. So an effective financial safety net is absolutely essential for a more stable global economy.” He said it was an important objective for Asia with South Korea providing the “intellectual leadership” on the reform effort in the G-20 group of countries.
Strauss-Kahn also warned that while Asia was recovering faster and more strongly than dev