Chief World Bank economist urges poor nations to brace for fallout

Asian Economic News, Oct 20, 2008

TOKYO, Oct. 20 Kyodo

The chief World Bank economist urged developing countries Monday to implement appropriate monetary and fiscal policy so as to mitigate the negative impact of the ongoing global financial crisis.

Justin Yifu Lin, 56, a Chinese national who became the bank's first chief economist from a developing country in June, said in his speech at a Tokyo seminar that developing nations should ease their credit grip and adopt an expansionary fiscal policy to deal with an expected ''sharp slowdown'' in their economies.

''The slowdown is not only in developed countries,'' Lin said. ''It will also become a sharp slowdown in developing countries -- even to sometimes a banking crisis and financial crisis.''

''The key for developing countries under this kind of global situation is to adopt counter-cyclical policies in order to maintain their growth,'' he said, referring to steps to cope with economic downturn.

Lin, also the bank's senior vice president, said developing nations can relax their monetary policy now that global commodity prices have dramatically declined, helping to ease inflationary pressure.

Lin said developing countries are likely to see excess capacity as their economies slow and said they ''need to find a way to stimulate their economy'' and increase demand.

He said those economies must invest in infrastructure projects and enhance social safety nets.

Lin stressed it is necessary that developing countries to ''prevent contagion (of the crisis) to the financial sector'' and urged them to ''find a way to recapitalize banks to stabilize their banking sector.''

Lin welcomed Japan's initiative to contribute funds to the International Monetary Fund to help offset the expected decline in private capital flow for countries experiencing problems with their balance of payments.

Japanese Finance Minister Shoichi Nakagawa said at an IMF panel meeting earlier this month that Tokyo is ''ready to supplement necessary funds'' to support affected developing economies.

Lin presented a positive view on the course of the Chinese economy, saying the fast-rising emerging economy is likely to maintain annual growth of 8 to 9 percent despite the financial crisis.

Even though China's exports will be hurt, Beijing can benefit from boosting domestic investment with an emphasis on infrastructure and other projects in rural areas, he said.

Lin is a Taiwan-born economist who defected to China in 1979. He is a founding director of the China Center for Economic Research at Peking University.