Seoul, May 31: The heads of the Federal Reserve and the European Central Bank on Monday both singled out emerging economies as key to global financial stability.
Federal Reserve Chairman Ben Bernanke said the world economy depends ever more on emerging markets to maintain strong domestic growth and economic and financial stability.
“Improvements in emerging market policies and policy frameworks … have ramifications beyond the emerging market economies themselves,” he said in videotaped remarks prepared for delivery to a conference sponsored by the Bank of Korea.
Bernanke did not discuss the outlook for the U.S. economy or interest rates.
His remarks were echoed by European Central Bank President Jean-Claude Trichet who said in separate videotaped comments to the conference that emerging economies have been a source of strength in the global financial crisis.
“One distinctive aspect of this crisis has been its originating in industrial economies. Emerging countries have also been severely affected, but as a group remained a source of strength for the world economy,” Trichet said in the prepared comments.
Commenting on South Korea, Bernanke said actions taken by its government and central bank since the Asian financial crisis of the late 1990s helped it weather the crisis that swept economies around the world in 2007-2009.
South Korea had amassed a budget and trade surplus and pushed banks to prepare for shocks, Bernanke said. In addition, its central bank’s move to focus on domestic price stability rather than on stabilizing exchange rates also helped the country during the turmoil.
As a result of a formal inflation-targeting regime adopted by South Korea’s central bank in 1998, it could lower rates during the crisis without scaring investors off, Bernanke said.
“In earlier crises, foreign investors were not inclined to give emerging market policy makers the benefit of the doubt when they promised low inflation and sustainable fiscal policies,” he said.
—Agencies