, if this indeed was a deliberate strategy, it is not succeeding. it is unclear how a debt restructuring would affect markets and the real economy. some argue that this would be the most practical solution for europe, while others say that, given the interconnectedness of sovereign debt markets and the banking systems in europe, this has the potential to trigger developments similar to what was witnessed around the lehman brothers collapse. the international monetary funds ’ ( imf ) latest world economic outlook and global financial stability report ( april 2011 ) reflects a recovery that appears to have solidified. however, growth on average remains below pre - crisis levels, unemployment is high, and the euro zone ’ s journey to default, 10 may 2011, ft bis central bankers ’ speeches inflationary risks have picked up. the story of the two - speed economic recovery is well known – modest growth and still high unemployment in advanced economies, contrasted with robust growth in emerging market economies, but marred by high rates of youth unemployment and rising inflation. in many emerging economies output gaps have become positive, inflation is rising and capital flows from developed to emerging economies continue unabated. the combination of weak sovereign balance sheets, weak real estate markets, high funding requirements for sovereigns and banks in advanced economies, together with overheating and booming asset markets in emerging market economies, tilts the balance of risks to growth to the downside. political and social unrest in the middle east and north africa as a result of rising food and commodity prices also threatens to add to already heady inflationary pressures. thus, while the global recovery may be on a firmer footing than a year ago, it is questionable whether growth is more balanced than before the crisis. improved growth prospects in developed countries have largely been driven by fiscal spending and loose monetary policy, although more recently, certain advanced economies have begun to reduce the fiscal stimulus and started raising policy rates. on the other hand, emerging markets reflect robust consumer spending and private sector investment. such an uneven recovery could fuel further imbalances and delay the current recovery while also sowing the seeds of future crises. 3. the global policy agenda and south africa global imbalances were one of the foremost causes of the crises and therefore, have become a significant agenda item for the g20, which effectively replaced the g8 as the leading forum for international economic co - operation and coordination. since 2008, the status of the g20 has been elevated, recognising that co - operation on a global scale

is required to successfully and sustainably deal with the crisis. to this end, the vital role of emerging market economies was recognised, and rightly so. over the past five decades, the global balance of power has shifted towards emerging - market economies, whose share of global gdp has increased alongside the decline in that of advanced economies. between 1960 and 1985, advanced economies on average accounted for about 75 per cent of global gdp ( based on purchasing power parity weights ), this share declined gradually to 57 per cent in 2009. in contrast, over the same period, the share of emerging market and developing economies increased steadily from 17 per cent to almost 40 per cent. 2 at the height of the financial crisis during 2008 and 2009, emerging markets were the sole engine of world growth. in 2009, g20 countries committed to a new framework for strong, sustainable and balanced growth ( referred to as the framework ), as well as a mutual assessment process ( map ). the framework is intended to ensure that the individual country actions contribute to a coherent path forward, while the map is intended to gauge the degree of collective consistency of g20 macroeconomic policy actions. to this end, a number of indicators have been agreed upon to enable the identification of globally systemic imbalances and to ensure that preventative and corrective action is taken timeously. the co - operation to a large extent proved to be highly effective in the immediate aftermath of the financial crisis, but is now facing some challenges given the increasingly divergent developments across countries and regions. there is wide recognition that there is a need for an adjustment in exchange rates in order for global rebalancing to occur. this process is also referred to as demand rotation and requires deficit economies to save more and consume less, while surplus economies are required to spend more and save less. surplus countries are therefore expected to shift emerging markets come of age, finance and development, december 2010, vol 47, no 4 bis central bankers ’ speeches focus from external demand to domestic demand in order to sustain growth. in contrast, deficit economies will need to rely more on external demand. this implies that exchange rates will adjust, with the exchange rates of deficit economies depreciating, while the surplus economies will need to let their currencies appreciate. as you can well imagine, this is a contentious issue amongst g20 countries, given that developed and developing economies have differing policy priorities. however, what is important is that co - ordination does exist on various economic aspects,