IMF warns of challenges for emerging markets

ANKARA

International Monetary Fund Managing Director Christine Lagarde warned in a speech Wednesday that emerging markets were to face increasing economic challenges as global growth slowed.

Speaking in Jakarta, Indonesia, Lagarde pointed out that turbulence in one emerging market could rapidly lead to a crisis for many. Currency devaluations in China in August have driven stocks lower around the world, and have put pressure on emerging market currencies.

"What has been demonstrated in the last few weeks is how much Asia is at the core of the global economy, and how much disruption in one market in Asia can actually spill over to the rest of the world," Lagarde said.

Lagarde warned that the global growth this year would be "likely weaker" than the IMF forecast for 2015 at 3.3 percent.

"Now you are feeling the impact of China’s rebalancing, Japan’s continued slow growth, and falling commodities prices. You are facing the prospect of higher U.S. interest rates. My message today is that there is reason for continued confidence in the region," she said.

Lagarde proceeded to provide what she believed to be essential policies for a sound economic outlook, such as reining in excessive credit growth or allowing the exchange rate to act as a shock absorber.

Lagarde also called for vigilance from regulators to avoid future crises.

"Deeper financial systems can provide a shield against volatility, but they must also be well-regulated financial systems. That means remaining vigilant to new sources of systemic risk such as shadow banking [financial activities not subjected to regulatory oversight]," she said.

"Private investment also must be built on the foundation of an attractive business environment. That means improved governance -- well-designed and transparent regulations and an intolerance of corruption. This can strengthen the expectation that risk and return will be able to achieve the right balance," Lagarde explained.

“Financial markets in a few short weeks have underlined the value that we all attach to financial stability -- and what we must do to preserve it," Lagarde said.