World Bank chief economist calls on G20 to coordinate policies

Tue Feb 12, 2013 1:20am EST
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By Lesley Wroughton

WASHINGTON (Reuters) - The World Bank's new chief economist on Tuesday urged Group of 20 finance leaders to better coordinate economic policies in order to prevent a possible global currency war.

In an interview with Reuters, Kaushik Basu said G20 finance ministers, meeting in Moscow on February 15 and 16, should act on a solution before escalating tensions spark another global economic crisis.

While the risk of a sudden plummeting of the global economy had diminished because of measures adopted in Europe to ease its sovereign debt crisis, a rapid bounce-back in growth was unlikely, he said.

"We are not in a currency war but could be inching towards one," said Basu, a former chief economic adviser to the Indian finance ministry. "Global leaders need to coordinate policy to prevent either (one) from happening or markets believing it is happening. Such coordination is entirely within the realm of the possible; all it needs is determination."

He said that, while unconventional monetary policy measures by central banks in the United States, Japan and Europe to revive growth had proved valuable, the impact of those policies was "beginning to feed into the global situation".

"The need is for some global monetary and fiscal policy coordination and the G20 is the forum that could push on that, and I think it ought to take that task seriously," he added.

Advanced economies have ramped up debt and printed money, which has weakened some of their currencies and made them more competitive. Meanwhile, near-zero rates in the rich world have exacerbated the problem of hot money flows for emerging markets with high interest rates and driven up their exchange rates.

A NEW NORMAL?   Continued...

Kaushik Basu speaks during the book release "The New Oxford Companion to Economics in India" edited by Basu and Annemie Maertens, in New Delhi December 15, 2011. REUTERS/B Mathur