High US Deficits A Cause For Concern, Says RBI Governor

Mumbai, Sept 23: | Updated: Sep 24 2003, 05:30am hrs
The widening, and historically high fiscal and current account deficits in the United States pose the threat of possible disruptive adjustment of the dollar against other major currencies, Reserve Bank of India (RBI) governor Yaga Venugopal Reddy said in Dubai.

Dr Reddy was speaking at the joint annual discussion between Internationally Monetary Fund and World Bank Group. Dr Reddy was the alternate governor of the Fund for India. We recognise this as a necessary short term trade-off for realising medium-term gains. We, therefore, urge all the major currency areas to coordinate their policies and to carefully monitor currency market behaviour to minimise potential adverse repercussions on financial markets and on sustainability of global economic recovery, Dr Reddy said, adding that the recent depreciation of dollar had to some extent minimised the possibility of such disruptive adjustment.

Since April 2003, there have been signs of improvement in the global environment. The outlook for the US, euro area and Japan presents a mixed picture. If current trends are any indication, global recovery in the near-term would be led by the US, said Dr Reddy.

He expected most emerging markets to achieve economic growth. These are propelled in no small measure by stronger macroeconomic policies, structural reforms and improvements in the institutional structure, he noted, adding: It is imperative that greater resources flow into these countries to help sustain growth. The current favourable financial market conditions, no doubt, provide an opportunity for these countries to steer ahead with remaining structural reforms and achieve greater fiscal and external sector sustainability.

Among the developing countries, emerging countries in Asia continue to remain a bright spot. They have shown extraordinary resilience in the face of the recent global slowdown and continue to exhibit healthy recovery, he noted. Dr Reddy called for a greater role by the developed countries in developing countries effort to widen, deepen and make more equitable the delivery of services to the poor. Developing countries have been taking courageous steps in reforming their policy environment, improving their institutions of governance and in general, widening, deepening and making more equitable the delivery of services to the poor. Timely and productive development assistance as well as increased access to markets are required to complement and strengthen these efforts, he said. Dr Reddy said: We welcome the reforms undertaken to improve the accounting and auditing standards and corporate governance practices in the United States and the euro countries. We consider these developments as supportive of increased capital flows into emerging markets.