y v reddy : the global economy and financial markets - sustaining the recovery statement by dr y v reddy, governor of the reserve bank of india and leader of the indian delegation on behalf of bangladesh, bhutan, india and sri lanka, to the international monetary and financial committee ( imfc ), washington, dc, 24 april 2004. * * * mr. chairman the global economic environment has improved significantly since we met last september in dubai when the outlook for the global economy was weighed down by some uncertainties and risks. the recent strengthening of the global recovery process has been led by buoyant growth in emerging asia, especially china and india and, of course by a robust turnaround in the us. incipient recovery appears to have set in in the euro area while the economic activity in japan has exceeded expectations. the resurgent growth in many emerging market economies ( emes ) is now accompanied by significant resilience and emes are now positively contributing to the world growth. the determinants of global growth and the policy requirements for sustaining the present momentum, both at regional and multilateral levels, need to be evaluated in the light of this beginning of a significant rebalancing of economic strengths and activity. the improved global recovery has been accompanied by a strong acceleration in world merchandise trade, particularly from emerging asia, japan and euro area. with renewed improvement in sentiment, investment has also picked - up in most regions, which should in the normal course augur well for sustaining the recovery process. reflecting improved investment opportunities and receding systemic risks, capital flows to emerging markets have also improved. at the same time, the risk of deflation in several industrial countries has begun to subside with growing recovery and rising commodity prices. risks have been mitigated by improved liability management through readjustment of maturity structure of external debt, build up of foreign exchange reserves, and improved credit quality. the domestic bond market has also received added fillip in many countries. international financial markets have remained orderly and buoyant. while resilience against shocks in emes has strengthened, it is still an open question whether the anecdotal “ herding behaviour ” of investors is tempered by the “ maturation process ” of the investing community across the globe. this factor continues to be a critical issue for policy - makers in emes. although overall global growth prospects have improved markedly, uncertainties still remain. significant challenges and risks which still persist include possibilities of disruptive global currency adjustments, continued

of sound macroeconomic policies and structural reforms in the context of the continuing ceasefire, and improvements in the global economic environment. the international community has extended support for the government ’ s economic progress and peace process. there were elections in early april and a new government is in place. the sri lankan authorities are committed to making further progress on the peace front, growth and poverty reduction and to sustain macroeconomic stability. the new government will continue discussions with the fund on the poverty reduction and growth facility / extended fund facility ( prgf / eff ) arrangement. bangladesh has continued steadfast implementation of reform measures under the prgf program with a view to moving the economy to a higher and sustainable growth path. substantial progress has been made in implementing an ambitious agenda of reform measures. a composite strategy is being pursued to mitigate the risks arising from the scheduled phasing out of mfa quotas at end - 2004. some differences, which are inevitable in a democracy, should not make the international community feel that the country ’ s commitment to economic reforms is lagging. bangladesh values the financial and technical assistance from the international community. bhutan continues to experience strong macroeconomic performance with a robust real gdp growth and subdued inflation. keeping in view the strategy to benefit from integration with the rest of the world and through membership of multilateral bodies including the world trade organization ( wto ), bhutan is undertaking important structural reforms and strengthening the institutional framework. crisis prevention and imf surveillance across the membership : priorities, tools and modalities we welcome the initiatives taken by the imf to strengthen the overall framework of bilateral and multilateral surveillance. the recent initiatives undertaken by the fund including the proposal to integrate the ‘ balance sheet approach ’ into fund operations, the proposal to redesign the framework for debt sustainability in low - income countries and the recent decision to further strengthen data provision under imf ’ s article viii section 5, reflects the fund ’ s commitment towards adopting an effective framework for vulnerability assessment. while the above measures will help member countries to strengthen their statistical systems and for the fund to enhance the value of country - specific information system, it is essential to emphasize that the cooperative and voluntary nature of data provisioning as laid down under the article needs to be preserved. for strengthening surveillance, we welcome the thorough analysis of its various dimensions proposed for the next biennial review, including an impact analysis in select countries. we welcome a separate study on impact analysis. there is an increasing feeling that the framework of surveillance should be more focused in