SINGAPORE, 7 February 2007 — The economic growth of emerging markets in the past few years has been one of the most significant developments in the global economic system. However, emerging markets needs to do more to develop deeper and more liquid capital markets if they are to secure future economic development. That was the message from John Lipsky, first deputy managing director of the International Monetary Fund, (IMF).
Lipsky said that a lot had been done to strengthen capital markets since the Asian financial crisis of 1997-98 and he noted that reasonably well-developed capital markets are now in place in many emerging economies. His optimism was based on the fact that by the end of 2005, the stock of domestically issued bonds in emerging market countries amounted to $3.9 trillion, constituting an important global asset class.
He said that dedicated emerging-market US mutual funds have been growing rapidly, from $27 billion in late 2000 to about $230 billion as of mid-2006; and the stock of domestic securities in emerging market economies increased by some estimates from 26 percent to 40 percent of GDP between 1996 and 2006. He said that many emerging markets were “beginning to overcome the structural weakness and lack of market credibility that many experts assumed was more or less permanent, and which it was claimed relegated these economies to borrowing internationally only in foreign currencies.”
The IMF official argued that, “The growing internationalization of emerging market securities reflects important structural changes taking place in the global economy and in global markets.” Growing integration and new role of emerging market countries in the global economy, and the growing sophistication of financial markets and risk management, represented the unexpectedly benign economic and financial environment of the past few years and Lipsky observed, “We’ve had the fastest five-year period of global growth in recent times.” He said that emerging market economies had the opportunity to develop their financial markets: “It is essential that they fully capitalize on this unusual moment.”
Many emerging economies were praised for taking the right steps for having substantially improved their macroeconomic performance by strengthening their monetary and budget policies and by developing more complete and stable domestic financial markets.
