COOLUM, Australia, 3 August 2007 — The International Monetary Fund (IMF) insisted the volatility shaking world sharemarkets would not hamper world growth yesterday, as concerns about the turmoil dominated an Asia Pacific finance ministers’ meeting here.
Asia Pacific Economic Cooperation (APEC) ministers meeting at a beachside resort in Queensland state’s Coolum temporarily set aside their opening day agenda schedule to discuss the ructions gripping world markets.
But the IMF was unfazed by the volatility arising from concerns about the US sub-prime mortgage market, saying it would not lower its global economic outlook.
IMF Deputy Managing Director John Lipsky said the organization stood by a forecast released last week that upgraded its global growth outlook for 2007 and 2008 by 0.3 points to 5.2 percent.
Lipsky said the IMF predicted a correction in credit markets some months ago and suggested the latest turmoil reflected a market that was becoming more risk averse.
“Market discipline, when it arrives, is almost inevitably uncertain in terms of timing, somewhat uneven in terms of impact and to the outside observer inevitably appears a bit messy,” Lipsky said. “But in the broader sense it tends to be effective ... it has not led us to think that we need to rethink our broader outlook.”
Lipsky did concede that the sharemarket reaction was a potential threat to the world economy. “We do perceive the risks to the economy are on the downside. The increase in financial volatility and the increase in energy prices have added to the risk,” he said.
“Even though our broader outlook remains very favorable, we are not trying to say there are no problems in the economy; we are saying the risks are balanced to the downside and we will be watching that carefully.”
Australian Treasurer Peter Costello said initial discussions at the two-day meeting had centered on market volatility.
“There are obvious instabilities in the global economic scene at the moment; we’ve seen it recently on equity markets, we’ve seen it on currency markets,” Costello told reporters after yesterday’s initial round of talks.
“A topic for discussion at this meeting is how to deal with this instability, what can be put in place to ensure that these imbalances don’t work out in an even more radical readjustment.”
Costello said the 21 ministers at the meeting discussed what role APEC could play in sharing experiences on coping with market upheavals, including lessons learned from the Asian financial crisis a decade ago.
“It’s timely that we’re here 10 years later to discuss the lessons learned from that collapse and to ensure that we cooperate together to avoid global imbalances affecting the region in an adverse way,” he said.
Costello said financial institutions across the region were now more robust. “The architecture is stronger than it was 10 years ago and a lot of lessons have been learnt in East Asia,” he said. “But you’d be a fool if you thought that there are no economic challenges out there.”
Costello played down recent falls in equity markets, pointing out that while the Australian market plunged five percent in the past week, it was still up seven percent for the year so far.
“Corrections happen on stock markets, stock markets are not a one-way bet, people should know that,” he said.
Australia’s sharemarket on Wednesday recorded one of its biggest falls since the 9/11 attacks in the United States but Prime Minister John Howard said the country’s financial system could withstand “ripples of this kind.”
“I am very confident that the Australian financial system is strong, stable and secure,” Howard told the Australian Broadcasting Corporation. Australian share prices closed up closed up 1.2 percent yesterday, recovering some of the 3.3 percent fall suffered on Wednesday.
