The recent bout of financial turbulence in emerging markets should be a “wake-up call” for governments across the developing world that need to implement structural economic reforms, says the OECD’s secretary-general.
Speaking at an opening session of the Group of 20 meeting in Sydney, where finance ministers and central bankers are gathering this weekend, Angel Gurria of the Organization for Economic Cooperation and Development said the winding down, or tapering, of the U.S. Federal Reserve’s stimulus package was not really behind the recent emerging markets turmoil.
Although he said the Fed’s signal that it would reduce its bond-buying program in the early summer of 2013 did cause some currency crises in the developing world, Mr. Gurria said the more recent panic – which saw India, Turkey and South Africa central banks raise their interest rates dramatically – was more a result of unimplemented economic reforms. During a short period, investors pulled more than $10-billion (U.S.) out of emerging markets, heading for less risky returns in the U.S. market.
“This is not about the tapering issue. The tapering was predictable, it was inevitable, and it was desirable,” Mr. Gurria said, noting that the stimulus was being withdrawn because of a healthier U.S. economy.
Asking who were the ones that really got hit the hardest in the last couple of months, Mr. Gurria answered his own question: “The ones with high current account deficits and the ones who still had reforms on their homework books.”
He added: “It’s a wake up call. Accelerate reforms.”
Mr. Gurria’s remarks on Friday in Sydney came as the OECD, which represents the world’s most advanced economies and seeks to encourage growth, released a new report titled “Going for Growth” that outlines various structural reforms for both developed and developing countries.
Mr. Gurria warned that the world was at risk of falling into a low-growth trap as productivity wanes, as OECD countries such as Japan age rapidly, and emerging market countries such as Brazil and India face a host of infrastructure bottlenecks and access-to-education issues.
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