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GRK Murty
So, the emerging reality is: if the global economy has to move towards
a steady long-run growth, these imbalances have to be rebalanced.
There are, however, opposing views as to how this feat is to be
accomplished. Emerging market economies, such as BRIC countries,
worry that advanced countries will use exports to reduce their
imbalances at the expense of emerging economies’ exports rather than
address their structural problems. On the other hand, advanced
economies see the exchange rate of major emerging economies, such
as that of China, as manipulated to keep it low to nurture their export-
led growth model.
So, the only way forward for rebalancing the global imbalances is for
the creditors (surplus nations) and debtors (deficit nations) to sit
together and, as suggested by Mervyn King, discuss about the right
speed of adjustment to the real pattern of spending and arrive at a
consensus; else, policies will invariably conflict. Simultaneously, policy
tools regarding exchange rates, control of capital flows, plans to raise
savings rate in deficit countries, structural reforms needed to boost
domestic consumption in surplus countries, and the role and
governance of international financial institutions must be devised for
uniform practice. Unless the problems are dealt with collectively, we
might unwittingly pave the way for the next financial crisis.
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