A quarterly magazine of the IMF

June 2006, Volume 43, Number 2

From the Editor

Harnessing the winds

The IMF–World Bank 2006 Annual Meetings in September will be held in Singapore, one of the financial centers of Asia—the fastest-growing region in the world. Asia has recently contributed close to 50 percent of world growth, and its share of world GDP exceeds that of the European Union and the United States on a purchasing power parity basis. In the years ahead, Asia is expected to account for an even bigger slice of the world economy, thanks in large part to fast-growing giants China and India. And it is bound to make headlines as the major global economic powers try to figure out how to reduce hefty global current account imbalances—a problem that the IMF has been asked to help its members resolve through multilateral consultation. At the same time, Asia will be pushing hard for a voice in the IMF commensurate with its greater role in the global economy.

The June issue of F&D explores how Asia can harness its winds of change. A series of IMF contributors probe Asia's biggest challenges: preventing future crises, strengthening regional integration, seizing the opportunities created by China's and India's rapid emergence, ensuring that the benefits of growth are more evenly shared, and contributing to the resolution of global imbalances. From Singapore, Raymond Lim, Minister for Transport and Second Minister for Foreign Affairs, observes that Asia, driven by China and India, is rising, becoming more integrated and globally connected. He says Asia must "ensure that its rise as a global economic powerhouse is not a threat to the security or prosperity of other nations and regions." From Hong Kong, Andrew Sheng, former chairman of the Hong Kong Securities and Futures Commission, observes that nine years after East Asia's financial crisis, the region's financial markets still haven't fully tackled their problems of inefficient intermediation and poor risk management. He argues that Asia must undergo "a fundamental change in mindset."

* * * * *

Also in this issue, we explore IMF studies on financial integration in the European Union (EU) and financial development in Africa. In "EU: From Monetary to Financial Union," we are told that although Europe has made major progress in creating a single market for wholesale financial services, its retail financial markets remain fragmented. In "Adding Depth," we learn that if Africa is to sharply boost growth, it must strengthen its financial sectors, which are among the least developed in the world. Indeed, at a time when most of the world is moving toward electronic banking and debit and credit cards, African economies still rely on cash.

In Straight Talk, Raghuram Rajan asks why poor countries remain stubbornly underdeveloped. He believes that poor political institutions get too much blame. Instead, he argues that many poor countries are so riddled with inequality that no reform path commands obvious support and that the status quo persists despite being extremely inefficient. The solution? Fix the constituencies and not just the constitutions! That is, imitate Korea and a number of fast-growing Indian states that undertook serious land and education reforms before their takeoffs. "The free-access economy," he counsels, "may be a necessary stepping-stone to the free-enterprise economy."

Laura Wallace
Editor-in-Chief