West Could Learn Lessons from Asia, Says IMF Chief

Resilient Asia still vulnerable to negative global economic developments

Greater intra-regional cooperation needs careful economic management

Asia has growing regional and global role

Addressing the Malaysian Economic Association in a packed session in the Malaysian capital, Kuala Lumpur, during her first visit to the country as head of the IMF, Lagarde said that in the face of slowing growth, the United States and Europe had “a special responsibility to act.”

“The West can learn from Asia’s own brush with crisis in the 1990s,” said Lagarde.

“Asia’s economic foundations became safer, sounder, and more resilient—but still open to the world and open for business. This has important lessons for the advanced economies currently facing severe challenges,” she said.

Greater intra-regional cooperation

In Lagarde’s speech on “Asia and the Promise of Economic Cooperation,” the IMF head told the audience at Malaysia’s central bank auditorium that Asia could also enhance its own economic strength through greater intra-regional cooperation.

The IMF head pointed to the fact that more than 90 percent of cross-border portfolio investment flows in the region covering the Association of Southeast Asian Nations were with advanced economies outside Asia.

“Asia—with its current account surplus—is simply not investing enough of its savings in itself,” she said.

Lagarde said that Asia had already made great strides in trade integration. Over the past decade, trade within Asia has tripped and regional trade among emerging Asia has grown even faster.

The IMF chief added that the region could benefit from greater financial integration. This could boost domestic demand—partly by making it easier for small business to gain access to credit. It could make economies safer by allowing more insurance against volatility and adverse developments.

Lagarde said that greater integration also made it imperative to pursue inclusive growth. “In a more integrated world, it is sometimes too easy for people to get lost or forgotten. In such a world, it becomes even more important to make sure that growth benefits everyone,” she said.

Benefits of financial integration

Greater financial integration could help promote more spending on health and education, improve pension and unemployment schemes, help raise minimum wages, and improve access to financial markets, she said.

Lagarde acknowledged that greater financial integration came with greater risks, but “economic...