China to remain important engine for global economy

"Given these trends, we have good reason to feel optimistic about the prospects of the BRICS Development Bank and believe the new bank can be an important source for investment financing," said the IMF chief, adding the bank could play an instrumental role in addressing existing infrastructure gaps -- a key constraint to growth in many of the BRICS economies.

In this regard, she considered as "welcoming developments" the newly established multilateral banks that make decisions based on economic principles and complement existing development banks.

The IMF chief has previously depicted the global economy as " new mediocre." In the interview, she expressed the urgent need to take actions to prevent the global economic supertanker from remaining mired in the shallow waters of sub-par growth and meager job creation.

She called on countries to implement the ambitious commitments made at the Group of 20 (G20)'s Brisbane Summit in November, invest in structural reforms decisively, and ensure that growth is inclusive.

As a strong advocator for infrastructure investment which is also a major part of the G20 growth agenda, the IMF stressed close collaboration and coordination among existing efforts and new initiatives will help bridge infrastructure gaps and unlock the economic potential of countries in the region.

IMF research has shown that increased public infrastructure investment raises output in the short term by boosting demand; and in the long term by raising the economy's productive capacity.

In regard to recent strong performance of the US dollar, the IMF chief warned "we should pay attention to those economies whose corporations or sovereigns have borrowed extensively in dollars over past few years and may have unhedged exposures."  

IMF reforms to move forward

As US Congress failed to ratify the IMF 2010 reforms again and again, Lagarde said the IMF is now working actively on interim measures in order to achieve the key objectives of the 2010 reforms. The IMF will explore interim steps in more detail with its membership at its Spring ministerial meetings in April.

To reflect the growing and underrepresented influence of the emerging economies, the IMF 2010 reforms call for a 6 percent shift in quota share to emerging economies. It will lift China to the third largest shareholder. Shares for Russia, India and Brazil will also see hefty rise.

Lagarde said ratification of the 2010 Reforms remains the highest priority for the IMF and is critical to the IMF's credibility, legitimacy and effectiveness, and to ensure it has sufficient permanent resources to meet members' needs.

As for the possible inclusion of Renminbi (RMB) in Special Drawing Rights (SDR) basket, Lagarde said a regular review of the currencies in the basket is scheduled later this year. The selection of currencies for the SDR basket is based on two main criteria: the size of a country's exports and whether its currency is freely usable.

At the time of the last SDR review in 2010, the RMB met the export criterion, but was assessed to not meet the freely usable criterion. Since then there have been a number of developments regarding the RMB's international use, and the upcoming review will take stock of these developments, Lagarde said.

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